The New Paradigm for Fraud Detection in Digital Account Opening Navigating Digital Fraud: Mitigation Strategies Just Got More Simple

In the age of digital banking, the threats of cybercrimes and online fraud have escalated dramatically. Community financial institutions may be particularly vulnerable to such threats and as such, must continue to be vigilant in detecting and preventing attacks from fraudsters.  Institutions have made great strides in enhancing the overall experience for account holders, investing in technology and prioritizing digital transformation. However, many institutions continue to adhere to a manually intensive process to identify and eradicate fraud, leaving them increasingly vulnerable to future threats and losses. To ensure future success, community banks and credit unions must also prioritize mitigation strategies that automate fraud detection and provide more modern, advanced fraud prevention tools and enhanced security measures.


The various types of fraud are well-known and can be recognized by seasoned professionals. Some of the most common include phishing, identity theft, malware, and credit card fraud. According to a report by CO-OP Solutions in 2022, “global card fraud losses have tripled in the past decade and are expected to total $408 billion over the next 10 years.” The same report also states that “the US is at the center of the crisis; despite accounting for just 22% of worldwide card transaction volume in 2020, US issuers were hit with nearly 36% of global card fraud losses in 2020.”


The increase in card fraud presents a significant dilemma for community financial institutions. Operational costs tend to increase in tandem with fraud, making it difficult to maintain strong margins and remain profitable. On the other hand, fraud prevention that is too heavy can result in a consumer experience that’s less than ideal. No one wants to spend hours on an account opening application or collect ten different documents for verification. Finding the necessary balance can be difficult, but it is increasingly important.


To mitigate this problem, a whole new type of decisioning model is necessary – a  comprehensive set of detection and prevention capabilities is required. Information must be packaged in real-time, provided to the appropriate staff members and flagged for immediate action.  It’s not enough to simply increase security – technology needs to adapt to the changing needs of financial organizations and support them as they transform the whole application process. The solution is to shift to a model that automatically approves most applications (making for a quick and seamless experience), while simultaneously, automatically flagging any suspicious or concerning activity. Adopting technology that leverages machine learning is a game-changer. This type of solution not only reduces the risk of fraudulent activity, but also empowers the institution by improving efficiencies and lowering the administrative load on staff.


The AI-driven aspect of this solution means that with each application, the software can make its decisioning more and more accurate. Objective parameters can be set up based on the institution’s preferences and current legal guidelines. With confidence in this technology and involvement in the setup process, organizations can feel certain that fraud will be flagged eliminating the need to manually review each field. Two-factor authentication (2FA) and multi-factor authentication (MFA) also provide an additional layer of security beyond just username and password. Biometric authentication, such as fingerprint or facial recognition, has significantly enhanced security. A few specific parameters can be used for auto-declining, including if the applicant is deceased, if the address does not exist, etc.


The trust that a consumer places in their financial institution is invaluable. Safeguarding it in the face of digital threats must remain a priority. It's time to fight digital fraud head-on and secure a safer future for all account holders.


About Author:
Philip Paul is the Founder and CEO of Cotribute, an award-winning fintech platform that enables profitable revenue and customer growth for credit unions and banks. An entrepreneurial executive, Philip has a proven track record of creating and growing innovative technology businesses that serve large enterprises.  

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