Fraud evolution or revolution?

Recently we conducted some research across businesses in the UK, Middle East and Asia. Somewhat unsurprisingly the research showed us how 99% of businesses said having a single view of their customers was vital to them. However, so far only 24% have managed to achieve that. Those that haven’t cited three main reasons:

  1. A lack of data quality
  2. Departments working in siloes
  3. Limitations in linking technologies together

Another interesting thing we learned is that people often don’t mind the friction that’s imposed because of fraud checks, and even expect it. If there are no visible signs of security, it makes them feel less safe. South Africa and the US are slightly more in favour of this than the UK. But, still, two thirds of UK respondents confirmed they feel more comfortable providing personally sensitive information if security measures are visible – which is a significant proportion of society.

Abandoned transactions are a critical metric for most online businesses, and something they continually strive to reduce. Experian’s research found more than half (53%) of online transactions are abandoned, and a quarter of these are due to a lack of visible security. You could conclude that fraud teams need not worry about imposing checks and affecting the customer journey. However, it’s not that clear cut and there’s a real challenge in finding the right balance of what’s expected – yet acceptable. And these criteria are even more challenging when it is constantly evolving in line with digital transformation too.

So how do you introduce the right level of friction and checks to make the customer feel safe, without disrupting the online journey and causing people to abandon their application? It’s an ongoing conundrum, and the changes markets are currently facing and with emerging regulation such as the PSD2 and Open Banking, it’s only going to become a more pertinent problem to address.

Customer expectations are a big factor. Today’s customers retain much more control of their journey and simply won’t tolerate a less-than-perfect experience.

To solve this, we need to define ‘perfect’. Insight from our global fraud report shows that different countries and different touchpoints define the ideal journey differently. For example, in the UK we’re much less likely to store payment details than India and Turkey. In India, the research highlighted a massive contradiction: people are most likely to feel protected by fraud controls, but see them also as an inconvenience.

Businesses must either adapt to these changing attitudes or face disruption. Before we get there, we need to understand there’s a difference between evolution and revolution.

  1. What is evolution? Fraud changes over time. In our latest fraud report, we concluded that the trends suggest we will start to see first party exceed third-party fraud as a bigger threat in the near future. This is an evolution. Identity theft is moving from actual impersonations to digital impersonations – again, that’s an evolution. Machine learning, some would argue, isn’t new: it’s an evolution of analytics and technology.
  2. What is a revolution? A complete mindset change. Last year’s research found that just 27% of businesses believe traditional business models will disappear in the next five years. This year 97% said they believe it will change. In a year, this a huge shift in perception. The digital, data-driven economy is revolutionising how we’re doing things – causing this complete shift in perception, behaviours and more. The outputs from machine learning now have the potential to revolutionise how decisions are made. How fraud is detected and controlled. And much more.

 

What we can see is how evolution starts to naturally influence revolutions. It is a precursor, and we need to be vigilant of what both mean – or could mean – to retain control. I have had much debate before writing this blog on the topic of evolution versus revolution. Fraud, for me, will always be an evolution. How fraud is perpetrated will change, and the speed will only increase. New tools we access as a society will skew trends, and as barriers are put up, and criminals change tack, new threats will emerge.

Until the day that all data of value is open and public, we’ll continue to see a variance of what we see now, with new threats occurring because of changes to technology or customer behaviours. Fraudsters will expose these changes and evolve their means of attack because of finding new ways to commit fraud.

Disruption means disintermediating. Therefore fraud controllers and teams need to disintermediate fraudsters. If you declassify information, release all of the information into the public domain for example, then all of a sudden the data is no longer confidential. The value of this data is therefore lost.

A concluding thought from me is that fraud controls need to evolve. Failing to evolve at the same pace as fraud could put you and your customers at risk. We hear a lot about innovation – and its ability to revolutionise. But with so many threatened entry points for fraud we need to be realistic.

Thankfully, many are. Our research shows that six out of ten businesses have no ambition to lead the way with fraud but are happy following suit of other fellow businesses. This will help us succeed. Why? Because success, like innovation, comes with economies of scale. And by sharing more data and sharing more risks across the industry – perhaps even across sectors – we can prevent more threats and fraud occurring. We need to work together – the only competition we need to beat is the fraudster themselves.

As a business, have you evolved? Are your fraud practices and processes up to speed? Do they relate to the digital economy and are they sufficient? Everything happens in a split second now: decisions are made, applications are accepted, identities are stolen, and fraudulent insurance claims are settled – wrongly. Fraud today is all about agility and speed, flexibility and scalability.

Let’s focus on the evolution of fraud. We can look at the revolution once we’ve reduced the threat that’s evolving every second, in every sector. Identity is different – there’s a certain revolution to be had there.

 

Read more about the fraud trends in our UK&I fraud report, or our views on the future of identity in our white paper.