If you want your body to perform its best and you eat junk food all day, you’re just not going to get there. This is so obviously true that I assume no serious athletes try it. Yet, businesses sometimes follow similar practices related to fraud, trying to build fraud prevention muscle without incorporating a key part of the process: identity management. Having worked with countless businesses in their efforts to thwart the global fraud epidemic, it’s become apparent that fraud prevention requires a new way of thinking – a new, more comprehensive and holistic approach. Multiple dimensions of identity management and fraud prevention need to work well together. We’ll explore this concept and how it functions later, but first let’s look at the scope and nature of the fraud challenge today.
The staggering size of fraud across the globe
Fraud is a massive, growing global problem. Its economic impact is staggering, conservatively estimated at $530 billion. Not to be overlooked is the big effect it has on the customer experience, customer loyalty, and customer impressions of your brand. A pair of 2018 research studies commissioned by TransUnion and conducted by Forrester Consulting found that fraud prevention measures decrease customer engagement and deter potential customers from future transactions. In fact, according to the insurance fraud study, respondents stated the No. 1 impact from fraud is the damage it does to the brand and the organization’s reputation.
As noted in the Forrester studies, consumers have embraced fast, personalized services. Consumers now expect innovative, memorable, and enjoyable service every time they interact digitally. So the challenge companies face today is how to identify “good” customers and fast-track them through transactions, while at the same time flagging potentially fraudulent behaviour and mitigating it.
The Forrester studies outline the main challenges involved in fighting fraud without hurting the customer experience and points to some effective solutions. Its insights clearly cut across sectors and apply to a broad range of digital businesses globally.
Let’s look now at how firms can deploy a more comprehensive identity management and fraud prevention strategy without putting CX at risk. We will begin with an overview of four tactics. Later in our series we will discuss each tactic in-depth and provide examples of how markets across the globe are already implementing them to help better manage identities and prevent fraud.
1. Use multiple layers of technology defenses to prevent fraud
Innovation is driving technological advancements and improvements across the globe, but it has a dark side too. Fraudsters constantly innovate and improve their techniques. As a result, fraud is always evolving, making detection and prevention extremely challenging. Forrester found that almost 70% of fraud detection technology decision makers from financial services agreed that fraudsters are always one step ahead. And 92% of this same group acknowledged having difficulty detecting and mitigating fraud. Firms feel vulnerable and are concerned they are unaware of possible upcoming damages from fraud.
Integrating identity management with fraud detection helps overcome the inherent weaknesses and potential inadequacies of legacy systems and build real fraud prevention muscle with minimal impact on CX. To do this, organizations are turning to partners with expansive technology capabilities and using multiple layers of technology defenses. TransUnion, for example, offers a full-range platform of solutions for firms, encompassing ID establishment, ID verification, fraud checks, analytics/models, and stepped-up authentication.
An integrated identity management strategy produces a more comprehensive assessment of an individual’s profile. Different technologies come into play with each technology adding another layer of protection, making it increasingly difficult for criminals to open fake accounts, take over existing accounts or submit fraudulent claims.
2. Tap into the right data sources
According to the insurance fraud study, less than a quarter of all firms surveyed said they were completely satisfied with any aspect of their current fraud detection and prevention solutions. There are many reasons for this, including the quality, accuracy and scope of data that organizations use to build their solutions. This underscores the need to look at data more comprehensively and go beyond credit information and Personal Information (PI). Data like PI provides only a static view of consumer information. It’s also prone to hacking and, as evidenced by several recent data breaches, it can be at times obtained with little effort, allowing fraudsters to take over accounts or submit fraudulent claims.
Organizations can and should also tap into alternative and trended data, creating multiple dimensions of identity verification and fraud prevention. This includes data related to an individual’s assets, as well as device data – a real game changer we will describe in more detail in a later blog.
Smart and accurate data doesn’t just help your fraud prevention teams; it empowers the rest of the business to deliver better customer experiences while helping fuel the organization’s data engines.
3. Take advantage of automation and machine learning
Automated business processes enable firms to use advanced identification and verification tools that are critical to modern customer services, quickly and accurately providing key customer data and insights. According to the insurance fraud study, having access to automated processes and decisions is seen as the most valuable technical capability to have in a fraud detection solution:
About half of financial services companies, according to the financial fraud study, reported they don’t have automated access to real-time or actionable insights on fraud. This challenge affects both a company’s CX and the efficiency of its fraud prevention measures. Wasting time on cumbersome manual or disjointed processes not only frustrates customers but also gives fraudsters an ideal window of opportunity to complete transactions or account takeovers before being detected.
Automated processes can help financial institutions mitigate these challenges. Automation allows you to employ both expert-driven and machine learning models that speed up processes throughout the consumer lifecycle and adds an instant supplemental measure of protection against fraud.
4. Place the customer at the center of your fraud plan
Businesses need to think strategically about how they deploy these tactics during each consumer life stage. Disruptive, poorly designed processes can alienate good customers: 65% of insurers say their current tactics to remove fraudsters can negatively impact good customers and more than half of firms stated that customers are likely to abandon their application due to cumbersome fraud detection and mitigation processes.
For peak performance in fraud prevention, think carefully about how you are integrating identity management and fraud detection. Where are you are focusing your identity management and fraud prevention efforts and is this creating good CX? Are you efficiently fast-tracking “good customers” while simultaneously making life difficult for fraudsters? It’s no simple task, but innovative firms around the world are showing us the way forward.
By Anand Krishnaswamy, VP and Head of Identity Solutions Center of Excellence for TransUnion International