As I’ve articulated in recent posts, the growing amount of available data is spurring a creative revolution for fraudsters. They’re becoming increasingly skilled at identity theft and creating synthetic identities. Identity management is a problem across various industries—whether financial services, insurance, government, healthcare or e-commerce.
The challenge today, is to mitigate fraud risk when accounts are accessed, new loans or policies originated, and/or during benefits application—without jeopardizing the customer experience.
A recent comScore report noted that of consumers who shopped for insurance in the past year, 71% of them did so online.1 Online lenders are also aggressively increasing market share over traditional lenders: Inside Mortgage Finance estimates that nonbank lenders accounted for 37.7% of mortgage originations in the first quarter of 2014—an uptick of 26% from the same quarter the previous year. And in 2015, 91% of 150,062,000 tax returns were filed electronically in the U.S.2
Fraud has been a step ahead of digital adoption
As Internet and mobile usage has grown, fraud experiences have trended up, totaling more than 18 million claims from 2001–2014. According to the Federal Trade Commission’s Consumer Sentinel Network Data Book, claims by U.S. consumers of identity theft and consumer fraud grew from 325,519 in 2001 to 2.582 million instances in 2014. Criminals are executing in creative new ways every day—at your business’ expense.
It’s clear digital fraud is becoming more sophisticated and dangerous as Internet dependency and interconnectivity evolves. However, it’s important to note that fraudsters have been at play online since information was first shared in that channel. And with more good consumers moving online for everything from loan originations to insurance quotes and tax return filings, those with malicious intent are well positioned to exploit these trends. Therefore, adjusting your risk strategies is critical to account for the influx of online consumer data.
The trap of fighting fraud
Beyond the number of claims due to criminal activity, customers are also experiencing higher insult rates—also known as “hurdles”—while attempting to transact with their service providers. In fact, the Ponemon Institute reported that 46% of consumers said they were either “very frequently” or “frequently” prohibited from online transactions due to authentication failures.3 That’s an astoundingly high rate of friction that’s frustrating true customers and impeding commerce, ultimately affecting your brand reputation and bottom line.
The pitfalls can seem endless and create an internal tug-of-war between conflicting priorities. On one hand, you decrease the incidences of fraud by building manual review teams and prevention systems. But you also increase costs and overhead, perhaps even outsourcing critical solutions support. According to your VP of Risk, you’re following industry best practices by doing so. But, your VP of Marketing & Sales insists these actions and policies are driving good customers away.
The biggest problem with fraud prevention
Multiple systems or fraud prevention tools make it more difficult to cover all lines of defense and maintain a holistic view of risk exposure. Furthermore, they can result in a poor customer experience.
One of the biggest problems of fraud prevention is using multiple, disjointed systems or tools, resulting in unnecessary friction and poor customer experience.
Most enterprises I’ve worked with have about 8–10 different fraud detection and management vendors, but I’ve seen upwards of 35 solutions at one company. The systems were cobbled together in an attempt to prevent fraud without introducing excessive friction and impacting customer experience. When in fact, their patchwork solution was causing the very issue it was trying to erase—true customers were experiencing unnecessary friction trying to do business with them.
If you’re using multiple vendors for different types of fraud detection across various channels, it’s difficult to implement a consistent and integrated approach and the right risk balance to truly fight fraudsters. One alert, one indicator or one flag doesn’t necessarily mean the account is at risk. Alternatively, a fraudster that doesn’t succeed online could try calling in, and if your call center screening process is managed by a different vendor and not connected to your web fraud detection system, you have no idea this individual made a failed attempt on the digital side. Consequently, you have a weakness that can be exploited and fraudsters are actively looking for that gap.
Fragmented systems, homegrown platforms and silo-specific fraud prevention strategies all fail companies by creating gaps that fraudsters use to their advantage, while alienating true customers with inefficient operations. The solution is to move to enterprise-wide, real-time fraud management systems, which detect fraud patterns across the enterprise, in turn alleviating pressure from business unit silos and disparate cross-channel components.
However, this doesn’t suggest that plugging multiple independent systems into one delivery platform is the answer. Plugging disparate systems would merely be a way of bringing patchwork solutions together. But together does not qualify as connected.
Integration is the critical component for holistic fraud and identity management.
An integrated solution can provide a way to measure risk, with holistic viewpoints and more data points working together effectively. The true value lies in having a system and tools that combines data to provide integrated scoring to make better risk decisions with greater certainty. By leveraging an integrated enterprise-wide fraud management system, you can better understand how to proceed when adjusting risk strategies. Truly connected data and systems is critical in combatting advanced criminal creativity.
Simplifying the fight against fraud with vendor management
Successful fraud and identity management is about balancing risk with customer experience. When you work with fewer vendors, you can take a more efficient, holistic look at the overall risk of the customer across channels, with a consistent approach. With a singular provider verifying transaction history, identity and digital information, and authenticating consistently, you can be more effective in evaluating your true risk.
Consolidating vendor services can also help your operation run more efficiently. Silos and disparate defense efforts have continually proven to incur significantly more cost due to lack of efficiency. Your company can integrate fraud management into a new or existing risk, compliance and governance program. Further, vendor management and accountability is simplified with fewer reports, contracts and contacts.
Now is the time to map a strategy to greater security in 2017. Utilizing a holistic solution can allow for aggregation, cross-referencing, and the ability to leverage intelligence around all transactions and accounts to identify cross-channel threats and attacks. True fraud and identity management are possible, but both should be managed throughout the customer lifecycle and across channels.
Stay tuned for more posts on using complete data assets and innovative technology to better mitigate fraud in 2017.
1. comScore 2015 Online Auto Insurance Shopping Report.
2. Summary of the Latest Federal Income Tax Data, Tax Foundation. November 19, 2015.
3. Moving Beyond Passwords: Consumer Attitudes on Online Authentication, Ponemon Institute LLC, April, 2013.