How Banks Can Turn Fraud Worries Into a CX Opportunity

With fraud and identity theft on the rise, banks and credit unions can build customer loyalty by stepping up as trusted partners in security. But to compete in today’s digital world, bank security and identity verification must be effective without compromising the speed consumers demand.

The growing sophistication of criminals using the latest technology is breathtaking. Fake emails, websites and images are now almost undetectable to the average person. As a result, fraud and identity theft is once again a rapidly growing problem in banking after a pause during the pandemic.

In 2021, identity fraud (where a criminal uses a consumer’s personal financial information to achieve illicit financial gain) affected more than 15 million U.S. consumers and resulted in more than $24 billion in losses, according to Javelin Research. Additionally, losses from identity scams (which involve direct contact with the victim) exceeded $28 billion and affected more than 27 million consumers. In total: $52 billion in losses affecting 42 million consumers — just in the U.S.

During the shutdowns at the start of the pandemic, identity theft and account takeover fraud declined as criminals set their targets on PPP loans, pandemic relief payments, and unemployment insurance. Yet now that those programs have shuttered, criminals are again turning their eyes back to banks.

Unfortunately, no channel is safe in this new environment, notes Chad Gluff, Senior Director of Global Identity and Fraud Solutions for TransUnion, who spoke with Jim Marous, Co-Publisher of The Financial Brand on the Banking Transformed podcast.

For example, there’s growing fraud even in indirect lending, where fraudsters will sit down at auto dealerships for hours to fill out paperwork and ship a car overseas. Meanwhile, a surge in P2P payment fraud — particularly involving the Zelle network — is also increasing the reputational risk for banks as consumers seek to recoup their losses.

While the financial risks are significant, a greater problem may be the threat that, without action, consumers could lose confidence in digital banking and e-commerce. Due to the complex and widespread nature of such fraud, there is no single solution to address all of the threats banks and credit unions now face, said Gluff. “It’s a combination of data and technology.”

The Race Goes On:

Fraud and identity theft are rising, making identity verification a crucial part of security and customer service.

The message to the market is to make sure you’re prepared, understand that while the activity might have gone away a bit during Covid, the fraudsters have come back to financial institutions because that’s where the money is, Gluff stated.

Listen to the Podcast: Identity Fraud is a Customer Experience Opportunity

The Challenge: Fraud Barriers That Don’t Slow Digital Banking

Robust security and protection against fraud are now essential to the customer experience. Yet while it’s critical to address fraud, such transactions represent only a tiny portion of transaction volume at most institutions, said Gluff. Therefore, fraud solutions must put up enough measures to identify suspicious transactions without impeding speed and efficiency for the overwhelming majority of those that are legitimate.

While 65% of consumers say data security impacts their trust in financial service providers, 80% say that trust also hinges on a good user experience, according to a survey by Additionally, 44% of consumers say the ability to log in without passwords has a significant impact.

The Catch-22 of Security:

Banks have to put up as many barriers to fraud as they can without impacting the experience of legitimate users.

The winning institutions will be those that provide a high level of security that is invisible to most consumers and enables them to transact as quickly as possible.

Realizing how big the problem is, many financial institutions have improved their identity verification efforts beyond what was previously “just checking the box for KYC compliance,” Gluff said. However, as criminals become smarter and more sophisticated, these systems must be continually stress tested. “The worst thing you can do is end up with a reputation in these fraud rings that you’re an easy target.”

Read More:  Improved Digital Account Opening Must Be a Top Priority for 2023

Digital Identities Speed Account Openings

Digital identity is an online representation of a person. It is a critical part of banking now and includes how a person interacts online, the things they do and the devices they use. While banks have used various means to verify identities, they have typically been cumbersome and slow.

In recent years, data companies have begun tying digital identity to offline personas that match name, birthday, Social Security number or other verification information. This is then compared to that user’s history of device usage, behavior, and communication habits. Transunion, for example, has more than 200 million files profiling nearly every active credit user in the United States, so it can do this quite efficiently.

In an optimal situation, this all works in real-time, instantly performing risk assessments that can accept or decline the interaction in as few steps as possible. Banks and credit unions can validate customers easily and passively using all the backend information. Gluff pointed to Google as an example of where users can typically validate their information “in just a couple of clicks.”

Consumers increasingly expect to open accounts on their mobile devices with little effort. The idea of forcing them to jump through hoops like naming their first vehicle or favorite pet and then coming into the branch to sign physical papers will no longer fly, Marous observed. Yet many banks are not meeting consumers’ expectations.

In one instance, Gluff noted a financial institution had an online application that required 17 clicks on the phone and had a fallout rate of 70%.

Account Opening Bar Is Much Higher:

Simply put, banks can no longer compete using a 15 or 20-minute application process when some fintechs do it in a couple of minutes.

“As a result, a lot of customers that should be able to open an account are either kept out, or the process is so cumbersome, that banks are closing the door on a major part of the marketplace for fear they will go bad,” said Marous. Identity solutions can make or break customer acquisition.

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Not All Options Require Massive Investment

To meet consumers’ needs and remain competitive, financial institutions should start with a list of “absolute things” they need to have in an application process. One of those elements is a system to identify verification that makes the customer experience as smooth and easy as possible. Gluff noted there are many ways to improve account opening processes that are quicker, cheaper and provide more security than the systems widely used today.

One example are solutions that let consumers capture images of their driver’s license for quick validation. TransUnion has such a solution and Gluff says the company runs “hundreds upon hundreds” of checks on the license to verify accuracy.

They capture the data from the license image and run it through various systems to make sure the name, address, DOB and SSN all match. Finally they look at the device to ensure it is legitimate and that it hasn’t been reporting fraudulent activity by other financial institutions.

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