Fostering Financial Inclusion While Combatting the Growing Risks of New Account Fraud
Urged to open their doors to more consumers, banks are simultaneously under pressure to reduce the impact of rising fraud. Combatting new account fraud while working to foster financial inclusion is a tall order. As banks continue to search for the best way to keep fraudsters out of the banking system while bringing more consumers in, they should consider solutions that address these two seemingly distinct challenges in unison. The methodology and the technology that banks use to screen and validate new account applicants should have a dual purpose, identifying consumers worthy of deposit accounts and also uncovering criminal intent.
With 477 million customer records breached in 2015, according to Aite Group, criminals have massive amounts of consumers’ personally identifiable information (PII) at their fingertips – just what they need to attempt new account fraud. Financial institutions are already seeing the effects, and not just in retail segments; this type of fraud is rising across deposit and credit applications. Aite Group confirmed that demand deposit account (DDA) application fraud is expected to grow from $466 million in 2015 to $694 million by 2020, with losses from first- and third-party fraud expected to total $1.2 billion this year and reach $2.1 billion by 2020.
Addressing new account fraud now is even more vital for banks planning to offer (if they do not already) online and mobile application services. Aite Group reports that online application fraud is already eight times higher than the application fraud occurring within a branch; it is much harder to evaluate an applicant’s credentials in the faceless, digital banking environment. This service, which carries significant resource savings and customer convenience benefits, simply cannot be possible without the use of technology capable of validating both an individual and the device on which he or she is transacting.
Banks have demonstrated preparedness to put considerable resources toward thwarting new account fraud. Aite Group anticipates financial institution spending on DDA application fraud to rise to $542 million by 2020, up from $384 million in 2015. Likewise, financial institutions are projected to expend another $688 million by 2020 on credit application fraud solutions, more than $200 million more than the $464 million spent in 2015. Solving for new account fraud in a way that enables banks to confidently offer accounts to a greater number of consumers is about identifying the right solutions. They should lean on technology that leverages the latest authentication techniques to validate an applicant’s credentials and device. Only with this level of understanding about who they are dealing with can a bank both mitigate fraud and tailor account solutions based on an individual applicant’s unique history.
About the Author: Robin Love is Vice President of Product Management for Identity solutions for Early Warning, a leader in payments and risk solutions. She focuses on the company’s suite of solutions that address authentication, risk and fraud concerns throughout financial services and other industries. Ms. Love joined Early Warning in 2003 bringing to the company more than 20 years of experience in innovative new product development, product management and business development.