Ravi Sandepudi

Ravi Sandepudi

April 11, 2022

Today’s financial landscape has been fraught with numerous issues such as data breaches, cyberattacks, identity theft, and credit card fraud. Experts believe that these issues contribute to fraudulent transactions and, if not mitigated, will lead to customer churn and further business loss.

According to a Carnegie Mellon University study, customers who lose more than $500 in fraud are highly possible to leave their bank. This is even after they received refunds of their losses. Why? The study said that even though customers have been refunded, there may be a lingering doubt that fraud could happen again. And it is only logical to say that if the loss is larger, then the churn rate is going to be much higher

Steep Rise of Fraud Cases

The restrictions caused by the COVID-19 pandemic have further accelerated people’s use of digital banking and online payment. While the use of digital channels is very convenient, it is also ripe ground for fraudsters and cybercriminals. According to eMarketer, more than 42% of people worldwide will be utilizing mobile payments by 2023. Consequently, another report reveals that by 2023 online fraud will reach $48 billion in losses.

Based on the Consumer Sentinel Network Data Book of 2020, the Federal Trade Commission (FTC) received 2.2 million fraud reports in 2020 and 34% of those reported indicated money was lost, which amounted to $3.3 billion. The report further pointed out that bank transfers and payments accounted for the highest aggregate losses, while credit cards are the most frequently used payment methods in fraud reports.

The research also revealed that identity theft and credit card fraud cases also grew in 2020. The FTC received approximately 1.4 million reports of identity theft with a 113% increase from 2019 to 2020. Additionally, credit card fraud reports increased by 44.7% in 2020 with over 390,000 reports.

While the effect of fraud incidents impacts both customers and financial institutions, the fallout leans heavier on financial institutions. Customers will always be compensated for their loss but financial institutions, besides money loss, will also suffer a decline in stock prices as well as an increase in churn rates. Earlier research points out that there is a high probability, as much as three percentage points, that a customer will switch to a different institution and transfer their accounts and money within six months of a security breach.

Fraudsters and their schemes will persist to grow in scale; therefore, financial institutions should strengthen their security measures to mitigate risks and reduce churn rates.

Build Trust and Customer Loyalty with Effectiv

Financial institutions can stop fraud as well as customer churn with one simple integration. Effectiv is built to proactively complete initial fraud assessments during user onboarding and monitor future transactions for fraudulent behavior. Moreover, it absorbs data for more in-depth investigations and uses proprietary AI-assisted case management to detect and adapt to new fraud patterns.

Effective can reduce the costs of managing fraud. Our solution is architected with Machine Learning and is accessible on the Cloud. With Effectiv, financial institutions can:

  • Actively detect and defend against fraud without necessitating customer intervention.
  • Ensure those good members and their transactions are approved more swiftly and friction-free in a multi-channel environment.

Stay ahead of fraudsters! Talk to us today to learn more!

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