Consumers' expectations for speed, ease and convenience are permeating every aspect of their lives, including how they manage their finances. At the same time, financial criminals are rapidly evolving their methods of attack.
Striking the right balance between providing a positive experience and keeping financial institution customers safe from criminal threat will take on even greater importance in 2018. A new landscape created by regulatory requirements, faster payment and settlement cycles, digital developments, open banking, and advancements in artificial intelligence and machine learning will set the stage for establishing this balance. Here are risk and fraud mitigation trends to watch in 2018.
Over the last decade, digitizing banking services has typically meant delivering traditional banking services through a digital channel – opening an account online or accessing a balance on a mobile device, for example.
As the concept of open banking comes into play, expect to see not only an acceleration of the digitization of financial services, but also the emergence of new capabilities specific to the digital channel. Driven by consumer expectations and powered by artificial intelligence and machine learning, digital financial services are positioned to become a seamless part of everyday life. For example, when Alexa recommends a better credit card based on your spending habits, it will be easy to connect to a customer service representative to apply. In the same way, it will be just as easy to deny a fraudulent transaction when you receive a proactive alert.
Multiple factors are creating an environment in which security will be a more significant differentiator among financial institutions in 2018.
In 2017, the SWIFT global payments innovation (gpi) standard was introduced, which enhanced the speed, transparency and end-to-end tracking of cross-border payments. While both U.K. Open Banking and gpi initiatives will help improve the overall customer experience by enabling more tailored services for customers and speeding payments, they can also increase the level of fraud risk. Open Banking standards have the potential to provide fintechs and third-party providers, which may not have bank-grade security in place, with new levels of access to consumer banking data. And faster transactions compress timeframes to detect and stop fraud from days or hours to minutes or even seconds.
Financial institutions that implement effective fraud solutions that can mitigate risk in real time for the customers they serve will have an opportunity to differentiate themselves from the competition in 2018. This will require educating customers and promoting security – and the related peace of mind - as an asset that financial institutions provide for customers.
Risk continues to evolve, as does the sophistication of financial crime detection technology. Through the use of machine learning, financial institutions can identify patterns of behavior from large data sources, which is vital for the prevention of financial crime. By analyzing and monitoring a number of data sources, financial institutions can better understand normal versus suspicious consumer behavior. That will likely lead to improved fraud detection and reduced false-positive rates, which would have a positive impact on the customer experience.
However, there is still room for improvement. The majority of data analysis today is done in silos or "black boxes," making it difficult for a financial institution to detect fraud trends or patterns, or get to a root analysis of a particular fraudulent transaction. Effective fraud detection and prevention requires connectivity and collaboration. Expect to see more financial institutions moving in that direction in the coming year.
In 2018, look for the regulatory and technology environment to come together in a way that positions financial institutions to stay one step ahead of financial criminals, while continuing to provide a positive customer experience. This will set the stage for financial institutions to eliminate the historic trade-off between security and experience – and establish security as a differentiator in a competitive, rapidly changing market.