Why Should Banks Automate More Fraud Communications?

Fraud communications and other interactions are increasingly seen as a vital part of the customer experience.

by Russell Robinson

April 12, 2018

It used to be that KPIs for the fraud department focused only on loss prevention, aligned to the amount of fraud stopped and money saved – this is no longer the case. Fraud communications and other interactions are increasingly seen as a vital part of the customer experience.

In a recent survey, we asked heads of fraud where they thought the most revenue was lost. Almost half reported that the amount lost to poor customer experience, as a result of false positives, was higher than the amount lost to genuine fraud.

Fraud departments that step up to play their part in customer retention and satisfaction are transforming themselves on the balance sheet to a revenue-generating center. To this end, today’s fraud department is likely to have additional targets that include:

Customer satisfaction
Reduced false positive ratios
Reduction in cost of operations
Target levels of automated fraud communications (to remove friction from the customer journey, improving customer experience)

Customers expect to interact on a number of new channels and there is little tolerance for friction or disruption. And when a process goes wrong, customers don’t see the process at all, they see the brand making their life difficult. Take having a payment declined, when trying to rent a car abroad, for example.

Those businesses that don’t respond to consumer demand for convenience will ultimately fail. We’ve already experienced this; once-ubiquitous brands such as Blockbuster and Woolworths have disappeared. Conversely, those that offer a friction-free customer experience prosper; Netflix, Amazon and Monzo are some examples.

What Interactions Can You Automate?

The fraud team can inadvertently block a smooth customer journey, but automation helps by:

Making alerts to suspected fraud fast and appropriate. This is done by using automated channels to contact customers with fraud communications on their preferred channel. Because there is no need to wait for a human operative to take action, disrupted processes can be put back on track quickly.
Giving customers more control. Automated methods allow them to make decisions that make their lives easier — for example, to freeze a card, or prove a transaction is legitimate and allows it to proceed.
Letting customers use the channels they love to access other areas of the bank quickly. For example, customers can use touchID to authenticate when trying to start a conversation with an agent in telephone banking.

We have found that customer satisfaction has increased in those banks that deploy higher levels of automation in fraud management. Customers appreciate the visibility of such fraud control and insights into their account activity, particularly when they can see that their bank is reacting immediately to threats. Rather than view such controls negatively, customers are likely to view them as proof that their bank is taking necessary and timely action to protect them, whilst giving them technology that they love to respond quickly and easily.

Despite the focus on customer experience, the fraud department must still meet objectives related to identification of customers and resolution of fraud cases. Fortunately, we found that the role of automation is equally important in delivering this. We have seen a direct correlation between the amount of automation and the overall resolution of all fraud cases. The more channels and processes that were automated for fraud management, the more likely it was that a case would be fully resolved, even outside of the automated channels.

How Many Interactions Are Fraud Departments Automating?

Despite the clear benefits of automating fraud interactions, there is a wide range in the amount of automation deployed, as shown below.

Since automation improves both customer satisfaction and case resolution, those at the lower end of the adoption scale are taking a big risk. The reputation of their brand, the value of their organization and ultimately their own jobs are at risk – a fraud department that is not performing is a candidate for outsourcing, and we have seen this happen.

There are legitimate reasons why some organizations have not yet embarked on fuller automation programs. They may have concerns about the security of automated channels or had negative customer feedback about a previous attempt at automation. In my next blog post I will write about these challenges and how they can and should be overcome.

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I further broke this down by looking at the characteristics of the youngest 15% in each group, which occurs at age 29 for the 750-799 group and 43 for the 800-850. We used FICO® Score 9 for our analysis, and examined typical variables of the categories that go into the make-up of the score. <a href="http://www.fico.com/en/blogs/wp-content/uploads/2016/10/FICO-Score-High-Achiever-table.png"><img class="alignnone size-full wp-image-29367" src="http://www.fico.com/en/blogs/wp-content/uploads/2016/10/FICO-Score-High-Achiever-table.png" alt="fico-score-high-achiever-table" width="715" height="747" /></a> Since there’s a lot to dissect in this chart, I’ll highlight a few findings that struck me: <ul> <li>Credit history. Higher scores are undoubtedly associated with a longer time on file. What’s striking is the higher average time on file for the 800+ group, both overall and for revolving accounts (the most common trade line). Clearly, it helps to start credit use early in life – but that’s not the sole determining factor for high scoring. The younger cohorts in both the 800+ and 750-799 groups have time on file medians significantly less than their older counterparts.</li> <li>New credit. High credit scorers do, in fact, pursue new credit. We see little variation in months since last trade line opening and last inquiry among all groups observed.</li> <li>Pay on time. As you might expect, the further in the past the delinquency, the higher the score – and that’s if a delinquency ever happened. 95% of the 800+ people and 72% of the 750-799 group have never been delinquent, which is a striking contrast to the 57% for the total population. The percentages for the younger groups are even higher, especially so for the 750-799ers. Collection items are also scarce for these high scorers. While 23% of the national population have collection items greater than $99, the figures are only 0.5% for the 800+ group and 3% for the 750-799 group. It is clear that, in conjunction with starting a credit file early, paying on time is a key trait of the FICO® Score high achiever.</li> <li>Balance and utilization. Finally, we look at how credit is being used, focusing on revolving product use. (Since most people only have one mortgage or one auto loan, variation in instalment product figures is minimal and driven by payment history, which is near perfect for high scorers, as we’ve seen.) FICO® Score high achievers tend to have more open revolving accounts. While the % active trades and utilization are generally lower, by no means do high scorers avoid the use of credit products. What drives the difference here is the amount of available revolving credit utilized. The 800+ group is roughly 1/4 of the national median, both in total and on their highest utilized card; they also have lower balances and more cards. The 750-799 group is more active and higher utilized, but still only at 2/3 of the national figures. The young 750-799 group compensate with lower revolving balances and, as a result, lower utilization, which is in line with what we see for the 800+ group.</li> <li>Benchmarks. I’d like to point out that while this study provides good benchmarks of the typical credit traits of the FICO® Score high achiever, individual credit profiles will vary widely. And keep in mind that when we sort groups of consumers as a whole by different behaviours, some results may look superficially odd. For example, the 800+ band has a longer median average open account time (128 months) than average revolving months on file (140 months).</li> </ul> So, what do we conclude? A huge takeaway is that high scorers don’t have too much in the way of serious delinquencies and negative public record data. In most respects, the young 800+ people are like their peer group. They really only differ markedly in their shorter credit history and higher non-mortgage balance, both of which are a function of life stage. Our results show that you don’t have to be a credit product hermit; these high scorers have more credit cards. The takeaway is to start credit activity early and maintain well-managed and moderate usage. In many ways, the young 750-799 people are more interesting because their age profile is much younger. Their credit characteristics differ more from their peer group, particularly in terms of length of credit history. They compensate by having almost pristine credit records and lower balances. Ultimately, 39% of US consumers are FICO® Score high achievers, which they accomplish by following common-sense credit practices. It ain’t rocket science!

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