As more consumers turn to digital solutions to handle their financial needs, the risk of fraud is increasing — a dynamic of which digital banking users are well aware. According to PSCU’s Eye on Payments survey, 53% of consumers are more concerned about fraud due to the ongoing shift to online banking channels.
Despite the growing fraud risk and subsequent member concern, many credit unions (CUs) do not appear to be actively innovating in response. A 2022 PYMNTS report found that less than 27% of CU executives said they were investing in fraud management and anti-money laundering (AML) solutions, down from more than 57% in 2021. A similarly small share of CUs — less than 26% — were investing in security, authentication or digital identity innovations. These numbers indicate there is much room for improvement.
CUs can better secure their systems by investing in innovative fraud detection and prevention solutions. Instead of relying solely on verbal validation methods, for example, CUs can leverage data to seamlessly authenticate members. This can be accomplished by investing in in-house data intelligence solutions or partnering with competent third parties.
In developing their own solutions or working with partners, CUs should seek to mitigate fraud through a holistic approach. The ideal strategy involves the use of machine learning tools for more than just authentication, with applications ranging from assessing the likelihood that a given transaction is fraudulent to determining risk levels in a portfolio.
Innovations centered around fraud prevention and detection can also improve satisfaction and attract new members. In a FICO survey, 74% of financial institution (FI) consumers ranked fraud protection among their top three considerations for opening a new financial account — more than any other factor. Digital fraud tools can also be used to meet consumer demand for a frictionless experience. A PYMNTS report found that 26% of consumers wanted their FIs to adopt more invisible security measures.
Investing in digital tools is a crucial step for combating fraud, yet it is not enough on its own. As PSCU noted in its 2022 Eye on Payments survey, CUs should promote their fraud prevention efforts to members and educate them on how to better protect themselves.
The good news is that educational efforts are already underway. For example, many CUs are actively reaching out to members to alert them of common scams and educate them about the best practices for protection. CUs should inform members that they will never receive unsolicited communications from the CU asking for debit or credit card numbers, personal identification numbers, usernames, passwords or other sensitive personal information.