Confronting Consumer Fraud in Banking

Rapid technological and social changes, combined with evolving consumer demands, are creating new opportunities for fraud. Based on research, Accenture proposes a four-step approach to help banks transform their fraud management while meeting customer expectations.

Consumers want products that are quicker, faster and easier to use, delivered through the platforms of their own choosing. This has led to the onslaught of rapid technological and social changes which unfortunately, have also created new opportunities for perpetrators of fraud.

Financial services firms recognize the need to provide consumers with the ability to transfer money, view balances, submit online payments, deposit checks and make purchases remotely, meeting these demands with a wide range of mobile and online offerings.

Estimates are that over the next three years, the mobile banking community will include roughly 400 million users. As might be expected however with millions of mobile and online users performing financial transactions, new and emerging cyber threats are targeting these devices and platforms. Financial institutions have sought to incorporate fraud prevention and detection measures into their offerings, but they must work with consumers to change current attitudes and behaviors. Institutions which build solutions aligned to evolving consumer attitudes and behaviors towards security can help in their efforts to gain market share, and minimize fraud losses.

Accenture commissioned an online consumer fraud survey in May 2012, to gather information on customer attitudes. Three hundred and fourteen adult respondents completed the survey. The ages of respondents were categorized as follows; 30-50—Generation X and 18-30—Generation Y. Ninety-nine percent of respondents were based in the United Kingdom and 100 percent had mobile phones. An equal number of men and women participated in the survey.

The research commissioned by Accenture made the following seven key findings:

• Respondents view mobile banking as a higher risk activity than accessing services via a personal computer, although over half (56 percent) of the respondents indicated that they do not consider the fraud and security risks associated with downloading apps to smart phones. Technology advancements in mobile banking have gained better traction, with respondents relative to similar applications in other types of retailing.

• Respondents rated ease and speed of making online transactions as more important than security.

• Respondents rarely read the security and privacy statements they receive and want them to be very short, but they are surprisingly aware of the security features provided by websites, and they are appreciative of such features when shopping online.

• Respondents admitted to being very vulnerable to all types of phishing. Nearly two-thirds acknowledged the risks of downloading a free application, and nearly half saw danger from unwittingly downloading malicious code by opening an email from someone they did not know.

• Preventing fraud—and providing prompt refunds—have similar effects on the propensity of Gen X and Gen Y customers to change bankers or card providers.

• Failure to secure websites can severely damage customer loyalty; 93 percent of respondents, for example, said they believe it is unwise to re-use a website where they have experienced fraud, and 86 percent expressed more confidence in their provider when contacted to verify a transaction.

• Nearly three-quarters (74 percent) of respondents put the burden on bankers to protect them from fraud. Most customers surveyed have experienced fraud, with fraud related to debit or credit cards being the most common experience. However, respondents have had largely positive experiences with their bankers or card providers when they have been fraud victims, and they say they do not change their online banking behaviour once they have been a fraud victim.

The survey aimed to increase understanding of how the consumer views fraud, how these views affect the way consumers behave—and how they affect financial services providers.

The survey results provide important insights for banks and other financial services companies. According to the survey:

• Consumers want simple, easy-to-use banking services, but accept that they are vulnerable to phishing and other fraudulent activities. Organizations that are able to move to the next generation of authentication, such as biometric authentication enabled through mobile technology, can create a competitive advantage by meeting consumers’ expectations for products that are both simple and secure.

• Consumers understand many of the risks of shopping on line, although the majority of respondents look to the banks to provide extra protection. If alternative payment solutions such as digital wallets are better able to protect consumers, banks and card providers could see further erosion of their market share for retail payments.

• Consumers also tend to ignore the security and privacy statements displayed on websites. For fraud communications to be effective, banks and card providers must use a more innovative approach.

• Banks may also need to balance customer service improvements against customer attitudes and behavior towards fraud, especially if losses increase significantly.

Accenture has developed a comprehensive four-step approach to help financial services firms transform their fraud management capabilities:

• Undertake fraud diagnosis to assess the current state of fraud management and to design a blueprint for the future.

• Perform a threat assessment to identify future risks and opportunities.

• Harness analytics innovation to bring advanced analytics to bear upon issues related to both consumer and fraudster behaviour.

• Optimize fraud management processes and tools to develop appropriate customer authentication strategies, business rules and other anti-fraud measures.

H. Adams is senior director, Risk Management and leads the Accenture Fraud and Financial Crime business services, defining and developing capabilities to support clients in their fraud and financial crime prevention efforts. Based in London, Adams has extensive experience in delivering large-scale complex business change for banks and has worked with senior leaders to define and implement fraud and financial crime prevention strategies.

J. Morley is a senior manager, Risk Management and leads the Fraud Group within the Risk Management group in the United Kingdom. Based in London, he has more than 10 years of consulting and industry experience in internal, advanced, third party and first party fraud prevention and detection within financial services. Morley is focused on delivering process, organization and technology change programs.