Confronting Consumer Fraud in Banking

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Rapid technological and social changes combined with evolving consumer demands are creating numerous new opportunities for the perpetrators of fraud. Consumers want products that are quicker, faster and easier to use, delivered through the platforms of their own choosing.

Financial services firms recognize the need to provide consumers with the ability to transfer money, view balances, submit online payments, deposit checks, and make purchases remotely, and have sought to meet these demands with a wide range of mobile and online offerings. Estimates are that, over the next three years, the mobile banking community will include roughly 400 million users.1

As might be expected, however, with millions of mobile and online users performing financial transactions, new and emerging cyber threats are targeting these devices and platforms. Financial institutions have sought to incorporate fraud prevention and detection measures into their offerings, but they must work with consumers to change current attitudes and behaviors. Institutions which build solutions aligned to evolving consumer attitudes and behaviors towards security can help in their efforts to gain market share and minimize fraud losses.

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Consumer Fraud Survey

The survey aimed to increase understanding of how the consumer views fraud, how these views affect the way consumers behave —and how they select financial services providers.

The survey results provide important insights for banks and other financial services companies. According to the survey:

•Consumerswantsimple,easy-to-usebanking services, but accept that they are vulnerable to phishing and other fraudulent activities. Organizations which are able to move to the next generation of authentication, such as biometric authentication enabled through mobile technology, can create competitive advantage by meeting consumers’ expectations for products that are both simple and secure.

•Consumersunderstandmanyoftherisks of shopping on line, although the majority of respondents look to the banks to provide extra protection. If alternative payment solutions such as digital wallets are better able to protect consumers, banks and card providers could see further erosion of their market share for retail payments.

•Consumersalsotendtoignorethesecurity and privacy statements displayed on websites. For fraud communications to be effective, banks and card providers must use more innovative approaches.

Banks may also need to balance customer service improvements against customer attitudes and behavior towards fraud, especially if losses increase significantly.

Accenture commissioned an online consumer fraud survey in May 2012 to gather information on customer attitudes.

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Key Findings from the May 2012 Fraud Survey•AsseeninFigure1,accordingto

the survey, respondents view mobile banking as a higher risk activity than accessing services via a PC, although over half (56 percent) of the respondents indicated that they do not consider the fraud and security risks associated with downloading apps to smart phones.

Respondents view Mobile Banking as higher risk than accessing services via a PC

Q. Please indicate your agreement with the statement – Using my mobile or smartphone to purchase online or perform banking transactions is no different to using a PC

Strongly Disagree

Disagree

Agree

Strongly Agree

Not Applicable

10%

Strongly Disagree

Disagree

Agree

Strongly Agree

Not Applicable

Q. Please indicate your agreement with the statement – Making or receiving payments by mobile text message is low risk

1%0%

19%

42%45%

6%14%

29%23%

15%

42%

31%

5%

10%10%

6%

28%

41%

11%

Gen Y Gen X

Gen Y Gen X

Figure 1. Views of Risk on Mobile Banking

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Also according to the survey:

•Technologyadvancementsinmobilebanking have gained better traction with respondents relative to similar applications in other types of retailing. Only 5 percent of Gen X respondents and 6 percent of Gen Y respondents purchase goods via mobile, smart phone or tablet, but 9 percent of Gen X respondents and 8 percent of Gen Y respondents access banking services through these devices.

•Respondentsratedeaseandspeedofmaking online transactions as more important than security. Among Gen Y respondents, 62 percent cited ease and speed of completion as most important, as did 53 percent of Gen X respondents. Security was a top consideration for only 36 percent of Gen Y respondents and 43 percent of Gen X respondents.

•Respondentsrarelyreadthesecurityand privacy statements they receive and want them to be very short, but they are surprisingly aware of the security features provided by web sites, and they are appreciative of such features when shopping online. Nearly a quarter (24 percent) of Gen Y respondents and 22 percent of Gen X respondents said they only read the statements that are very short, and 30 and 31 percent of Gen Y and Gen X respondents, respectively, said they hardly read the statements.

•AsseeninFigure2,respondentsadmitted to being very vulnerable to all types of “phishing”. Nearly two-thirdsacknowledgedtherisksof downloading a free application, and nearly half saw danger from unwittingly downloading malicious code by opening an email from someone they did not know.

Consumers continue to be extremely vulnerable to phishing

Q. Do you think you are at risk from any of the following?

Other (please specify)

Purchasing goods from a fraudulent website

Downloading a free application

Unwittingly downloading malicious code by opening an email from someone you don’t know

Responding to an email or phone call from someone pretending to be your bank and giving away...

Others Gen Y Gen X

17%4%

10%

33%62%62%

67%64%

59%

50%

50%

67%27%

34%

48%

Strongly Disagree

Disagree

Agree

Strongly Agree

Not Applicable

Q. Please indicate your agreement with the following statement - Online transactions that are complex and have multiple steps may be an indication of risk of fraud

Gen Y

Note: Respondents could select multiple values. Percentages therefore add to up more than 100

Gen X

5%

15%15%

3%

13%12%

2%

4%

62%63%

Figure 2. Consumer Vulnerabilities

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The survey results also indicate that:

•Preventingfraud—andprovidingprompt refunds—have similar effects on the propensity of Gen X and Gen Y customers to change bankers or card providers; 28 percent of Gen Y respondents and 30 percent of Gen X respondents, for example, said they are less likely to change bankers or card providers when a fraud has been prevented. A similar number of respondents (30 percent for Gen Y and 32 percent for Gen X) claimed they had a positive view of a bank or card provider when they have had to recover money from the institution after a fraud has been committed.

•Failurestosecurewebsitescanseverely damage customer loyalty; 93 percent of respondents, for example, said they believe it is unwisetore-useawebsitewherethey have experienced fraud, and 86 percent expressed more confidence in their provider when contacted to verify a transaction.

•Nearlythree-quarters(74percent)of respondents put the burden on bankers to protect them from fraud.

Most customers surveyed have experienced fraud, with fraud related to debit or credit cards being the most common experience. As seen in Figure 3, however, respondents have had largely positive experiences with their bankers or card providers when they have been fraud victims, and they say they do not change their online banking behavior once they have been a fraud victim.

While survey respondents understand that it the consumer’s responsibility to be careful, there are generational differences, with Gen Y expressing a lower level of commitment. A surprisingly high number (15 percent) of respondents believes the bank is always liable for fraud, and 38 percent said that people are careless because they do not have to bear the losses from fraud.

Finally, consumers place a high value on simplicity, with 85 percent of survey respondents saying that they choose their online bankers based on the ease of use of the banking services they provide.

Consumers have a positive experience from their bankers when they are a victim of fraud. Respondents do not change their online banking behaviour once they have been a victim

Q. If you have been a victim of fraud and needed the help of your bankers/card providers to resolve the situation, how would you describe your experience?

No response

Appalling - Nothing got resolved unless I complained

Poor - very slow and rather complicated

Good - once I got through to the right person it went smoothly

Excellent - very quick and simple

Q. If you have been a victim of fraud, has the experience changed how you shop online or use online/mobile banking?

38%34%

3%3%

5%7%

30%27%

25%29%

No - I have not changed how I use online/mobile banking

No I have not changed how I make online purchases

Yes - I don’t use online/mobile banking anymore

Yes - I am more cautious with all of my online purchases

Gen Y Gen X

Gen Y Gen X

0%0%

19%12%

30%28%

28%34%

Figure 3. Victims of Fraud

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How Accenture Can Help

The process is built upon four steps:

1. Fraud diagnostic to assess the current state of fraud management and to design a blueprint for the future;

2. Threat assessment to identify future risks and opportunities;

3. Analytics innovation to bring advanced analytics to bear upon issues related to both consumer and fraudster behavior; and

4. Optimization of fraud management processes and tools to develop appropriate customer authentication strategies, business rules and other anti-fraudmeasures.

Figure 4. Accenture Approach to Transform Fraud Management Capabilities

Accenture has developed a comprehensive approach to help financial services firms transform their fraud management capabilities.

a) Assess Fraud Implications of Business Strategy

b) Model Customer Demographics

c) Optimize Analytical Models

e) Develop IT Strategy for Holistic Decisioning

d) Develop Customer Authentication Strategy

1. Fraud Diagnostic

2. Threat Assessment

3. Analytics Innovation

4. Optimization of Fraud Management Processes & Tools

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Survey Population and Methodology

Accenture commissioned an online consumer fraud survey in May 2012 togatheradditionalclient-facinginformation. The survey aimed to understand consumer perspectives on fraud and how it affects the way the consumer transacts and selects financial providers.

The survey was conducted online between April 11, 2012 and May 4, 2012. Final analysis was completed by end of May 2012.

Three hundred and fourteen adult (18+) respondents completed the survey, and are clustered by generation as follows:

•Ages50to60–GenerationO (6respondents–negligibleandhenceconsidered only for certain questions)

•Ages30to50–GenerationX (157 respondents)

•Ages18to30–GenerationY (151 respondents)

Ninety-ninepercentofrespondentswere based in the UK and 100% had mobile phones. Equal number of men and women participated in the survey, as did Gen X and Gen Ys.

Eighty percent of Gen X respondents were in the income range of greater than £75,000, with the majority of Gen Ysintheincomerangeof£35,000-£50,000.

Source1 Forecast: Mobile Payment, Worldwide, 2009-2016SandyShen,Gartner,MarketAnalysis and Statistics Report. Accessed at: http://www.gartner.com/DisplayDocument?ref=clientFriendlyUrl&id=2010515

About the AuthorsHeather AdamsHeather is senior director, Risk Management and leads the Accenture Fraud and Financial Crime business services, defining and developing capabilities to support clients in their fraud and financial crime prevention efforts. Based in London, Heather has extensive experience in delivering large-scalecomplexbusinesschangefor banks and has worked with senior leaders to define and implement fraud and financial crime prevention strategies to drive high performance.

Jackie MorleyJackie is a senior manager, Risk Management and leads the Accenture U.K. Fraud Group within the Risk Management practice. Based in London and with more than 10 years of consulting and industry experience in internal, advanced, third party and first party fraud prevention and detection within financial services, Jackie is focused on delivering process, organization and technology change programs to drive high performance.

About Accenture Management ConsultingAccenture is a leading provider of management consulting services worldwide. Drawing on the extensive experience of its 16,000 management consultants globally, Accenture Management Consulting works with companies and governments to achieve high performance by combining broad and deep industry knowledge with functional capabilities to provide services in Strategy, Analytics, Customer Relationship Management, Finance & Enterprise Performance, Operations, Risk Management, Sustainability, and Talent and Organization.

About Accenture Risk ManagementAccenture Risk Management consulting services work with clients to create and implement integrated risk management capabilities designed to gain higher economic returns, improve shareholder value and increase stakeholder confidence.

About AccentureAccenture is a global management consulting, technology services and outsourcing company, with more than 249,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to helpthembecomehigh-performancebusinesses and governments. The company generated net revenues of US$25.5 billion for the fiscal year ended Aug. 31, 2011. Its home page is www.accenture.com.

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