A New Approach to Risk Management – How Retail Banks Can Cut Fraud and Keep Customers Happy

by Martina King, chief executive officer, Featurespace
In today’s dynamic, highly competitive retail banking industry, being able to win new customers and retain existing ones is the key to driving competitive edge. Innovative technology often has a vital role to play in helping banks achieve these goals, enabling them to get to know their customers better and keep them happy while at the same time making more profit for the bank. Much of this ultimately comes down to driving enhanced customer engagement. And this is critical even when implementing systems for risk management.
Unfortunately, the rules based systems used by retail banks at the moment are inherently flawed. They operate in far too rigid a way, often blocking financial transactions outsider the customer’s home country, for example, or refusing orders over a specific monetary value.

They also fail to learn from what’s gone before. In my own personal experience, they don’t understand that in December, I’m going to be spending a lot more than I usually would. They don’t acknowledge that my friend is constantly visiting a variety of countries across Europe, and would like his cards to remain functional while out there. They don’t even want to let my colleague buy her son an 18th birthday present. This might seem a little unfair, but fairness isn’t usually at the forefront of a customer’s mind when they’re unable to complete a transaction for – as far as they’re concerned – no good reason.

And what do customers do when this happens? They call up their bank. The fact that it may have been the retailer that blocked the transaction, or anywhere else along the decision making chain, is not something they will consider. Typically, the end result is angry customers who blame their bank and ultimately may even defect to their competitors.

Keeping Fraud in Mind
Of course, technology solutions in this space do need to manage a delicate balancing act. Close customer engagement needs to be tempered by effective risk management. Fraud remains a significant and growing problem across the UK retail banking sector.

So while retail banks need to be able to take on more customers and get closer to them, they also need to be able to accurately identify and intercept real problems at source. Real-time capability is also key here. To be effective, solutions applied to this challenge have to be able to automatically process thousands of pieces of data in real time, to allow companies to identify potential risk and make instant and objective decisions about whether or not to take on new business.

Finding a Solution
Fortunately, technology from one of the UK’s leading providers is able to address these issues. By employing a behavioural analytics engine which self-refines based on every single customer interaction – tracking each one throughout their full lifecycle – banks can make educated predictions about likely outcomes based on statistically valid analysis rather than exact decisions based on flawed models. Crucially too, they can do this in real-time, allowing the bank to act immediately when any anomaly is flagged up.

So what are the real implications of this? It gives a bank’s marketing and risk management teams an opportunity to become new best friends, united by the common goal of attracting new customers, retaining them and keeping them safe. By paying attention to the way individuals behave, this particular analytics engine can not only tell you what constitutes normal behaviour for an individual, it can also flag up abnormal – when that person steps outside of that normal acceptable pattern of behaviour. With alerts raised in real time, banks are still able to automatically block transactions, or send those alerts to their fraud team, but with a much higher rate of accuracy. So, from the bank’s perspective, they create far fewer irritated customers but they are still not compromising on risk.

This approach to analytics offers marketers a range of additional benefits . The rules-based systems used at the moment are not only highly annoying to many customers who have done nothing wrong but are still put to significant inconvenience and aggravation, they also mean that the bank struggles to get to know their customer and get close to them. With an approach based on behavioural analytics, the focus is squarely on the individual. A detailed, granular understanding of each customer’s particular needs, motivations and circumstances makes cross-sale and up-sale opportunities easy to identify and develop.

With the power back in the hands of the bank, they can rest easy knowing their customers will feel safe and satisfied – and so they will. They can conduct their business safe in the knowledge that their systems are providing pinpoint accuracy for targeting fraud while increasing the potential for growth, and ultimately helping to maintain loyal customers.