It’s a delicate balancing act for fraud departments – the need to balance fraud controls with the often conflicting need to grow the business and keep customers happy. Fraud departments can do a fantastic job of driving fraud rates down, but this achievement is undermined if lowering fraud rates has a negative impact elsewhere in the business.
Getting the balance between fighting fraud and providing a great customer experience should be at the forefront throughout the entire fraud lifecycle. It all starts with the marketing of offers to customers and continues through every transaction they make and how suspected cases are dealt with, all the way through to how fraud claims are resolved. Across the fraud lifecycle, fraud managers ought to be thinking about the key metrics that they use to manage the performance of the fraud department, from both perspectives, reducing fraud and customer experience.
Are You Sacrificing Legitimate Business to Keep Fraud Rates Low?
I see many organizations that measure their success based on the detection rates of fraudulent applications. They are not measuring other factors that will impact the organization’s success and profitability. Often, fraud and security factors outweigh the importance of customer satisfaction for example:
- Customers are asked to provide security information without consideration being given to the effect of asking for too much information.
- Applications are declined for security reasons – but no follow-up is done. These customers are turned away even though they could be legitimate and profitable.
- Customers open an account but then security measures stop them from using it because a temporary decline has been enforced.
- Fraud claims are not resolved in a timely manner, prohibiting the customer from utilizing their account for legitimate use.
All these factors could mean that you are seeing low fraud rates but you are turning away good business. FICO recently commissioned a survey of 2,000 US consumers on fraud checks and originations
. They told us that when they open a bank account online, if asked to act offline - for example to post some documents or take a phone call - over 20% would give up on the account opening. When decline rates are high — for example, when suspicions of fraud stop you from opening an account — you are also turning away potentially good business.
We looked at fraud decline rates, both from a transaction and value perspective, for one of our clients. We were able to improve both metrics by reducing their fraud transaction decline rate by 58%, and fraud value decline rate by 25%. The improvement translated to an incremental $74M in revenue that would previously have been lost sales. At the same time, we also increased their fraud detection rate by 141%, equivalent to $13.2M in fraud avoidance.
Are You Keeping False Positive Rates Low but Leaving Customers Unprotected?
Another metric that fraud departments typically measure is the rate of false positives — those cases where fraud is suspected but investigation shows that suspicion wasn’t warranted. Keeping false positive rates low is commendable and can benefit customer relationships — after all, stopping legitimate customers from carrying out their business is not good for a bank’s reputation. But if your false positive rates are low and your fraud rates are too high, that is bad for your organization and for your customers.
We have seen instances where as much as two-thirds of fraud cases were only uncovered when the customers themselves reported it. When this happens customers feel unprotected, the bank’s reputation is damaged and good customers may be lost.
Fortunately, by helping our customers to build KPIs that look at both false positive reduction and at accurate fraud detection, they are able to take into consideration both fraud reduction and customer impact. We’ve helped clients drive the percentage of customer-reported fraud down to 15% without increasing false positive rates.
Are You Detecting Fraud but Failing to Resolve Cases?
When talking to fraud departments, we have frequently found that their emphasis on fraud detection isn’t necessarily balanced with a similar focus on case resolution. This leads to situations such as:
- Accounts are declined but there is no follow-up. When this happens the bank turns away potentially good business. Prompt and appropriate follow-up could mean that you can open the customer’s accounts, improving their satisfaction and increasing your customer base.
- Alerts and cases are not actioned. If prompt action is not taken when there is a suspicion of fraud, this can have a substantial negative effect on customers. This is particularly the case when an account has been frozen, and the customer cannot access their funds. A quick Google search on “frozen bank account” will show the negative publicity that ensues when this happens.
- Customer preferences are not adhered to as fraud cases are managed. Banks carefully compile information about how customers want to be contacted. When it comes to marketing and other communications, the importance of adhering to these preferences is critical. However, in the urgency to confirm or manage fraud these preferences may be ignored, giving customers a poor experience.
- Fraud claims are not resolved in a timely manner, and therefore, customers cannot utilize the account. In some instances, this could prevent them from paying their bills.
Frequently, alert and claims workflow management are hampered when customer communication strategy and execution is not an integral part of the fraud resolution process. Banks that have adopted an integrated customer communications solution have typically seen both higher alert and claims completion rates in shorter times and improved customer satisfaction.
The FICO survey shows the importance of customer experience in the fraud management process. When we asked what people would do if they felt that an incidence of fraud was dealt with poorly, 25% said they would close their account and 41% said they would close that account and any other account they held with the bank.
Get the Balance Right
At Fair Isaac Advisors
we have the experience and methodology to help customers to take a more holistic approach to fraud management. By understanding all the metrics you need to consider, we can help you to uncover the areas specific to your business where taking action will have the most positive impact — not only on the fraud department but on the entire business.