Flexible fraud tactics: Whatever you choose to call it—the impending economic downturn, “precession,” or recession—banks face difficulties they haven’t experienced in more than ten years.
While it gives banks a chance to help new and current clients achieve their financial demands, a financial crisis has its own set of challenges that lenders must adapt to. For banks, fraud surely rises during difficult economic times. Some people try to cheat the system by using scams or other unscrupulous techniques when companies and customers are under economic strain. It’s in the beast’s nature.
According to traditional knowledge, banks should “seal the holes” in their systems to stop fraud attempts on their products, including credit cards, personal loans, and small business loans. The problem with this plan is that customers with good credit histories often give up on opening an account because of all the checks for fraud. As a consequence, banks lose out on prospective earnings.
As part of the value proposition for lenders to continue providing a variety of loan products, especially during an uncertain economic climate, banks may want to create a more flexible fraud strategy that integrates cutting-edge data-driven technology and user experience.
Preventing fraud in a struggling economy by Flexible fraud tactics
Bank executives want to reduce the fraud risk for their lending products as soon as possible when the economy shifts or there are indications of stress in the portfolio. That much I have heard loud and clear from banks over the last several weeks.
Banks cannot adopt this strategy since most of their present procedures must be updated. Most fraud mitigation systems rely primarily on rules and need user intervention if something goes wrong. This may cause banks to delay stopping a fraud ring for weeks, costing them millions of dollars in lost income.
In addition to the present economic unpredictability, banks are now seeing more fraud attempts than before the epidemic. According to a recent survey by LexisNexis Risk Solutions, banks saw the largest amount of monthly fraud assaults than they had in prior years in 2021. For every $1 of fraudulent conduct, financial institutions must spend $4 on repairs, up from $3.64 in 2020.
During a mild recession, some people and small businesses will also try to take advantage of the system. To counteract these efforts, banks must build more advanced protections into their lending systems. Lenders can best deal with these problems by making a platform that is more flexible and has better fraud protection.
Protecting yourself when taking opportunities
Banks must keep ahead of new possibilities to extend the pipeline of applications while bolstering their defences. This requires that they stay on top of recognizing new risks and develop the underlying methods to deal with them.
Numerous indicators suggest that banks cannot afford to let their acquisition and retention strategies lapse despite the economy’s impending collapse.
For example, banks may be tempted to do less business with small businesses when government programs to help small businesses that were started because of the flu epidemic start to wind down. However, according to research, doing so could pass up a chance.
In addition to being positive about the economy, according to a study of small company owners by First Citizens’ Bank, 42% of respondents also expressed confidence in their capacity to grow their companies over the next year. The possibility for new business presented here is one that banks should look to seize.
Credit is still in great demand on the retail side. Inflation has undoubtedly had a significant effect, but there are many resilient prospective customers out there due to record job levels and growing earnings, providing an opportunity for the banks that can recruit and keep them.
A flexible fraud technique
Banks should adopt a flexible fraud strategy that puts a strong emphasis on a positive client experience while also protecting the financial institution so that it can serve credit-worthy prospects while safeguarding itself from unscrupulous actors. A platform like this brings automation, a wealth of data sources, and AI/ML. This successful formula works well for digital and internet channels, where fraud often occurs.
The platform relies on automation and artificial intelligence (AI) to provide a self-service and low-friction consumer experience while providing the bank with the defense it needs to ward off criminal actors. For instance, the ideal situation is to develop automated account opening procedures and add some friction if a piece of client information (or the absence thereof) results in a fraud alert. A crucial distinction may be a strategy powered by artificial intelligence or machine learning.
Utilizing intelligence to understand various patterns and behaviors and eventually fine-tune performance, such as providing banks with insight into a loan application and even making suggestions, is another crucial component of the platform.
For instance, depending on certain facts, an intelligent platform might suggest a loan size amount for a consumer. The application process may be made more difficult and uncover possible fraud using the same technologies, which are fully automated. This tactic can draw in a larger client base, particularly prime customers that banks often miss or need help to assess accurately. This becomes much more important during an economic downturn.
Because they help your bottom line during a recession, you want to treat your loyal customers properly. A bank’s capacity to draw in and keep loyal clients is impacted by a poor customer experience and clumsy delays brought on by manual procedures.
As banks naturally assess their current fraud methods, the ultimate goal for success should be a combination of a fantastic client journey experience and keeping the institution’s best interests in mind.
A crucial opportunity for bank strategy exists right now. Even though the strict focus on the bottom line may make it seem like a strategic luxury to devote time and resources to implementing sophisticated fraud defenses and improving customer experience, this forward-thinking approach will ultimately help them future-proof against the longer-term economic ebbs and flows by attracting and keeping the qualified consumers who will sustain continued opportunities for revenue development, while lowering the growing danger (and cost) of fraud.
Read more: 11 Finance Predictions for 2023—for Finance readers
