FICO® Deposit Risk and Fraud Solutions
The recession and accompanying banking failures have drawn extreme attention to the value of deposits worldwide. Since the stock market downturn of 2008, significant sums of money have flowed from equity investments, reestablishing deposits as the key source of bank liquidity. Banks have an opportunity to secure customer loyalty and retain these assets. At the same time, however, they face an increased threat of fraud in deposit accounts.
Deposit fraud schemes generally fall into two categories:
- Third-party or “victim” fraud, when a good customer’s account is violated in an account takeover. An attack on the customer’s money and identity theft are the most common examples.
- First-party or “perpetrator” fraud, in which an account holder uses a fraudulently opened deposit account to conduct deliberate fraud (such as check kiting) or to gain access to other bank products for fraudulent purposes.
Financial institutions have long recognized the value of FICO’s predictive and behavioral analytics in combating credit card fraud. Now, these same solutions can help fight fraud on the liability side of the balance sheet.
Distinguishing Fraud from Risk
Banks walk a fine line in dealing with deposit fraud, as the behaviors that indicate potential fraud may also be indicative of credit risk or a good customer’s temporary setback without malicious intent. FICO’s proven analytics and Decision Management technologies represent years of continual refinement, resulting in highly reliable predictive capabilities that enable banks to distinguish fraud from risk and treat each accordingly.
Connected Decisions for Fraud Detection and Customer Treatment Strategies
Connected Decisions is an approach in which different FICO Decision Management applications share common customer data to produce decisions that reflect the total customer relationship. FICO’s deposit fraud solutions leverage the combined predictive power of two proven FICO solutions:
Applying FICO solutions, banks can make smarter automated decisions that protect profitability without compromising customer satisfaction. FICO fraud scoring enables banks to better assess whether account holder behavior indicates potential fraud or an irregularity on the part of an otherwise good customer. Institutions can utilize FICO solutions to implement effective strategies in four critical areas of deposit customer treatment:
Overdrafts: Does a negative balance indicate temporary mismanagement by the customer, a significant risk, or a possible account takeover? FICO helps you determine the best course of action. You can establish criteria for paying or refusing debit payments on accounts, freezing accounts and contacting customers for information.
Fee Waivers: Fee waiver decisions are often arbitrary and can impact both fee income and customer satisfaction. FICO’s solutions enable banks to take a systematic and consistent approach to fee waivers to protect overdraft fee income. Segmenting customers by risk and profitability, and applying FICO deposit behavior and credit scores, institutions can determine precisely when and for which customers fee waivers are appropriate or not.
Collections: Banks can make their collection efforts more efficient and get better results by segmenting customers for different treatment. FICO’s approach involves segmenting delinquent customers by three key characteristics: likely fraud; likely self-curing; and loyal profitable customers going through difficult times. Potential fraud cases can be removed from the general collections pool for investigation, enabling collections staff to better focus their efforts and resources.
Deposits Holds: Holds are a sensitive issue. Customers want immediate availability of funds. Banks strive to make funds available in most cases, but also need to protect themselves and their customers from exposure and reclamation. Inconsistent customer treatment increases risk of legal liability and customer complaints. FICO solutions enable banks to employ consistent, compliant risk-based or fraud-based decision-making policies, providing optimal protection to the institution while giving optimal service to good customers.
For More Information
Deposit Fraud Product Sheet (pdf)
Deposit Fraud White Paper (pdf)
Insights white paper Making Your Focus on Deposits Payoff (pdf)
Opting in or Out: Protecting revenue under overdraft reform (pdf)