Female fraudster thwarted as banks turn fraud prevention into revenue generation

For banks, fraud losses are like a snowball rolling down a mountain. As the snowball picks up momentum, it gets larger and larger until it poses a significant threat to banks’ bottom lines. That’s why it’s time for banks to think of fraud prevention as a revenue generation opportunity.

Recent data from the Federal Trade Commission (FTC) shows US consumers faced significant losses due to fraud last year. Among the FTC’s findings:

Statistics from Federal Trade Commission break down how fraud has impacted customers

These are some pretty staggering statistics for US financial institutions to digest. And unfortunately, with the economic outlook increasingly uncertain, fraud threatens to eat into more of FIs’ revenues.

As Recession Fears Mount, So Does the Fraud Loss Threat

In these times of economic uncertainty (“We’re in a recession … Wait, no we’re not! … Okay, a recession is imminent! … Actually, hold that thought…”) banks can’t afford to see financial losses due to fraudulent activity. 

People  are more likely to get roped into fraud and scams during times of economic uncertainty. This is especially true for those who are down on their luck or in a highly vulnerable financial situation. Fraudsters relied on a host of tactics during the COVID-19 pandemic, from account takeover attacks, account opening fraud, card not present, and a host of scams. The threat of fraud losses from these tactics and more is likely to rise if a recession unfolds. 

At the same time, FIs are facing increased pressure from regulators to compensate fraud victims. With liability for fraud losses potentially shifting to banks, there’s no better time to reassess  fraud prevention strategies and shift to fraud prevention as a revenue generation opportunity. 

How to Treat Fraud Prevention As a Revenue Generation Opportunity

To protect their revenue streams, banks must implement an effective fraud prevention strategy. Here are the components that make up a strong fraud prevention strategy that strengthens revenue generation.

Build fraud prevention into new products

Fraud prevention should contribute to revenue generation at the product level. Product teams must have a clear understanding of the FI’s fraud prevention strategy. This understanding should be top of mind as new products are developed to both encourage customer adoption and pinpoint potential fraud vulnerabilities. Profits and losses can be tied to the product team’s efforts. If significant losses are linked to a specific product, the FI can implement stronger controls. Product and fraud teams must see themselves as partners in this endeavor and focus on ways to collectively advance safety with both the FI and customer in mind. This is especially important as new online channels or bank products are released.

Implement strong fraud reporting practices

The next step for a bank to turn fraud losses into revenue generation is to adopt a strong reporting framework. Banks must collect reports from customers who claim they were scammed, even if they are not currently liable for reimbursements. Collecting these reports will help banks develop a clear picture of how much money the bank’s customer base loses to fraud on an annual basis. This knowledge is critical to understanding and forecasting annual fraud losses for planning and budgeting purposes. Banks will need to account for this figure well in advance, especially if regulators continue their trend of making FIs liable for fraud losses. 

Share information with other financial institutions

FIs should tap into insights from other organizations to get a better understanding of how their own fraud prevention efforts compare. Talking with peers in the financial services industry can yield new ideas and strategies to managing fraud. These conversations can offer insights into how different organizations of similar size and with similar assets tackle their own fraud prevention challenges. FIs should also consider participating in quarterly roundtables, user groups, and industry conferences to network with peers. 

Having these connections is especially important in times of crisis. Industry peers can reveal if they’ve experienced a fraud attack and share their knowledge. These types of collaboration improve the overall financial services ecosystem.

Stay ahead of financial regulators

No bank wants to have its name appear in the press over lax fraud prevention controls or for getting slapped with an expensive fine. FIs need to make sure their fraud controls are keeping up with the latest fraud trends – whether it’s ATO attacks, scams, or another tactic. There are multiple moving parts across the fraud landscape. FIs need to do whatever they can to anticipate and block whichever tactics fraudsters employ and respond accordingly. 

Conduct an organization-wide fraud defect analysis

The only way for FIs to adopt an effective fraud prevention strategy is to understand how their organization experiences losses. Performing a top to bottom defect analysis enables FIs to pinpoint how fraudsters were able to pull off a fraud. Understanding whether a loss occurred because of a policy, strategy, or technological issue is critical to stopping future losses and creating revenue-generating opportunities.

Money lost to fraud is the same as losing revenue. Banks need to put a tourniquet around this issue to prevent their fraud losses from spiraling out of control. Taking these steps can help FIs stem their losses and turn fraud prevention into a key avenue for revenue generation. After all, it’s better to stop a surge of fraud before it snowballs into a much bigger problem.

Ready to bolster your fraud prevention efforts and protect your organization’s revenue? Schedule a demo to see our fraud prevention technology in action.