How business leaders can tackle fraud, enhance customer experience
By Zion Rufus
Aided by increase in technological innovation and digital adoption, emerging forms of cyber frauds continue to reemphasize the importance of cyber security and effective fraud management.
Across industries including marketing, advertising, and financial services, the impact of cyber frauds which is expected to cost the world up to $10.5 trillion annually by 2025 include damage and destruction of data, theft of funds and intellectual property, theft of personal and financial data, post-attack disruption to the normal course of business, and reputational harm.
According to a McKinsey report, the higher volume and greater sophistication of fraud have created two types of issues for companies: first, higher costs relating to fraud losses and operations to combat fraud, and second, significant customer experience challenges. In addition, this has created an opportunity for leaders to reduce costs and create standout client experiences by investing in tech-enabled client journeys and fraud processes. Companies have typically regarded investments in fraud defences as simply a cost of doing business, the report stated.
“However, in a recent fraud roundtable we facilitated for global financial institutions, seven out of eight participants reported that threat levels for fraud and identity threat are now so elevated that CEOs and business leaders are paying attention. Regulatory scrutiny of fraud management controls also is increasing. Further, companies not only bear the direct cost of fraud but also lose sales when legitimate transactions are denied or when customer attrition occurs at the point of sale or point of interaction. One study found that up to two-thirds of declined sales transactions are false positives. Fraud is also hurting customers’ trust and willingness to use services,” the report said.
In the report, Mckinsey highlighted 11 new approaches to fighting fraud while enhancing customer experience: Collaboration; end-to-end fraud strategy optimized across the full ecosystem; Deterrence; having controls that are durable, flexible, and adaptive; risk assessment; effective promotion of consumer awareness and education relating to fraud and cyberthreats; robust customer onboarding and authentication; detection; investigation; dispute handling; client experience and delivery.
According to the research company, the most important approach is probably collaboration as organisations need to consider authentication, fraud management, and customer experience simultaneously—not individually, as they are often treated today. Poorly designed authentication experiences have a disproportionately negative impact on customer engagement, fraud mitigation, and operational efficiency. To combat threats and enhance customer experience, organisations need to redesign customer and internal operations and processes based on a continuous assessment of actual cases of fraud along key customer journeys.
“Companies fail to do this today because they frequently do not understand the trade-offs in their current setup and have not seriously considered how they might redesign their processes and operating model to optimise these. Sales and marketing, customer experience, fraud management, and compliance groups often operate separately and rarely share information or collaborate on meeting integrated objectives and achieving the right balance. Additionally, companies often do not systematically track how their performance of fraud controls involves trade-offs with customer satisfaction, customer engagement, and attrition. As a result, they are not able to evaluate rules, models, and controls to understand their true impact on fraud losses, profitability, and customer experience.”
“To implement the new approach, companies need to take actions across the fraud value chain, from deterrence and prevention to detection and investigation, to handling any disputes that arise,” the report stated.
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