Financial services firms in India twice more likely than US firms to detect a significant increase in identity theft
Studies commissioned by TransUnion released based on online survey of financial services and insurance organizations in India, US, and Canada
Mumbai, November 28, 2018 – Striking the delicate balance between customer experience and fraud prevention is not an easy feat. This was a common theme among newly released Forrester Consulting global studies in which Forrester conducted an online survey of financial services and insurance organizations in India, US, and Canada to evaluate the state of fraud detection and ID verification.
TransUnion commissioned Forrester to conduct studies focusing on these industries. Each study can be downloaded at the TransUnion CIBIL Fraud Trends 2018 website.
Increases in fraud are corroborated by the research conducted by Forrester.
- Financial services firms in India were about 2X more likely than US firms to detect a significant increase in identity theft in the past 12 months
- Adjusting in real time is a bigger issue for firms in India (62%) vs. the US (43%). Indian firms also report more difficulty with the end user authentication process, resulting in poor customer experience (60% India vs. 37% US).
- Financial services firms in India (75%) primarily measure the ROI of their fraud detection and ID verification solutions through improved customer experience. This is the case for only 47% of US companies.
- Nearly all financial services firms (94%) in the study recognized that they have experienced some sort of fraud, whether it’s identity theft/new account fraud, synthetic identity fraud, or account takeover fraud in the past two years.
- Almost two-thirds of insurance companies (62%) have seen an increase in soft fraud and 57% have seen an increase in identity fraud in the past year.
“It’s clear that a major hurdle for decision makers in industries such as financial services and insurance is how to fight fraud while ensuring prospective customers have a good experience. Consumers are demanding a better experience and those businesses that are not delivering on this are losing out to their competitors,” said Satish Pillai, Managing Director and CEO at TransUnion CIBIL. “It’s also apparent that many of the same fraud issues that plague Indian financial services and insurance companies are impacting similar businesses in US, Canada and likely other countries around the world.”
Exceptional customer experience is critical for most decision makers featured in the studies. Nearly three in four financial services firms (71%) said customer expectations influence the methods they use to detect fraud. About two-thirds (65%) of insurance professionals agree that the tactics they have in place to weed out fraudsters can negatively impact their good customers.
Executives also lamented that a major problem in fraud prevention and detection is that many fraud solutions lack the flexibility to adjust in real time. As well, the end user verification process is too complicated, resulting in poor customer experience. “To effectively fight fraud, businesses cannot wait days, hours or even minutes to make the right decision. They need effective tools that utilize evolving, overlapping networks of physical and digital risk signals that will inevitably help both businesses and the consumers they serve,” said Mr. Pillai.
Fraud Costs Insurers Billions of Dollars Annually; Negatively Impacting Customer Experience
The Forrester insurance study, “Insurers: Strike the Right Balance between Fighting Fraud and Customer Experience (CX),” found that 66% of insurance firms revealed that fraudsters are evolving their tactics, threatening customers and their bottom line.
One of the biggest problems identified by insurers is the verification of identities as fraudsters are exploiting weaknesses in the application process through three main types of fraud, including:
- Identity theft: compromised or stolen identities are used to apply for insurance or to file a claim;
- Soft fraud: applicants or policy holders deliberately alter or omit information to obtain a lower premium or misrepresent the value of a claimed item;
- Hard fraud: applicants or policy holders deliberately stage or embellish a loss for financial gain.
“The types of fraud we see in the insurance industry have serious economic implications for both insurance providers and their customers,” added Mr. Pillai. “Customers are demanding exceptional experiences throughout the insurance process. This means that false alerts, detection, prevention procedures and the investigations that go with it can negatively impact their customer experience.” As more consumers expect to receive frictionless, high quality interactions, fraud continues to threaten insurance firms. In fact, 49% of insurers are not confident in their ability to detect soft fraud, 40% are not confident in their ability to detect identity fraud, and 55% are not confident in their ability to detect hard fraud.
The study also revealed that in the past year:
- 62% of insurance firms saw an increase in soft fraud;
- 57% saw an increase in identity fraud;
- 34% saw an increase in hard fraud.
“Every stage of the customer journey is susceptible to fraud, but identifying the types of fraud and detecting it as early as possible is key,” informed Mr. Pillai. “Misidentified or undetected fraud can have a major impact to insurers’ reputations and ultimately their bottom line.”
While fraud is hard to eliminate completely as fraudsters evolve their tactics, there are ways to alleviate fraud risk in the insurance industry. It’s important for insurers to combat fraud by arming themselves with solutions that bridge the gap between customer experience and fraud prevention. “Taking a pre-emptive strike against insurance fraud will serve to help prevent bad debt, fraudulent claims and losses down the road,” Pillai concluded.
Increase in Digital Intensifying Rise in Financial Services Fraud
The Forrester financial services study, “Fraud Detection and ID Verification in Financial Services,” found that fraud is a widespread issue in the industry with 94% of firms experiencing some sort of fraud in the past two years. Not only is the fraud becoming increasingly more difficult to prevent and detect, it poses a new challenge to financial institutions – how to maintain a competitive edge without sacrificing the customer experience.
Approximately 70% of financial services firms reported their customers prefer to use digital channels over other channels. While this trend is nothing new, the shift in consumer behavior has made way for new types of fraud to emerge. Financial institutions now encounter fraudulent activity such as synthetic fraud and loan stacking, where sophisticated technological capabilities such as real-time insights, machine learning and predictive analytics are necessary to flag the suspicious activity, quickly.
What types of fraud, if any, has your company experienced in the past two years?
Identity theft / new account fraud
Synthetic identity fraud
Account takeover fraud
None; we have not experienced fraud in the past two years
*Base: 153 professionals involved in the evaluation/ selection of fraud detection technology.
“Consumer behaviors are changing; savvy fraudsters have recognized that and they have evolved their tactics to mimic those of legitimate customers,” said Mr. Pillai. “Financial institutions need to ensure their legacy systems are keeping up with fraudulent activity without negatively impacting their customer experience.”
To combat the rise in digital fraud, advanced technologies are needed to identify red flags at the first warning sign. The majority of fraud tools, however, do not bring both fraud detection and ID verification solutions into one seamless experience.
The study also found that customer experience correlates strongly with brand loyalty and the likelihood of consumers coming back for more products. Customers have also come to expect that every digital interaction, customer service call and application process should be seamless and consistent. More than half (54%) of financial institutions indicated that their current identity verification and fraud detection processes are too complex and burdensome – not only for customers to conduct transactions, but also for the organization to maintain. Furthermore, half of financial institutions are not satisfied with the capabilities that they currently have in place.
“When financial services customers feel they are burdened with extra steps to verify their identity, it increases abandonment and reduces future engagement,” said Pillai. “A poor verification experience can turn away good customers and increase the risk of customer defection and lost revenue.”
The implications of fraud can be felt across the business, with high costs for victim remediation, fraud loss and legal complications for non-compliance. Financial institutions must take all of these factors into account while also keeping costs down. Forrester estimates that fraud claims 2.39% of revenue for financial services firms, costing companies billions every year.
About TransUnion CIBIL
TransUnion CIBIL is India’s leading credit information company and maintains one of the largest repositories of credit information globally. We have over 3000 members–including all leading banks, financial institutions, non-banking financial companies and housing finance companies–and maintain more than 1000 million credit records of individuals and businesses.
Our mission is to create information solutions that enable businesses to grow and give consumers faster, cheaper access to credit and other services. We create value for our members by helping them manage risk and devise appropriate lending strategies to reduce costs and increase portfolio profitability. With comprehensive, reliable information on consumer and commercial borrowers, they are able to make sound credit decisions about individuals and businesses. Through the power of information, TransUnion CIBIL is working to support our members drive credit penetration and financial inclusion for building a stronger economy.
We call this Information for Good. For more information visit: www.transunioncibil.com