Speed will be a key factor in the coming year as banks and credit unions manage risk and fight fraud in a rapidly evolving financial services landscape.
The pace of change in business and retail banking today is different than it was 10, or even three, years ago. People want everything to happen more quickly, whether it's managing financials for a steel shipment from Pennsylvania to Hong Kong or getting immediate access to a deposited check.
Recent quarterly consumer research from Fiserv only underscores the challenge for financial institutions. According to Expectations & Experiences: Consumer Payments, 50 percent of consumers consider "real time" in financial transactions to mean immediately. The same survey showed consumers' top security concerns with bills are identity theft and data breaches.
People want immediacy hand-in-hand with security. That continued expectation will further nudge financial institutions from a mindset of acknowledging the need for speed this year to introducing those faster financial services in 2019.
Along with greater speed comes new fronts in the fight against fraud. Here are three trends to watch in the coming year as financial institutions balance speed and security.
1. Real-Time Fraud Detection
Real time offers a wealth of opportunities to the industry and consumers, but there are inherent risks to any evolution in financial services. As money moves more quickly, detecting and stopping bad transactions takes on increased urgency.
With faster payments, the time from initiation to availability of money takes seconds rather than minutes or hours. When all of the processing and network steps are considered, each must be completed within a second at most, including validation, accounting and fraud detection.
Payment-hub technology enables the management of all payment types on a single platform and promises better risk analysis, faster settlement, lower routing costs and a real-time view of transactions. The technology arose from European regulations, but look for it to continue to gain traction among U.S. financial institutions.
Still, as all of those payments are flowing quickly through a central hub, financial institutions have to monitor for fraud at the same speed.
2. Managing Third-Party Risk
Consumer-focused technology companies are resetting expectations for financial services.
To adapt, financial institutions are embracing technology at every step of the consumer experience, whether through in-branch teller kiosks, artificial intelligence-based consumer assistance or integration with third-party fintechs.
Open banking regulations in Europe and other parts of the world are making it a priority to integrate with fintechs and other third-party companies with which consumers have relationships. Under the regulations, financial institutions must provide trusted third parties access to customer information when consumers allow it. While the regulatory approach might not gain a foothold in the U.S., financial institutions still are moving toward similar integration capabilities to hasten innovation and meet consumer demand.
Once again, the technology presents many opportunities for consumers and financial institutions, but it also raises the stakes on security. If financial institutions begin engaging consumers more often through fintechs, identification and validation will become even more crucial. A big question will be: What do you know about the security of the companies accessing information from your systems?
That question takes on multiple layers when considering the different channels and services fintechs and other third-party companies represent. Financial institutions' security strategies will need to account for payments, lending and card issuance, just to name a few.
In the coming year, expect financial institutions to adjust their strategies in terms of due diligence, updating processes, and monitoring and evaluation. It's no longer enough to ensure your channels are secure. The new interconnected financial services landscape requires that everyone is secure.
3. Controlling and Leveraging Data
Financial institutions' success managing risk in the coming year will be largely dependent on how well they assess, leverage and control their data. The reality today is that all organizations with transactional and customer data are targets for fraud.
Still, the sheer volume of information flowing through financial institutions poses what can appear to be an overwhelming challenge. How can organizations manage so much data? How can they ensure its accuracy? How can financial institutions make sure it's useful?
Failure to answer those questions comprehensively can be costly. According to a September 2016 article by the Harvard Business Review, poor-quality data cost companies $3.1 trillion in the U.S. alone that year.
Financial institutions don't simply need to manage the volume of data. The pace of change within that data is staggering, and institutions have to manage that in the context of financial crime risk. The best defense, then, is making sure the data is accurate.
So how will financial institutions mount that defense?
In the coming year, expect to see even more emphasis on technology that helps manage data quickly and efficiently. Advanced analytics, artificial intelligence and machine learning will play a prominent role in anti-money laundering strategies and data management.
Adjusting to the Need for Speed
Financial institutions are well aware consumers expect faster financial services. That isn't a new concept for the coming year. But the introduction of those services will accelerate in 2019, turning what has been a primarily strategic mindset into a tactical one.
Security within that environment will be the differentiator in the coming year.