Businesses have long accepted that fraud loss is a cost of doing business. But with greater technological dependence something has changed. Fraudsters have evolved — they leverage sophisticated technology and underground networks — and actual losses now exceed expected losses.
In an effort to patch the holes and plug the gaps, fraud prevention has become overly complex and is negatively impacting the customer experience. It’s becoming clear to many businesses that the status quo is no longer effective. Fraudsters are relentless, and count on vulnerabilities that business can eliminate. They expect to be chased, not outmanoeuvred.
Companies need to be as forward looking in fighting fraud as they are at growing revenue and attracting customers.
The field of battle
The reality of today’s economy demands this change. Business is global – it happens 24 hours a day across countless digital and face-to-face settings. Today creating a secure, streamlined customer experience is paramount so customers do not flee en masse. Although once considered separate mandates managed by separate teams, revenue generation and fraud prevention are now intrinsically linked. Siloed ways of working are no longer viable.
In organisations of all shapes and sizes, it has become clear: The more closely aligned your product development, marketing, customer experience, and fraud risk strategies, the more successful the business.
Why? Because modern fraud mitigation approaches make it possible for fraud prevention to play an active role in driving growth and a positive customer experience. This is demonstrated by businesses that have specifically moved beyond one-size-fits-all fraud strategies and instead deploy right-sized solutions so that the appropriate level of protection is applied to every single transaction. The result is increased confidence and effortless customer interactions.
Making a white knight: Five trends in fraud management
It is possible to have a forward-looking approach to fraud mitigation – one that mitigates financial loss, enriches consumer relationships and drives growth.
Whilst most of the industry is talking about how fraudsters are circumventing current fraud detection systems and how businesses should fortify themselves against these vulnerabilities, this tactical approach will not outpace the fraud.
Here’s how a smarter alignment of strategies, teams, and processes can protect growth ambitions from rising fraud threats.
1. Fitting the armour: Applying right-sized fraud solutions to reduce customer disruption and manage risk
Fraudsters hide in plain sight, blending in with legitimate customer traffic – which is why companies accept a certain amount of customer disruption as an undesirable but necessary part of catching fraudsters. But most customers would agree that the level of this disruption is wildly out of balance. The ratio of disrupted legitimate traffic to actual fraud attempts is now as high as 30 to 1. As more purchases (and more fraud attempts) move online, the rate of challenges to legitimate transactions will only increase. The net result is a consumer population irritated by the unending number of challenges to their online activity.
To reduce customer disruption and appropriately manage fraud risk, companies need to apply fraud mitigation strategies that reflect the value and level of confidence needed for each transaction. This is called right-sizing the fraud solution. This approach, when aligned with the company’s fraud rates and commercial strategy, increases the likelihood of catching fraudsters without disrupting the business of (and relationships with) legitimate customers. For example, if actual fraud attacks represent 1 to 2 per cent of transactions, right-sized solutions should identify no more than 4 to 6 per cent of transactions as probable fraud.
2. Saving the princess: Knowing the universal consumer is the core of modern fraud mitigation and marketing
This extends beyond a traditional 360-degree view. It means having knowledge of a person’s offline and online behaviour with every business with which a customer has a relationship. Having access and insight into this universal behaviour – down to the transaction level – will be necessary for fraud mitigation in the future. It will also help achieve higher conversion rates for marketing campaigns and improve marketing return on investment. This is a clear example of the benefits of converging mandates around business growth and fraud mitigation.
3. Surveying the field: Expanding your customer view through a blended ecosystem
Many organisations have launched projects to achieve a single customer view – good in theory but turn these projects into multi-year undertakings that are challenging and costly – and still only achieve a partial view of the customer. This is because that view is based on one relationship and not the relationship a customer may have with other companies. Fraudsters have that broader view and use it. Increasingly, companies are participating in a blended ecosystem – vendors, customers, partners and even competitors. This results in an enhanced experience that supports growth without sacrificing protection.
4. Saddling the steed: Achieving agility and scale using service-based models
Fraud adapts quickly – being slow to respond can come at great expense. Service-based fraud models give businesses the benefit of highly skilled expert analysis that is regularly updated to respond to fraud threats or incidents than can often protect before fraud happens. These service-based fraud models also adapt and scale to support the business, no matter how fast the volume grown or where businesses decide to pursue customers.
5. Sealing the monster in its lair: Future-proofing fraud solution choices
Companies need to be as nimble as fraudsters, with fact access to the right tools and data whenever it’s needed. The current approach of adding new tools on top of existing ones is creating complexity that is expensive to integrate and difficult to manage. Businesses need flexibility and scale to get more out of what they have and the ability to connect the best solutions available.
5, 4, 3, 2, 1 – Action!
These five trends will fundamentally change the dynamics between companies and fraudsters. Armed with greater knowledge and agility, companies can become a much tougher target for fraud. Then, whilst fraudsters will encounter more obstacles to thwart them, customers will encounter fewer challenges. Getting there will require an expanded view about the consumer, further underscoring the essential collaboration between the product development, marketing, fraud teams and third parties — a collaboration driven by the shared goal of growing a sustainable business and protecting ambitions against rising fraud threats.
Nick Mothershaw, ID & Fraud Expert, Experian
Image Credit: Jeff Wasserman