This is the first in a series of articles in which we tackle some of the most topical fraud issues and decisions facing fraud managers today. We kick off with the concept of contact-free. This is not a new issue, but certainly one which we’ve been hearing a lot more about from our global clients.
What Is Contact-Free?The situation should be familiar. A customer makes a large value "out-of-character" purchase and is contacted by the financial institution to verify that the purchase is genuine. Some institutions will then use a “contact-free” period in which the customer will not have other such purchases queried.
The logic is simple: The customer may be in the process of renovating a home or planning an overseas holiday, so needs to make a series of large purchases over a number of days. Materials need to be bought and suppliers paid, or flights and hotels booked. While the customer may be satisfied and even gain assurance by being asked to verify the first transaction, having each purchase queried thereafter will most certainly annoy them.
Using the holiday example above, a customer booking connecting flights or hotels online might miss out on special offers if he or she has to verify each purchase.
Not only is the customer experience diminished, but in these days of social media, the disgruntled customer may take to Twitter or Facebook to vent their frustrations. Customers may also take their business elsewhere.
The contact-free period thus removes friction for the customer. But while a contact-free period makes sense from a customer experience point of view, a balance needs to be struck between this and fraud detection and prevention. Fraudsters, aware of contact-free policies, may exploit the contact-free period (after an initial verification) to make large purchases.
Managing the ConundrumA common challenge in managing the contact-free conundrum is determining the optimal duration period specific for the customer to be contact free. This should be an instrumental part of the fraud risk appetite and will likely be different depending on the client segment or previous fraud impact.
Is your focus more on genuine customer decline rates or more on the fraud prevention aspect? It’s usually a combination of both, so it’s worth comparing the decline rates against the associated detection rates over varying durations to come up with the optimal balance.
Another challenge is how to deal with suspicious transactions once the contact-free period has been invoked. During the contact-free period, the business must consider a failsafe that prevents runaway fraud, but in a discreet way that ensures peace of mind for customer and institution alike.
Where there is a continued escalation of risk, there are a number of options available, ranging from reactivation of cases, either based on a fixed immediate or delta score threshold, to more complex "force case" approaches that allow greater flexibility in terms of treatment strategy and customer segments. The right strategy depends on the individual financial institution and the market they’re in.