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What banks can do to close the fraud knowledge gap

Educating consumers about the potential dangers helps keep them safe, and it also protects the industry.

Jul 7, 2022 / Fraud Prevention

Financial institutions are keenly aware of fraud, the different forms it can take and the importance of keeping pace with ongoing threats. The average consumer, however, does not maintain the same level of awareness. The recent push to a highly digital environment has increased the risks that consumers face, starting with application fraud.

The financial services industry has made great strides in fighting application fraud by developing innovative ways to verify customer identities. However, if we expect to make continued progress in limiting application fraud incidents and mitigating their effects, we need to invest more in cyberfraud security education.

As an example of the challenge financial institutions face, half of respondents to our recent consumer study said they were unprepared to protect their identities when compromised. Even when consumers were notified of a compromise, only a quarter enabled two-factor authentication and fraud alerts for the affected financial institution. And only one in five Americans said they knew about synthetic identity fraud.

Most Americans are concerned about cybersecurity breaches and ransomware attacks, and many strongly believe they have a personal responsibility to protect their identities. With consumers also expecting fraud to rise, they deserve to know what’s being done to deter it. As experts in the industry, we owe it to our clients, account holders and partners to educate them on various fraud threats and how the industry is combating them.

Consumers have skin in the game

In the past decade, application fraud has become one of the most significant concerns among banking executives. This trend accelerated during the global COVID-19 pandemic as consumers moved to online transactions.

Our consumer digital identity study found that 96 million Americans experienced a phishing attempt during the pandemic, with a majority experiencing three or more attempts. ACH/wire fraud spiked 15%, presumably due to rising peer-to-peer usage, and first-party fraud saw a significant increase that may be attributable to familiar fraud and charge-back fraud.

Independent research has identified the financial impact of fraud and provided predictions for growth. Aite-Novarica estimates that synthetic identity fraud will reach $2.4 billion by 2023. The banking industry has a wealth of knowledge on various types of application fraud and their financial impact, but little of this information makes it to American consumers.

Accountholders likely do not need or care to know about every form of application fraud. What is critical are the potential benefits and risks associated with educating consumers. Given the industry’s stake in deterring fraud, it would be valuable to keep consumers informed. A well-informed consumer will likely practice better digital hygiene. By leaving consumers to fend for themselves, banks run the risk of getting burned by avoidable mistakes.

Knowledge is power, especially when it comes to fighting fraud. We need to create opportunities to share our knowledge and expertise with consumers. Keeping accountholders informed means sharing the “why” behind security, onboarding and verification processes. Without knowing why a particular rule or process was put in place, consumers are prone to apathy at best.

Execution and consistency are key

A study by the Investor Education Foundation reveals that participants who received an “educational intervention”—a video or reading material showing common techniques implemented by investment fraudsters—were more likely to recognize investment fraud than those who did not. These interventions also increased participants’ overall knowledge about fraud.

For financial institutions, a key takeaway from this study is the power of execution and consistency. Banks could share educational material via social channels or email to keep consumers informed. Regularly providing material on branded websites is also a popular industry practice. Whatever the tactic, it’s essential to remember that education makes a difference, but it needs to be ongoing.

Keeping account holders educated allows them to be active participants in important processes such as onboarding. Additionally, as they gain a better understanding of how specific processes protect their identities and minimize the potential for fraud increases, they may become less resistant to the identity verification process.

Christina Luttrell is the chief executive officer at GBG Americas.

Explore ways to stem the growth of banking-related fraud in the BAI Executive Report, “Banks are pushing back against the surge in fraud”.