Does Your Fraud Department Have the Right KPIs?

It’s often said that if you can’t measure it, you can’t improve it and this is particularly relevant when you’re managing a delicate balancing act. Financial institutions face this every day as they try to manage the sometimes conflicting needs of controlling fraud, growing the business and keeping customers happy. Doing a fantastic job of driving fraud rates down is undermined if it creates 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 customer lifecycle. It 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 cases are resolved. Fraud managers need to think about the KPIs they use to manage the performance of the fraud department, from both perspectives: reducing loss and improving 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 impact of asking for too much information.
• Applications are declined for fraud risk 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.
• Cases 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. 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 loss 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 there is suspicion, but investigation shows that it 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 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 can 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 often find that their emphasis on 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 a poor experience.
• Cases 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.

A recent FICO survey shows the importance of customer experience in the case management process. When we asked 12,000 people in 12 countries what they would do if they were dissatisfied with how a case was handled, 27% said they would close their account and 56% said they would make a complaint to the bank. These responses suggest that lost business, increased operational overheads and poor customer satisfaction result from fraud case mismanagement.

How FICO Can Help You Measure and Improve Your KPIs

At FICO 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.

Note: This is an update of a post from 2018.