Using data to optimize fraud prevention and customer experience across the payments ecosystem.
This blog post is inspired by recent panel discussions held during Identity Connect Dubai and Identity Connect Amsterdam.
As advanced technologies digitally transform the financial services industry, they also accelerate fraud activity and open the door to new, sophisticated fraud attacks. To navigate this ever-evolving fraud landscape, financial institutions need to know how to balance fraud mitigation technology with seamless digital customer experiences.
Below, we detail why data is the way forward to striking this balance and, importantly, why financial service organizations cannot afford to stand still.
What is the cost of fraud to financial institutions?
According to recent reporting by ACI Worldwide, financial crime and fraud are projected to cost banks and financial institutions around the world $40.62 billion by 2027. This is in part due to increased access to new technology—such as AI—which has enabled crime rings and even individual bad actors to deploy both new methods of committing costly fraud attacks and further scale old methods:
- Synthetic identity fraud
The estimated 2023 losses for unsecured credit products due to synthetic identity fraud is US$2.42 billion. In fact, in 2019 the Federal Reserve called it the fastest-growing financial crime in the United States, costing banks a staggering $6 billion.
- Identity theft
Meanwhile, a recent global survey found that identity fraud cost every third bank nearly half a million US dollars in 2022.
- Account takeover fraud
According to Javelin Research’s Identity Fraud Study report, account losses in 2021 totaled an estimated US$11.4 billion.
- Cryptocurrency fraud
It has been reported that $4.3 billion was stolen by hackers in 2022 in crypto scams, making it the worst year on record for crypto fraud.
- Scam fraud
Recent reporting estimated that $55.3 billion was lost worldwide to scam fraud in 2021 alone. Despite online scams becoming a global epidemic, they remain one of the most underreported types of crime. Depending on the country, it’s estimated that only 3% to 17% of all scams are reported.
What is the cost of friction to financial institutions?
In our report, Infinite Want: Consumers Demand Speed and Security in the Digital Experience, more than 7,000 consumers across North America and Europe were asked what they want in their digital experiences. More than 70% of consumers say account creation should be instantaneous, with a whopping 92% expecting a fast, frictionless experience—as trustworthy and as secure as possible.
What happens if banks don’t get this balance right? 65% of customers will abandon the account opening process due to friction, while 91% of those who experience fraud on a company’s platform will not use the company again in the future. Furthermore, 86% of consumers will tell others about their fraudulent experience.
A more recent report across 29 countries and 20 industries put the cost of a bad customer experience at $3.1 trillion.
In short, financial institutions must walk the fine line between offering a fast, low-friction experience while keeping security and trust top of mind. If this is not made a priority, genuine customers will abandon both onboarding and transactions, putting organizations at risk of severe financial loss.
How can data fight fraud without adding friction?
During our recent Identity Connect panel in Amsterdam, Hubert de Linde, Regional Sales Manager, Nordics and Baltics at Provenir, spoke to many in the room when he stated,
“While fraud is a problem, compliance is the pain point.”
Especially in the highly regulated European market, the process of Know Your Customer (KYC), along with Anti-Money Laundering (AML) compliance is significant. Shweta Choudhry, Vice President, Product Management at Mastercard, dove deeper into the importance of going beyond only what’s regulated when she shared a story from the CAMS Certification Guide (2021) that detailed the numerous ways in which the September 11 criminals opened US bank accounts, accepted international deposits and moved money around. One key finding was that the hijackers often used the same address and telephone numbers across accounts—showing the importance of looking not only at specific identity elements but how they’re being used in the broader digital ecosystem.
In other words, knowing whether addresses and telephones are real is important. But, knowing if these elements have been used to open a series of other accounts and are tied to other names and phone numbers in the broader digital realm, also provides valuable insight into the risk of those accounts.
Meanwhile, during the panel discussion in Dubai, concerns revolved around thin-file customers. Specifically, given that the Middle East is a popular destination for expats, how can financial organizations onboard thin-file customers safely?
Conveniently, the answer to both pain points is the same: data. Specifically, leveraging machine-learning models that use probabilistic data over deterministic data better equips organizations (no matter the industry) to better fight emerging fraud threats, without impeding the customer’s onboarding experience.
Automate risk decisions with Mastercard Identity data and insights
With Mastercard Identity data and insights, financial institutions can enhance the onboarding workflow, optimizing the identity verification process and associated costs by determining the risk level of each applicant at the very first touchpoint. In real-time, banks can:
- Leverage predictive, probabilistic data to complement (and enhance) existing KYC and AML checks
- Capture compromised identities before they create an account
- Onboard thin-file customers with more confidence
With Mastercard Identity data and insights, organizations can see the complete digital identity footprint, which includes behavior as well as other data points like device usage, to validate legitimate logins. This not only prevents bad actors from accessing the platform at login, but it also increases customer confidence and lowers friction for legitimate, trusted applicants.
Better still, by leveraging these real-time data insights, financial institutions can reduce the costs associated with manual review and compliance checks while increasing customer satisfaction.
Adopting the right identity verification technologies can protect organizations, financial institutions and their customers and offer a frictionless customer journey that still builds trust.