How Machine Learning Can Fight New Fraud as Open Banking Reshapes Commerce

What do PSD2 and GDPR most have in common? A dedication to customer experience. The most impactful regulations of the last decades are introducing a resharpened focus on the customer, now that the Revised Payments Service Directive (PSD2) and the General Data Protection Regulation (GDPR) are reshaping how personal data is used and managed.

If we look at the way consumers have been engaging with banks from a historical perspective, society has rapidly evolved. Before, engagement meant going to a physical branch. Today engagement means self-service online processes. This digital shift is only accelerating as the advent of open banking creates the basis for new types of financial institutions, some of which exclusively offering online services.

According to EY’s Global Consumer Banking Survey, nearly 75% of consumers still perceive a bank with traditional branches as their primary choice. But at the same time, 40% have stated they are less dependent on their current bank as their main financial services provider.

These numbers point to the fact that alternative banking is becoming more appealing. However, the same survey reveals that the main factors behind alternative banking are declining trust in financial institutions and the associated customer engagement channels. In sum, most of the reasons why customers would consider using a non-bank provider are related to their search for better experience.

It’s no wonder that neo banks and challenger banks are crowding into the space. The fact that financial markets are evolving into open banking is not just about regulations and external factors. It is also influenced by people’s expectations. This causes major pressures for the banking industry like never before, specifically to invest in more innovative internal systems in order to retain customers who have become more digital and autonomous.

The creation of neo banks is an example where the use of APIs is the key, that will, in turn, support the conception of customer experience strategies. These banks are truly proactive and working toward bringing digital innovation in order to provide user-friendly services and accesses.

One of the challenges of these new ways of banking is that advanced methods of crime and fraud start to be simultaneously developed. In order to fight fraud, organizations need to be one step ahead of fraudsters at all times and develop sustainable strategies that can support their growing businesses. If there is one thing customers really want side by side with innovation, it’s the assurance that their data is secured.

This is why when the time comes to implement a digital strategy, banking organizations should consider an omnichannel fraud platform to deal with the new ecosystem of risk. McKinsey recently reported that financial services are the leading early adopters of machine learning and AI, confirming banks are rightly embracing the digital revolution.

Feedzai is currently partnering with a high street bank in the design and implementation of a comprehensive strategy towards open banking. In a webinar with Andrew Renshaw, the Head of Digital Fraud and Customer Experience at Lloyds Banking Group, Mr. Renshaw pointed to three drivers for bringing machine learning for fraud into his organization:

  1. The need to utilize massively higher volumes of data in decisions,
  2. The increasing complexity in organizational decision-making and transaction channels,
  3. The strong demand for a flexible system that could navigate two great unknowns: how criminals will react, and how customers will react.

Feedzai is going to share insights about how machine learning capabilities are reshaping the banking industry at MoneyLIVE: The Future of Retail Banking, being held in Amsterdam next March 12-14. Feel free to join our team for a conversation at booth #1. Also, don’t miss the chance to listen to our speaking slot on day 2 at Session 4: Winning in the artificial intelligence arena.