Digital channels are very attractive to financial institutions because the online and mobile channels enable FIs to offer products and services much more cheaply than in a branch or contact center environment. Digital channels also enable consumers and businesses to bank with them regardless of geographic location. Unfortunately, it is increasingly difficult to determine the identity of the party on the other side of the computer or smart device due to all the data breaches, phishing attacks and social engineering tactics, as well as the growing malware threat.  

The Aite Group conducted a study to track the current trends in online and mobile banking fraud. They used telephone interviews with 28 fraud and digital channel executives from North American FIs with at least $25 billion in assets.  

Fraud losses are rising among many large North American FIs. The top concern for these companies are identity crimes, such as account takeover (ATO) and application fraud. FIs are focused on improving the customer experience and removing friction from many current processes. Leading FIs are offering many more products and services via the mobile channel. 

Technology spending will increase at many FIs as they upgrade current solutions or invest in new ones to combat fraud in digital channels. FIs will focus on using more transparent technologies to determine that the person is who he or she claims to be.  

Business cases for fraud technologies are more likely to gain approval if they reduce customer friction; solutions that introduce more friction are less likely to gain approval. As higher-risk activities are offered via mobile and as transaction volume grows, fraud rings will focus more on this channel. Some leading FIs are bringing new functionality to the mobile channel first due to the upsurge in mobile banking activity. 

Digital Threats 

The current threat environment is rife with fraud attempts in digital channels. Identity crimes are especially prolific, and ATO and application fraud are the two most common attack types currently experienced in the market. Executives also bemoan how often their customers fall for a wide variety of scams, providing their credentials to fraudsters or clicking on a link that enables fraudsters to install malware that later harvests their credentials. 

Aite Group recommends that FIs continue to evaluate their authentication processes enterprise-wide to detect gaps. Also, FIs need to consider new authentication methods that offer improved results with less negative impacts (friction) for customers. By evaluating authentication methods that do not rely on data that is readily available to fraudsters, FIs can ensure at least one layer of your security. 

One solution for FIs is to evaluate products for the level of customer friction introduced and reduce friction wherever possible. Where possible, FIs can then ensure products meet the current needs in the market (e.g., if you offer identity products, ensure they have elements that make it difficult for fraudsters to circumvent them). FIs also need to understand the types of fraud challenges they are facing and ensure that their salespeople can speak the language of the executives they are selling to, which will prevent further fraud schemes.   

Shirley Inscoe is a senior analyst with Aite Group, covering fraud, data security and consumer compliance issues.