Striking a balance between fraud and friction

There’s no denying that fraud is on a disastrous upward trend, and while financial institutions are keenly aware of this fact, they need to start considering the lasting effects these threats have on consumer trust. IDology’s 5th Annual Consumer Digital Identity Study found that 56% of consumers expect fraud attempts to increase, up from only 38% a year earlier.

As fraud risk continues to increase, consumer needs and expectations are reaching new highs. Security and ease are now critical components of consumers’ digital interactions. Identity-verification solutions that analyze multiple diverse data sources provide visibility into cross-industry fraud intelligence and allow financial institutions to strike a needed balance between safety and convenience.

Institutions need to facilitate trust as a fundamental part of any workflow they provide to consumers. Losing consumer trust when an experience feels insecure or when a digital interaction fails to meet a consumer’s expectations can have a significant impact on an institution’s competitiveness. IDology’s survey found that 37% of consumers say they’ve abandoned efforts to sign up for a new online account because they don’t trust the process.

Additionally, a lack of trust causes consumers to be more careful about where they share their personal information. Close to two-third of those surveyed report being selective about doing business with companies that require personally identifiable information. Consumers are also generally motivated to move on if it means a better experience, with 70% of consumers surveyed saying they are actively considering switching financial services providers.

In a competitive market, building trust can be an essential differentiator in making or breaking consumer interactions. Given that consumers are less trusting and require more assurance, especially during the “trust moments” associated with new-account creation, institutions must be able to quickly verify legitimate identities in a less invasive and more transparent way. This can be accomplished with flexible and data-diverse verification technology, which empowers institutions to ensure that onboarding is quick and easy.

A lack of trust brought on by fraud poses a clear challenge to institutions, but fraud also causes lasting effects. Consumers reported a variety of downstream fraud attacks after discovering their identity was stolen. Financial-related fraud topped the list, with illicit money transfers from a bank account, card-related fraud and mobile-based attacks being the most common.

To make things more challenging for institutions, they can’t rely on consumers to act even if it is in their best interest. After discovering their identity was compromised, only 16% of consumers signed up for an identity protection service, 17% signed up for a credit monitoring service and 30% turned on fraud alerts through their financial provider.

Consequently, institutions are uniquely positioned to protect a consumer who is looking for more security but is also mostly unaware of what actions to take. Only 17% of survey respondents said they knew what synthetic identity fraud is, a fraud type that most institutions are likely well aware of. With better identity-verification technology in place, financial institutions can build trust with low-friction workflows while preventing fraud.

Financial institutions are continuously challenged to stay one step ahead of fraud, but they’re also challenged by consumer expectations. In a highly digitalized environment, consumers expect seamless interactions that are as secure as they are helpful. With modern identity-verification technology, institutions can meet these challenges head-on.

Among survey respondents, 76% said that knowing an online company is using advanced identity verification would influence them to use the company’s services. However, 32% said that a quick and easy process is the most important factor in opening an account, and 45% showed a strong dislike for companies that require additional security checks. In other words, consumers value security, but they demand convenience.

To satisfy these seemingly conflicting sentiments, financial institutions must provide consumers with secure digital experiences that deter fraud without adding unnecessary friction. Intelligent identity-verification technology can strike the right balance between fraud and friction. Correctly implementing automated, multi-layered identity verification can streamline workflows and apply friction only as needed to the right consumer at the right time for more effective onboarding that also fosters loyalty and builds long-term relationships.

Christina Luttrell is chief executive officer of GBG Americas.

Find out where things stand with fraud protection and how it can be done more efficiently and effectively in the BAI Executive Report, “Finding an edge in fraud’s cat-and-mouse game”.