New research proves banks must tackle fraud and reduce customer friction

We all know banks today face a significant challenge: they need to keep innovating digitally, but in a way which keeps the fraudsters at bay effectively while reducing customer friction. I have seen first-hand how digital transformation offers tremendous opportunities to improve services and lower costs. But it also gives cybercriminals the chance to hide under the anonymising cloak of the internet to steal card data, take over accounts and create new ones using stolen identities.

The job of our financial institutions is made even harder by the rising consumer expectations that have resulted from greater exposure to these new services, especially from start-ups and innovative FinTech firms. But until now, understanding of the impact of fraud and current security measures on the relationship between customer and bank has been limited.

For this reason, we have partnered with management consultancy First Annapolis to undertake an in-depth study on the subject, interviewing over 3,000 consumers in the US, UK and Australia. It found that failing to invest in the right tools to block fraud effectively and in a friction-free manner leads to lost customer relationships above and beyond regular fraud losses, which could have huge financial implications.

Knock-on effects

It is clear from our research that consumers today are highly engaged with their banks’ digital services: nearly three-quarters (70%) log-in to their online banking portal or mobile app at least once a week. And online security is a key concern for them which can also affect brand trust.

We also know that banking fraud is on the rise, driven in part by large scale breaches flooding the market with stolen identity data, alongside the use of bots, cloaking technologies and social engineering attacks. Over a third (38%) of respondents claimed to have been a victim of banking/payments fraud.

The knock-on effect can not only be measured in hard revenue losses but also lost consumer confidence and brand loyalty value. Some 10% of those that suffered fraud in our report said they subsequently left that bank – partially or completely – taking with them future revenue, cross-sell potential, and referral value. Even those that stayed ended up costing their banks more money by taking additional actions and changing behaviour as a result of their experience.

But perhaps the cost least well understood is that incurred by well-intended fraud prevention measures, which end up causing greater customer friction – ultimately affecting loyalty and lifetime value. The vast majority of consumers (83%) experienced so-called ‘step-up’ challenges while logging into their account in the past year, and 10% of these said this gave them a negative view of their bank. In total, 3% of those who encountered friction logging-on to their account changed banks as a result.

Address failings and friction

So what kind of hard figures are we talking about? Aside from the significant direct losses and operational expenses incurred from fraud, the study estimated that in one year US banks could lose USD 4.9 billion in future relationship value through failings. And one year’s worth of fraud victims represents an additional USD 10 billion lost in relationship value from customer attrition due to the friction of poor fraud prevention tools.

Banks such as Lloyds Banking Group have recognised the need to address both fraud and friction to avoid these significant costs in lost relationship value. Lloyds have worked with ThreatMetrix to offer their 11 million online banking customers a near-frictionless login to their accounts, whilst slashing fraud attacks which were projected to cost the bank USD 60 million a year by 2018.

This requires taking a holistic approach to digital security covering all channels and endpoints and taking into account both device and user profiles. Financial Institutions need real-time technologies that utilise a global threat intelligence network to be as secure as possible, whilst avoiding any negative impact on the customer experience.

About Armen Najarian

Armen Najarian has more than 15 years of B2B and technology marketing experience, primarily with cloud-based software and data-driven solutions for the enterprise. Armen leads worldwide marketing strategy and execution for ThreatMetrix. Previously, he directed the go-to-market strategy for IBM’s $1B portfolio of 100+ SaaS solutions, within the IBM Cloud and IBM Commerce business units.

About ThreatMetrix

ThreatMetrix, The Digital Identity Company, is the market-leading cloud solution for authenticating digital personas and transactions on the Internet. Verifying more than 15 billion annual transactions supporting 15,000 websites and 4,000 customers globally through the ThreatMetrix Digital Identity Network, ThreatMetrix secures businesses and end users against account takeover, payment fraud and fraudulent account registrations resulting from malware and data breaches. Key benefits include an improved customer experience, reduced friction, revenue gain, and lower fraud and operational costs. The ThreatMetrix solution is deployed across a variety of industries, including financial services, ecommerce, payments and lending, media, government and insurance.