Wednesday, August 18, 2010

Are You Fighting Yesterday's War on Fraud?

First, let me recite some conventional wisdom:

- C-suites, boards, and shareholders are laser-focused on containing cost and building customer relationships
- The cost of acquiring a customer is 5 times the cost of retaining one
- Fraud is a counter-cyclical industry, increasing during economic downturns

Next let me cite a few numbers from recent industry research:

- 25 percent of customers touched by a fraud event leave their financial institution
- 11 million identity theft victims in 2009
- 54 billion dollars lost to identity theft-related fraud in 2009
- 100 percent increase in fraudulent online accounts in 2009
- 12.5 percent of Financial Industry IT budgets are spent on anti-fraud measures

For too many Risk and Fraud-Prevention executives, the real sum of these numbers is most evident in their elevated blood pressure. Without a doubt, this is a challenging time to be on the front lines of fraud prevention.

It is no time to find out you're fighting yesterday's war on fraud. Yet many organizations still rely on a sloppy spaghetti of siloed point-solutions and manual processes, predominantly focused on card or check fraud. Increasingly, fraudsters successfully take advantage of this fact by launching multi-channel, phased schemes.

Don't take my word for it ...

“financial institutions… are all reporting a significant increase in funds transfer fraud involving the exploitation of valid banking credentials belonging to small and medium sized businesses … Web-based commercial EFT origination applications are being targeted by malicious software.” -- FDIC Bulletin, 21 August 2009

“Dwelling House Savings and Loan, which saw most of its capital get wiped out as a result of a large fraud related to electronic fund transfers, was seized by regulators late Friday.” --, 14 August 2009

“Criminals have found out they can make victims of more people than ever before … It continues to be a multi-channel crime.” -- James Van Dyke, President of Javelin Strategy & Research, 4 February 2010

Over the coming months, I will use this blog to examine a series of emerging fraud threats and how leading financial institutions are responding.

Combating fraud is a common cause. I encourage readers to share their thoughts, stories, pains, questions, and victories by commenting on this site directly or emailing so I can include your feedback in an upcoming blog.