By Martin Warwick, FICO

Consumers are increasingly putting fraud protection amongst their top two criteria when selecting a financial service provider, sometimes even above pricing. But for financial providers, with the proliferation of mobile devices and digital services and the new fraud vulnerabilities they bring, protecting transactions and accounts is more challenging than ever.

Providers who successfully defend against these growing vulnerabilities have better customer service – and therefore a competitive advantage. A recent FICO survey of banking customers who experienced fraud found that 68% said the incident was handled so well that their opinion of the provider improved. Among those positively impressed by the experience, 19% later recommended the provider to a friend, family member or colleague, 10% mentioned it in a positive social media post, and 10% opened additional accounts with the provider.As the battle for market dominance shifts from product-based advantages to superior branded customer experiences, security management is now at the forefront of customer loyalty, and vice versa.

The growing importance of fraud protection

The most powerful way to simultaneously improve customer protection and customer experience is with better fraud detection and prevention. Today’s best detection systems pack an advanced analytical glance into the 40 to 60 milliseconds – faster than the blink of an eye – it takes to determine fraud risk in an incoming transaction.

Various analytic innovations combat fraud in different ways and, working together, they provide multiple layers of defence for catching more fraud while interceding in fewer legitimate transactions. For example, advanced user behavioural analytics capture the granularity of customer habitual patterns. A customer may have an amount they typically withdraw from an ATM at a particular location at certain intervals. Other analytics confirm that a device the customer is using for an online or mobile transaction has been used by them before and can be trusted. These insights continuously update as behaviour evolves to sharpen distinctions between normal and suspicious activity which makes it easier to distinguish any fraudulent transactions.

Analytics can also examine transactions based on the behaviour patterns of participants other than the customer such as merchants, user devices, ATMs and POS terminals. A customer’s online purchase of expensive sneakers, for instance, might not look suspicious if viewed in isolation, but if the merchant has experienced 20 times its normal volume of such sales in the past hour, a fraud scheme may be underway. Additional analytics glide across a wide range of external data sources to ensure the customer’s information and activity is in no way linked to that of suspicious individuals or known criminal networks. Such connections could indicate an account takeover has occurred as part of an organised fraud scheme involving many actors, so are crucial to notice.

The customer always knows best

An important trend in fraud management is ensuring customers have the opportunity for some degree of control and participation in protecting their accounts. For instance, customers who elect to receive two-way fraud alerts on suspicious transactions can help stop fraud sooner. These quick communications also increase the effectiveness of adaptive analytics by providing more abundant and frequent fraud/no-fraud data.

A FICO survey found that only 46% of British consumers said they would like to receive such alerts, while in the US 63% of consumers said they were interested. Some customers will want to go further: in the same FICO study, 50% of consumers surveyed in the US, Canada and UK said they wanted to use a mobile app to control the types of transactions for which their cards could be used and the maximum purchase amount for allowable transactions.

Understanding the customer

“Knowing the customer” in fraud management has traditionally focused on transactional analytics; recognising usual vs. unusual behaviour patterns. This still remains central in fraud detection, with today’s best analytics providing deeper more detailed behavioural insights than ever before. However in this era of changing payment methods, mobile devices and customer attitudes, there are other important things financial service providers need to know about their customers to deliver top fraud protection and customer service.

For instance, there has been a shift in focus to which devices and payment or communication methods consumers are typically using, or will be interested in trying. A good example is the introduction of Apple Pay, which has allowed customers to pay using their mobile phone.

Fraud management organisations need to make better use of existing technology so customers get a sense that your company knows who they are. Innovative companies use a variety of methods from surveys and social media to quick questions via two-way messaging to take frequent readings of where their customers are at today. This information can then be leveraged to advance fraud tactics.

Today’s flexible fraud management platforms let financial service providers make information connections gradually, allowing them to focus on where they will have the biggest impact on improving customer experience. These enhancements to the customer experience will ensure customers feel secure and therefore loyal to the provider.

Harnessing data to improve customer loyalty

Metrics for assessing customer loyalty are expanding beyond the traditional tracking of revenue, usage and attrition rates. Many financial service providers are paying careful attention to their Net Promoter Scores as they work to improve fraud strategies. They’re analysing fraud data against customer satisfaction surveys to establish customer habits and demands.

However,financial service providers now need to go further to understand not only what customers say, but what they do when impacted by fraud or anti-fraud actions. The progress of the financial services sector relies on the analysis of detailed customer behavioural data; particularly focusing on how customers are treated, and what happens afterward.

The next step is to use this customer data – how they transact, prefer to be contacted and how they react to fraud – to create targeted fraud management strategies. In real-time decision flows, these segmented strategies balance fraud risk against the probable impact on customer experience so businesses can determine what action to take. Additional business rules determine how to take action in a given situation based on customer preferences and communication history. This will allow financial service providers to predict consumer behaviour and therefore enhance customer satisfaction.

While it’s hard to foresee the precise deciding factors in customer loyalty, I would happily say that customers will opt for financial service providers that combine security and convenience in stand-out ways. Therefore, providers that offer exceptional fraud management capabilities will have a market-changing advantage. Organisations that successfully find ways to both protect and please will become the strongest contenders in the new battlefield of customer experience.

Martin Warwick is the “fraud chief” for FICO in EMEA. As a principal consultant, he works with clients throughout the region to improve their fraud operations.