Are they who they say they are?

It is common to focus efforts and resources to protect existing customers from fraud. But it’s equally important to safeguard new and potential customers. Ensuring applicants are in fact who they say they are is crucial not only for business but the customer too.

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For the customer, the financial consequence of falling victim to fraud can last for months, even years, often preventing access to any further credit or loans until the issue is resolved. It’s vital for businesses to understand who they’re dealing with, especially given the acceleration of fraud in the past year.

" While account application fraud is not new, those attempting it have far stronger ways now to do so on a larger scale.”

By May last year, three in five fraud professionals said the rate of fraudulent activity had risen and 93 per cent expected it to get worse. This sentiment remains a year later, as highlighted in KPMG’s latest fraud survey.

This increase in fraud incidents has amplified consumers’ expectations of businesses to have robust authentication processes in place. Experian’s recent Global Identity and Fraud Report revealed over half of Australians called out security as the most important element in any online experience and 40 per cent expect business to have more visible security measures in place now.

Implementing thorough customer authentication and fraud prevention measures is vital during the customer acquisition process and beyond. It can, however, pose big challenges to address.

Growing scale

While account application fraud is not new, those attempting it have far stronger ways now to do so on a larger scale. This is when stolen identities are used to steal as much as possible, as quickly as possible. In 2020, the rate of new account credit card fraud attempts rose 48 per cent.

Account takeover fraud - a blend of old and new style fraud - is particularly hard to detect. A fraudster gains control of a customer account and uses it for various nefarious reasons such as money laundering, muling and credit applications. Part of the reason for the rise in this form of fraud is the increased capabilities of bots and in 2020 it accounted for half of all fraud attacks, up from a third in 2019.

There may be a time when companies will be able to recognise consumers in a way that replicates how humans’ complex senses interact with the physical world. Our digital world is in the early stages of modelling these interactions, transforming recognition and authentication from a chore that relies on consumer action to something that happens automatically.

In the meantime, businesses should be implementing a layered and continuous identity proofing strategy as the foundation. With robust verification processes in place, we can address the common tactics fraudsters now use to circumvent standard financial systems and in turn improve customer experience.

Continuous identity proofing

The first step is to eliminate organisational silos which contribute to a system that delivers weak customer profiles and disorderly customer experiences. Lenders need to think holistically, using insights at every interaction to build customer profiles that lead to greater interface and reduced friction. In decisioning, combining fraud data with other internal information such as credit data at the point of acquisition will provide a comprehensive and real view of the customer.

Secondly, layering security methods, employing blended artificial intelligence and machine learning tools and utilising a combination of visible and invisible methods will help meet evolving consumer expectations. This layered approach also includes data from consumer observations and activities. The right formula will differ by companies and transaction value; however, it should include an advanced mix of recognition, authentication capabilities and sophisticated analytics to achieve the best results.

Finally, doubling down on identity recognition will improve decision making and customer trust. Effective customer recognition is the lynch pin in fighting fraud and given consumers are more confident in businesses that show signs of fraud prevention and security, this will only aid customer acquisition.

Continually protecting consumers while improving their experience at all stages of the customer lifecycle is the key. The winners will be those that incorporate continuous authentication and recognition strategies across the board.

Mathew Demetriou is General Manager Decisioning & Analytics, Experian Australia & New Zealand

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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