US consumers at risk from scams

US consumers are more worried about identity theft than scams, with 1 in 4 saying they would switch banks when dissatisfied with the response to a fraud incident, according to research by global analytics software provider FICO (www.fico.com).

FICO’s latest Digital Consumer Banking and Fraud Survey 
www.fico.com/en/latest-thinking/white-paper/fico-consumer-fraud-survey-2021), suggests that consumers globally and, in the U.S., can be too complacent about the risk certain fraudsters pose, with only 5% worrying about real-time payment fraud, and unwilling to accept new fraud management measures if it creates too much friction in the purchasing process and affects the customer experience.

“There’s no doubt that consumers have embraced digital first banking since the start of the pandemic, but with that, we’ve seen a rise in digital financial and payment fraud,” says Nikhil Behl, Chief Marketing Officer, FICO.  “Even if consumers are not overly worried, financial institutions still need to be on their behalf.  Organizations will need to continue to adapt and evolve to fight existing and emerging fraud threats. At the same time, they need to carefully balance fraud management with sustaining customer trust and delivering frictionless digital and in-person customer experiences.”

Research reveals that nearly half (46%) of U.S. customers report they have been victimized by fraud in the past and nearly 19% say they have suffered account takeover fraud, which often exploits text- and email-based authentication/verification processes, with half of all respondents in the U.S. saying that they are most concerned about card fraud or with their stolen identity being used to open an account.

When it comes to fraud that worries them least, only 5% said being tricked into making a payment to a fraudster, a type of fraud that is becoming more prevalent in the U.S.  Interestingly, consumers in the older age brackets are often the target of fraud, appear less concerned about it compared to their younger, more digitally savvy counterparts, with only 2.6% saying they are concerned about real-time payment scams.

The survey reinforces the fact that banks need to strike the right balance between implementing security measures to prevent and manage fraud, without disrupting the customers’ online experience.  Over 70% of consumers in the U.S. think that whilst they think their banks do enough to keep their money safe, nearly 1 in 5 consumers believe that their bank is not doing enough.  This can have a detrimental impact on customer loyalty and retention and more than a quarter (28.7%) of U.S. consumers say they would change banks if they feel their fraud incident was poorly dealt with.

Globally, when 12,028 banking customers from 12 different countries were asked which types of fraud concerned them most, 31% said they were most concerned with account takeover fraud; 24% with having credit or debit card details stolen; and 22% with account opening identity theft.

The research found that most countries cited account takeover fraud as the top concern, while the U.S. and South Africa see identity theft to open a financial account as their biggest concern; with the U.K. evenly split between the two.  Only 41% of survey respondents globally have reported actual or suspected fraud to their banks with Germany having the lowest rate at 17% and India the highest at 66%.  In North America, rates varied considerably, with less than a third of Canadians (32%) reporting suspected fraud, 43.9% in Mexico and the U.S. with the highest at 46.3%.

“It’s clear that customer experience and fraud management are closely linked.  A negative fraud management experience can turn a positive consumer relationship into a confrontational one.  It’s a high stakes environment for banks as customers are wanting to be impressed fast while looking for a frictionless process,” says Behl.  “FICO works closely with our banking customers to protect their customers – from  monitoring for credit card fraud to communicating proactively with customers about potential issues – even if the customer doesn’t realize they need the protection.”

The level of friction a customer experiences is a pain point, and financial institutions need to communicate with customers through whichever channel they prefer – often despite documented security risks, especially as nearly 80% of banking customers worldwide prefer to use digital channels, including text messaging, emails, bank apps, and third-party messaging services to verify payments.

But fraudsters are becoming more emboldened and their attacks more sophisticated.  The survey found that almost two thirds (65%) of consumers globally, and 80% of U.S. consumers, plan to continue banking digitally post-pandemic.  Although banks need to educate consumers about the risk and best practices, this will be no substitute for banks who fail to improve their security measures.