Consumers want online transactions or applications to be safe, seamless and fast. As a result, the pressure on businesses is on the rise. Underprepared businesses are losing prospective customers and large amounts of potential revenue with every additional second in the screening process. This practice quickly adds up if businesses focus only on fraud detection.
I suggest re-focusing your business’ attention to identity verification, rather than fraud detection, for an enhanced customer experience and more revenue—in addition to reduced fraud losses. To stop sophisticated and evolving fraud, you need to know, verify and reward your true customers as fast as possible.
The following are my four steps to fight fraud effectively without sacrificing business growth or the customer experience.
1. Stop fraud at its origination
Origination fraud is among the fastest growing problems for financial institutions. By 2020, TransUnion estimates application fraud could reach $2.1 billion in losses. Many businesses still rely on legacy or disparate systems—which wait for transactions to occur—and may be ill-equipped to detect new types of fraud.
Prevention is always most effective when an issue is detected before damage is done. Identity verification solutions help to ensure consumers are who they say they are by examining hundreds of digital signals captured during an online or mobile transaction. With deeper, more expansive data, financial institutions can gain a more complete view of the consumer and make faster verification decisions.
2. Quell false positives
A false positive is a missed business opportunity. Lost consumer revenue opportunities – which occur when frustrated customers walk away – can rival fraud losses. A 2015 creditcard.com poll linked 39% of blocked transactions to good customers, while 28% of blocked purchases were from fraud.
Financial institutions also incur back office expenses when customers are queued. To reduce false positives, verification processes should utilize robust data sets – such as digital elements – to identify behavioral patterns. This can prevent fraudsters from ever queuing or entering authentication. With more robust identity history and data, businesses can reduce authentication failures and increase passes.
3. Protect against synthetic identities
A synthetic identity—an identity created using partially stolen and/or made-up personal information—is harder to detect than a stolen one. Unlike first-party fraud, there is no individual victim. Fraudsters can also pass through traditional authentication process because they possess the ID information. According to TransUnion research, synthetic identities carry an average balance of $2,300 before a delinquency, leading to considerable risk for lenders.
Businesses need an identity verification solution that analyzes consumer behaviors and looks for fabricated data elements, such as a high number of consumer identities associated with a device or a deliberate increase in authorized user trades. Lenders should also be vigilant about monitoring their existing accounts to isolate synthetic identities already in their portfolio, minimizing wasted efforts on collections.
4. Understand how fraud affects your business
Online transactions aren’t limited to financial services. More than $1.6 billion was lost in 2016 by companies in credit card application fraud alone, according to a TransUnion analysis. That is just a fraction of the overall cost plaguing consumers and businesses from diverse industries.
Retailers, banks, insurers, healthcare providers, even government agencies need to establish enhanced application processes and better transactional support or risk higher expenses and reduced volume. Today’s consumer is looking for immediate response rates with as few hurdles as possible.
The instinctual response is to armor up and focus on fighting fraud. But a lengthy or cumbersome verification process typically results in turning consumers off or away before they can become your valued customers. Today’s consumer expects simplicity.
With access to a robust data set, businesses can do more than “protect and reject,” and can instead take a holistic approach to fraud and identity management.
TransUnion hosted a webinar alongside Julie Conroy of Aite Research focused on the current growth trends of fraud. It can be viewed here.