4 minutes
Employing detection and prevention tools behind the scenes reduces friction while bolstering security.
Credit unions have long been known for prioritizing a member–first approach—friendliness, accessibility and the well-being of their members. This model, which places a premium on relationships, means that in many ways credit unions lead the financial services sector in embodying the customer experience ideal.
The reality is that other business imperatives can sometimes create challenges for this ideal, particularly with the rise in identity fraud that has accompanied the increase in digital interactions. Given how central the member experience is to their organizations, credit unions often struggle to implement fraud mitigation efforts that don’t unnecessarily add friction to member interactions.
A 2022 survey of financial services leaders, conducted by Arizent and American Banker, found that the COVID-19 pandemic accelerated financial services institutions’ efforts to overhaul the digital banking experience, but pain points remain as organizations work to minimize digital identity risk. The top priorities for at least half of these organizations included improving digital product origination and onboarding (58%), process automation to simplify or enhance the customer experience (53%), delivering a seamless user experience (53%), and improving fraud prevention and mitigation (50%).
Responding to Competing Requirements
Nearly a quarter of financial institutions (23%) reported that separating legitimate consumer interactions from potentially fraudulent ones represents the most significant challenge in preventing account takeover fraud, according to the Arizent survey. Difficulties in distinguishing safe from risky interactions can lead either to increased fraud rates (if security measures are too loose), high rates of false positives and high volumes of manual review—all of which adversely impact the costumer experience.
Achieving this dual obligation—protecting customers while providing seamless experiences—reveals how well financial institutions’ fraud mitigation processes are aligned with their business objectives. Half of those in the Arizent survey cited excessive manual review and false-positive fraud detection rates as a relatively significant challenge. However, only half of financial institutions (not necessarily the same half) indicated that they have clarity on what their manual review and false positive rates are; 7% said they have no real visibility into that information at all. This lack of visibility can exacerbate difficulties institutions face in determining how to limit the need for manual reviews without impairing their fraud detection abilities.
Working in the Background
For most financial institutions, the best way to enhance fraud mitigation and ensure a seamless customer experience is to push as much of the fraud detection work to the background as possible. The vast majority of interactions are initiated by legitimate members, and credit unions should embrace tools that expedite transactions of trusted individuals while flagging only higher-risk transactions for step-up challenges or manual review. The more successfully organizations can automate their verification and authentication processes, regardless of the channel, the less they should need costly and friction-filled processes such as manual review or identity interrogation.
The first step is to adopt a consumer identity model that views and vets identities from offline, online, device-based and contact center channels. Authentication solutions that provide the broadest view of identity not only incorporate global third-party consumer identity datasets, sophisticated device intelligence and behavioral insights, but they also assess the strength and duration of relationships (such as how long and how actively an individual has used a given phone number). Access to high-quality data on consumer identity should be combined with robust data on confirmed fraudulent actions and devices, along with the use of advanced machine learning tools, to uncover patterns of fraudulent activity. These tools act in real time, reduce false positives and manual reviews and are generally invisible to the member—as the majority of consumers are “safe” and receive seamless service, while a minority of risky interactions receive “step-up” authentication measures, such as knowledge-based authentication questions, for further vetting.
Finding the Goldilocks Zone
Although members expect fast and easy interactions, they also want to know their credit unions are actively protecting their information. While most authentication and verification activity can occur in the background, there are times when users can anticipate greater scrutiny—such as when they are calling from a borrowed phone or using a device with a new SIM card. By explaining why certain measures are being taken, organizations can build goodwill and reinforce their reputation for prudence.
Financial institutions using behind-the-scenes fraud mitigation tools allow legitimate users’ transactions to proceed with little to no friction. At the same time, these tools can identify potentially significant issues that require intervention, allowing organizations to free up resources to address those genuinely higher-risk interactions.
Credit unions are known for delivering a positive member experience. To maintain that experience in the face of rising fraud rates, CUs should consider employing technology tools that place the majority of fraud detection work in the background so they can assume more control over employing only the necessary friction at the right time.
Naureen Ali is VP/product management for TransUnion.
