By Karl Dahlgren
Credit union leaders face a constant challenge staying a step ahead of fraud. Unfortunately, fighting fraud often feels like a game of Whac-a-Mole, with criminals constantly shifting approaches to find new vulnerabilities.
In a recent survey of financial services leaders and consumers, BAI found that fraud continues to be a significant digital banking concern for all age groups. While financial services leaders have long been focused on fraud reduction, their efforts continue to increase. According to the survey, 60% of financial services leaders have increased their fraud reduction efforts this year.
Additionally, BAI research reveals more that 60% of consumers surveyed believe that their primary financial services organization did enough to resolve fraudulent activity quickly and efficiently. While members generally believe that their financial services organizations are doing enough, on the company side, there is a tension between minimizing friction in the member experience and protecting private data.
To help reduce fraud risk and bolster consumer confidence, there are four steps credit union leaders should consider incorporating into their fraud prevention strategies.
Offer Stronger Protection Innovations
From 2021 to 2022 Millennials reported a 55% increase in concern about fraud, while the other three generational groups--Boomer+, Gen X and Gen Z--reported in the majority that their concern stayed the same. As more and more interactions move digitally, it makes sense that members would either have a concern or a growing concern about fraudulent activity.
Financial services leaders across the board are embracing innovative approaches to combating fraud. In just one year, the number of financial services organizations providing multi-factor authentication rose from 57% in 2020 to 82% in 2021. Similarly, the percent utilizing automated fraud detection rose from 56% to 70%.
Artificial intelligence (AI) is the next frontier of fraud protection. In the survey, 42% of financial services leaders said they are currently using AI to address fraud and an additional 28% plan to do so within the next year. The commitment is there, and members are noticing.
Help Members Protect Themselves
While credit union leaders are doing the right thing in employing stronger protections within the credit union, it is also important to engage members directly to help them protect themselves. Members have indicated they understand the importance of self-defense. More than 50% of members surveyed reported that they have been more cautious about sharing personal information to protect themselves from fraud and identity theft.
However, there are still areas where credit union leaders can encourage their members to improve self-protection. In the survey, 56% of respondents said they carefully review their financial transactions monthly. When it comes to credit data, slightly more than half (57%) of consumers use either a free or subscription-based credit monitoring service.
However, only 21% keep their credit locked to prevent fraudulent account openings in their name.
Credit union leaders should also help their members understand how to spot direct-to-the-consumer fraud attempts, such as social engineering. These types of fraud bypass the protections of the credit union by convincing the victim that they are making a legitimate transaction when in fact the criminal has imitated the credit union. Leaders should look at ways they can help educate members on how to spot spoofed calls, emails or texts. They should also encourage members to always call or double check directly with the credit union if they are ever unsure of the legitimacy of a notification requiring their attention.
Continue to Update and Invest in Employee Training
BAI found 93% of financial service leaders report that employees are trained on specific anti-fraud practices and controls. Also, 91% report fraud polices are implemented and enforced consistently and fairly.
However, credit unions will never be finished when it comes to employee training. Every year, new criminal approaches and strategies appear giving rise to new vulnerabilities. For example, early in the COVID-19 pandemic, fraudsters quickly took advantage of new programs such as the Paycheck Protection Program (PPP), attempting to steal money prior to the development of strong policies and procedures.
Criminals also use the same types of technology as credit union leaders. Fraudsters have access to constantly evolving AI-driven programs so employees will always need to refresh their training to adapt to the newest fraud threats.
Update Fraud and Cybersecurity Policies
Just as credit union leaders must continuously update their staff on the newest trends, they also must regularly evaluate their own fraud and cybersecurity policies. BAI research found that revising policies and procedures was one of the only fraud reduction strategies that declined between 2020 and 2021, with only 49% of respondents using the approach in 2021 compared to 50% in 2020.
While these policies do not need a major overhaul every year, it is important to regularly review them to ensure that they still capture best practices for helping employees identify, react to and mitigate fraud when it occurs.
Fraud prevention is a constant battle and taking the right steps can help your organization minimize its negative effects. The combination of those practices can help develop stronger relationships and trust from members, as well as better business outcomes for your credit union.
Karl Dahlgren joined BAI in 2014 with more than 20 years of experience in the banking, payments and software industries. As managing director, he leads the BAI Research line of business for the enterprise. Karl previously ran BAI’s Learning & Development business. His background includes leadership roles with ABN AMRO North America and a technology start-up in the payments industry.