The global pandemic has prompted consumers to reimagine how they interact with others, how they handle their daily duties, and how they conduct their financial business. It has also caused community bankers, who pride themselves on personal interaction and customer service, to examine new ways to safeguard their customers and their payments offerings.
No one can deny the rapid increase in adoption of digital services and that trend is expected to continue as these offerings evolve. Payments and the payment systems are systemically important and with rapid change, fraudsters have and will always seek out any vulnerabilities in these new options.
The financial industry has seen a notable surge of consumers embracing digital payments. Unfortunately, this rapid acceptance and increased activity via online and mobile channels has also brought increased payments fraud and associated costs.
Though most digital payment instruments incorporate some safeguards, such as two-factor authentication, face and thumb print IDs, and QR scanning, it is becoming more challenging to validate customers and balance user friction as fraudsters become more agile and elusive. Below are four challenges and observations focused on protecting banks in the digital space:
Significant fraud impacting midsize and large e-commerce merchants: It is more important than ever that community banks participate in the most sophisticated scoring and verification tools available to identify potential risky transactions, using best practices that help lessen the friction for consumers shopping online. The introduction of new 3DS 2.0 risk-based platforms has proven effective in mitigating large fraud runs in the online space.
Inability to identify legitimate customers from cyber bots and synthetic identities: Because there are several concurrent actions taking place during an ecommerce transaction, community banks need risk tools that authenticate customers both digitally and physically, while also identifying the riskiness of the transactions. Velocity checks tied to some behavioral metrics and to device authentication has proven helpful.
Consumer adoption of various mechanisms to make their transactions more convenient: Consumers are using many methods to complete purchases (i.e., mobile apps, mobile wallets, curbside pickup, etc.). As consumers become increasingly more comfortable with conducting business digitally, banks will need to deploy an enterprise wide approach to fraud prevention across old and newly formed channels.
Striking the right balance between protecting the brand and customers: Consumer education and consistent communication can help your customers feel that their bank is providing direction and safety. Recruiting customers to assist in their own protection by providing advice to help mitigate their risk exposure is also helpful and is a “win-win” for all parties.
As traditional verification and authentication methods become less effective in this digital space, it will become increasingly important for community banks to incorporate an enterprise approach to digital fraud mitigation to protect their customers and their bottom line.
Alan Nevels is senior vice president of card risk and merchant services at ICBA Bancard.