• Hans Zachar, Group CTIO at Nutun


• 08.01.2025 03:45 pm
#BPOSector #FraudPrevention

Fraud in the U.S. banking industry is rising, particularly as the shift to digital banking accelerates, increasing costs and negatively impacting consumer experience (CX) and trust. Findings from the latest annual LexisNexis® True Cost of Fraud™ Study: Financial Services and Lending Report — U.S. and Canada Edition revealed that 63% of financial firms reported an overall fraud increase of at least 6% within a 12-month period, with digital channels accounting for half of the overall fraud losses.

Moreover, the report quantified the financial impact of fraud, finding that every dollar lost to a fraudster costs North America’s financial institutions $4.41, with U.S. investment firms and credit lenders experiencing a 9% year-on-year increase in the financial impact of fraud. Fraud also made it more difficult for 79% of respondents to win consumer trust.

Inside the mind of a fraudster

With the wealth of personal customer data out there, fraudsters are becoming more adept at breaching security verification checks. For example, with customer data showing up in multiple breaches, fraudsters can collate data across sources to build a more complete picture of a person, placing them in a better position to answer knowledge-based authentication questions, often better than the individual.

Despite the increased awareness, there has been a recent shift in modus operandi where criminals impersonate the fraud department from a customer's bank, asking them to share their one-time pin (OTP). They know your name, address, and credit card digits, and generate an SMS from the bank to get the OTP. With this information, they can access a customer's account and engage in account origination and transactional fraud.

The situation is worse than ever, with the TransUnion State of Omnichannel Fraud Report for H2 2024 indicating that the sector experienced $3.2 billion in lender exposure to suspected synthetic identities for U.S. auto loans, credit cards, retail credit cards and personal loans at the end of June 2024, which was the highest level ever recorded.

Technology changing the face of fraud

Technology is aiding and abetting criminals, with artificial intelligence (AI) increasingly used to circumvent multi-factor authentication (MFA). For instance, fraudsters now create deepfakes across voice and video channels to pass biometric authentication. The 2023 Sumsub Identity Fraud Report, revealed a 10-fold increase in the number of deepfakes detected globally across all industries from 2022 to 2023, with a staggering 1740% deepfake surge in North America. The report identified AI-powered fraud, money muling networks, fake IDs, account takeovers and forced verification as the top risks.

In this regard, Deloitte’s Center for Financial Services predicts that gen AI could enable fraud losses to reach $40 billion in the United States by 2027, up from $12.3 billion in 2023, representing a compound annual growth rate of 32%.

In response, banking institutions are combining a risk-based and data-driven approach to fraud management, leveraging the capabilities of cutting-edge technologies like AI, machine learning (ML) and biometric and behavior-based authentication methods. However, banks need to balance the cost of implementing more effective and stringent fraud risk mitigation and management without compromising customer service and CX. In this regard, many banks are investing in advanced technologies to monitor transactions in real-time and leverage more sophisticated processes to better understand risks at an individual transaction level on an account by better understanding flow and originating IP addresses.

With these insights, the bank can decide what to do with a transaction, either validating it, sending an automated SMS to confirm the action, or diverting the transaction to a customer call or contact center for authentication.

However, despite the technology that banks have in place, the volumes are causing backlogs in the contact centers, which is affecting CX and creating friction in the customer journey. Banks need the capabilities to interact with customers in more efficient and cost-effective ways to tackle the full volume of potentially fraudulent transactions. For these reasons, many banks and lenders are turning to the global Business Processing Outsourcing (BPO) sector to tap into readily available CX and security skills, expertise and technological capabilities.

Why BPO banking is essential for financial institutions in the digital era

Banks require a BPO provider that understands the sector and works to contain the associated costs by using the most efficient and cost-effective channels to reach customers, with core competencies in text and voice engagements. Once the initial fraudulent transaction has occurred, banks require an effective way to manage disputes and support any investigation on the backend. Banks need to track the transaction across geographies and time zones as there is no interbank switch for fraud, relying on human resources to piece together the transaction and provide feedback to the customer, who is understandably emotional.

Providing compassionate and empathetic customer service following a case of fraud requires well-trained agents who are empowered with real-time information to walk affected customers through the process. A frustrating experience or a lack of care can affect customer retention rates. However, delivering these capabilities and agent expertise from in-house contact centers comes at a cost, and at a time when instances of fraud are ramping up.

Banks that can find a global BPO partner with the right combination of raid detection technology, omnichannel engagement capabilities, trained and experienced agents, and fraud investigators will benefit from round-the-clock monitoring and industry-leading issue resolution.  This combination of attributes strikes the right balance between cost-effective and efficient fraud mitigation and management with CX and customer service, without compromising data privacy and industry regulations.