July 02, 2013

Fraud prevention has emerged as one of the leading uses for data analysis among banks, with more banks interested in big data initiatives to protect against fraud than any other area of use, according to aMicrosoft survey from this past April. An Infosys consumer survey released last week also found that 87% bank customers now expect their institutions to mine their personal data to protect them from fraudsters.

A third of the customers in the Infosys survey also said that they didn’t believe that their bank had a process for dealing with fraudulent transactions, indicating that customers don’t know enough about their banks fraud prevention efforts. Customers want to know how their bank is protecting them and communicating with them through alerts can help fulfill that need.

[See Related: How Fraud Rings Evade Detection And What Banks Can Do To Stop Them]

Using predictive analytics to protect against fraud can help banks get their customers involved in their fraud prevention efforts by training models built on customer behavior to find suspicious transactions, says Jeroen Dekker, a product manager for risk management solutions at Fiserv.

Previously banks relied on set rules and limits for authorizing transactions, and it wasn’t hard for fraudsters to figure out that a bank would review any transaction above a certain amount, Dekker points out. Utilizing data driven models and predictive analytics allows banks to find suspicious transactions based on the customer’s purchasing patterns rather than pre-determined rules. This makes it harder for the fraudsters to know which transactions the bank is going to zero in on, and it allows the bank to then follow up with the customer if need be to get additional authorization for a suspicious transaction.

“Instead of making a black and white binary decision [whether to complete a transaction] banks now have a gray area [where they might not be sure if the transaction is legitimate]. You can then challenge the transaction and, increasingly, screens can prompt the customer for extra information for authentication,” Dekker says. “The customers knows the bank is looking after them and it allows the bank to add extra security with a light touch.”

Banks need to let customers know that they are looking over their shoulder to protect them, and prompting the customer to enter the answer to a security question or PIN number can do so without turning off the customer. Fraud prevention could become a competitive advantage for institutions moving forward, as Infosys’ survey found that 83% of the respondents said they would switch banks if they were offered assurances regarding the safety of their money and data. Fighting fraud isn’t enough anymore for banks; the customer needs to know what the bank is doing to fight fraud and be involved in that process.

ABOUT THE AUTHOR
Jonathan Camhi is a graduate of the City University of New York's Graduate School of Journalism, where he focused on international reporting and interned at the Hindustan Times in Delhi, ...