By Glenn FratangeloAmong the most concerning factors shaping banking fraud patterns today is not just digital transformation and the pandemic. It is also how fraudsters have adapted their tactics according to unique generational differences of consumers.
In this environment, customers of all generations are unlikely to migrate back to physical branches at their pre-pandemic levels. Approximately 85 percent of consumers who have used digital platforms for financial services will favor digital forms of interaction post-pandemic, according to NICE Actimize data. There’s a substantial generational shift in purchasing power from the older generations to the emerging younger and newly affluent generations, creating market demand for digital-first offerings and modernized payments.
Fraud exploits generational differences
Fraudsters continuously seek to exploit new weaknesses and love to engage with the challenge of new technologies and activity patterns. As they do so, sometimes a financial services organization’s most concerning threat can turn out to be the customer who inadvertently lets the fraudster in the door. Each generation interacts, understands and uses technology differently. Fraudsters target customers based on this demographical distinction.
For example, millennials and Generation Z are the emerging affluent generations and will be the recipient of the significant wealth created by the Baby Boomers over the next 10-15 years. In addition, these generations are the early adopters of online and digital banking. As they will be experiencing significant life changes soon, including buying homes and cars, banks will want to establish early relationships with these customers and provide heightened experiences to retain them.
Conversely, Generation X and the Baby Boomers are established, and bank with the future in mind. Unlike other generations, they are used to standard banking interactions but are often open to new ideas. For example, a decade ago, it was a novelty for grandparents to text their grandchildren. Today, grandparents post photos on Facebook with their grandkids. And what was initially assumed to be slowness to embrace and adopt new technology were proven wrong by the pandemic. Baby Boomers’ activity often mirrored younger generations in their adoption of online and digital banking platforms.
Executing effective fraud prevention within the context of these generational dynamics can sometimes challenge banks’ ability to deliver safe, customer-centric experiences.
Customer education creates trust
So how do banks educate customers to prevent potentially risky behavior and avoid potential fraud? Both banks and their customers must share the responsibility of fraud prevention. Customer education and knowledge are vital pieces of the fraud prevention puzzle.
A WSFS Bank study of millennials and Gen Z consumers released earlier this year points out: “When it comes to financial literacy, 61 percent of respondents agreed that most of what they’ve learned about finance was through osmosis, with 75 percent of men agreeing compared to 49 percent of women.”
The research also noted that parents topped the list of financial education sources at 36 percent, followed by romantic partners (33 percent), grandparents (31 percent), teachers (29 percent), and siblings (27 percent), while 23 percent said they learned these skills in school. Just 17 percent listed first their bank or financial institution. This data clearly indicate there is plenty of room for banks to step in and provide education across generations.
As part of the educational process, banks benefit when they are transparent with their customers. They should be clear about how fraud protections may work and indicate how they may experience friction from such activities as two-factor authentication or added layers of “captchas” and identifiers. Without building trust and showing the consumer why they are stepping them through these protections, the frustrated digital native consumer, especially with the younger generations demonstrating less brand loyalty, will jump to a digital competitor in just a few clicks.
Tailored protection prevents customer shift
Optimizing the digital journey represents a significant market opportunity for banks to acquire and retain members of any generation with high expectations of “digital-first” banking. Methods to empower customers must be integrated into the fraud prevention process, including engaging them via digital tools and new interaction channels. This approach introduces organizational efficiency, customer stickiness, cost optimization and ultimately new opportunities.
Using advanced analytics powered by artificial intelligence that consumes vast amounts of data in real-time is the cornerstone for safely enabling the new and faster payment methods that younger generations are adopting. Furthermore, it also allows banks to hone and accelerate their digital-first, mobile-first presence.
While customers require 24/7 access to financial services, they also expect security. Currently, banks are focused on developing specific, segmented strategies that focus on the risk at hand. Adding some targeted friction enables FSOs to drill down on fraud without making authentication difficult for customers, such as randomized step-up authentication. Customers expect a certain degree of friction, but they also expect to move forward with minimal interruption.
At the core, fraud is a data problem. To effectively fight fraud and minimize customer impact, it is necessary to customize approaches at the individual level and utilize all available data to view the customer and their risk profile fully. Then, in order to deliver an optimal customer experience, banks must manage across silos, fragmented tools and data sets. And finally, to achieve this holistic view of customer risk across their lifecycle, a fraud team benefits when it uses a singular fraud management system that unifies data, enables intelligent, real-time decisions, and prevents friction while protecting customers.
No matter what the generation targeted, the objective is to stop the funds from leaving the bank to be used for illicit activities. With, of course, the other high priority of keeping the customer from moving to a competitor through strong fraud prevention policies and an unwavering trusted advisor relationship.
Glenn Fratangelo is the head of strategy and marketing for fraud and authentication management at NICE Actimize.