Financial Institutions are increasingly moving towards omnichannel strategies, but are they prepared for security threats? 

Expert Opinion - 
Published 21 Jun 2016 in ThePaypers

Modern consumers are a discerning bunch; they want anytime, anywhere banking services that seamlessly integrate across multiple devices. Whether it's online, via mobile or in-branch, today's customers expect personalized omnichannel experiences that reflect their increasingly tech-centric lives.

Delivering an effective omnichannel strategy is a win-win for financial institutions (FIs). Customers get to choose how and when they interact with their bank, which enhances convenience, satisfaction and loyalty, while FIs can introduce more self-service options that boost efficiency, lower costs and maximize branch space.

digital-identity-authentication.jpgBut this flexibility comes at a price. The more channels that FIs offer, the greater the security risks they face across these different touchpoints. Organizations must therefore perform a delicate balancing act between keeping customer data secure and maintaining a stress-free consumer experience.

Fraud in an Omnichannel Environment

As FIs evolve their omnichannel offerings, criminals quickly adopt innovative ways to exploit vulnerabilities in new systems and processes.

Recent figures from the American Bankers Association (ABA) revealed bank deposit account fraud losses among FIs jumped from $1.7 billion in 2012 to $1.9 billion in 2014. According to the ABA, banks suffered the knock-on effect of large-scale retailer data breaches, which partially accounts for the rise in losses.

The recent 2015 LexisNexis Risk Solutions True Cost of Fraud Study suggests merchants continued to struggle last year, with a 98% jump in the proportion of revenues lost to fraud. FIs and retailers encounter security challenges in the omnichannel environment, and issuers will be keen to tackle problems on both sides to ensure consumer confidence in payments.

ABA statistics showed debit cards and checks were the largest problem areas, comprising 66% and 32% of banking industry losses in 2014, respectively. Online banking and electronic transactions contributed a comparatively small 2% towards the total.

However, as millennials overtake baby boomers as the largest demographic in the US, we can expect mobile and online threats to become increasingly sophisticated. A new Federal Reserve survey indicated that 67% of people aged between 18 and 29 now utilize mobile banking, compared with just 18% of over-60s.

The ongoing rollout of EMV across the country will facilitate the shift towards more online and mobile fraud, as stronger authentication standards make card theft and counterfeiting less profitable.

Building a Comprehensive Fraud Strategy

There is no one-size-fits-all solution for FIs when it comes to omnichannel security and fraud prevention. Organizations must develop a layered approach that is tailored for each channel and threat, while ensuring services remain as frictionless as possible for consumers.

According to LexisNexis, FIs and merchants should work together to share information, resources and tools to prevent fraud and improve identity verification. False positives are a particular headache for many organizations; FIs must provide strong fraud detection, but too many errors often result in lost business, disgruntled customers and unnecessary costs.

A Javelin study recently revealed that 39% of consumers abandoned a card after their bank falsely declined a transaction. The research estimated that 15% of all cardholders were incorrectly flagged for fraud last year, representing $118 billion in transaction losses.

MultiFactor Authentication (MFA) systems are crucial to reducing false positives. They also enable FIs to increase approvals for new account openings across 'thin-file' prospects with limited credit histories, such as millennials and migrants.  

Supplementing traditional credit header information with data from a wider array of sources, such as social media profiles, mobile network operator data and device IPs, can significantly strengthen identity verification measures.

For example, Socure data shows that an individual who has no social network presence has a fraud risk of 22.9%. However, the risk level drops 5.7% for someone who is a member of three types of social network (personal, blog-based and professional).

Implementing technology platforms that provide a better overview of people's digital profiles should therefore form an important part of any MFA strategy.

Is Your Organization Prepared?

FIs face a complex omnichannel conundrum. Consumers demand channel experiences that seamlessly slot into their day-to-day lives, but providing these services opens up numerous security challenges.

Fraud is already on the rise across both FIs and merchants, and criminals are quick to take advantage of new opportunities when they arise. As more fraudsters move into the online and mobile space, organizations must address vulnerabilities in these and other channels.  

FIs must get the balance just right; they need to identify genuinely malicious attacks on customer accounts without disrupting the consumer experience due to false positives and cumbersome authentication processes.

However, with the right technology and MFA systems in place, FIs can develop multifaceted and user-friendly fraud detection and prevention defenses to tackle new and existing threats.   

Company bio: Socure is the leader in digital identity verification. By applying machine learning techniques with biometrics and data intelligence from email, phone, IP, social media and the broader internet, Socure enables the next-generation of multi-factor authentication. Enterprises who leverage Socure achieve reduced fraud rates, increased acceptance rates as well as lowered compliance and manual review costs.

About the Author: Michael Hiskey is the chief product evangelist for Socure. An author, speaker and blogger, he likes to think of his role as the “storyteller of customer success” leveraging innovative financial technology. His experience and interests lie at the intersections of big data analytics and business value.

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Socure is the leading platform for digital identity trust. Its predictive analytics platform applies artificial intelligence and machine learning techniques with trusted online/offline data intelligence from email, phone, address, IP, device, velocity, and the broader internet to verify identities in real time. The company has more than 400 customers across the financial services, gaming, telecom, and e-commerce industries, including three of the top five banks, seven of the top 10 card issuers, three of the top MSBs, the top payroll provider, the top credit bureau, and over 100 of the largest and most successful FinTechs. Marquee customers include Chime, Varo Money, Public, Stash, and DraftKings. Investors include Accel, Commerce Ventures, Scale Venture Partners, Flint Capital, Capital One Ventures, Citi Ventures, Wells Fargo Strategic Capital, Synchrony, Sorenson, Two Sigma Ventures, and others.

Socure has received numerous industry awards and accolades, including being named to Forbes America’s Best Startup Employers 2021, being awarded Best New Technology Introduced over the Last 12 Months – Data and Data Services at the 2020 American Financial Technology Awards (AFTAs), being ranked number 70 in Deloitte’s Technology Fast 500™, being listed as a Gartner Cool Vendor, being recognized by Forbes as one of the Top 25 Machine Learning Startups to Watch, being named to CB Insights: The FinTech 250, and being awarded Finovate’s Award for Best Use of AI/ML, to name a few.