As fraud-related news such as the recent theft of millions of electronic credit card records continues to top headlines, new research underscores the need for more holistic approaches to combating fraud on the part of financial institutions. The research asserts that while many financial institutions fight fraud effectively in certain areas of their business, many do so poorly across their full spectrum of products and services.
“The financial services industry´s response to fraud has historically been to react with point solutions directed at each specific area of threat,” said Virginia Garcia, director in the Financial Services IT Strategies & Investments research service at TowerGroup and author of the research.
“Over time, institutions have assembled a menagerie of disconnected solutions that vary effectiveness, resulting in a fragmented, inadequate view of the total fraud landscape. An enterprise approach to fraud management is needed so financial institutions can adapt to the shifting sands of fraud in a proactive, timely and cost-effective manner.”
The research, conducted by TowerGroup, highlights the following findings: Information technology alone is not enough for effective fraud management. Institutions must revamp business processes to manage fraud across the customer life cycle.
New fraud types are continuously emerging for which financial institutions have no immediate response – which can lead to losses occurring for months, if not years, before hatches are battened down.
The most reliable indicator for fraud losses across the global financial services industry is found in its annual operational losses of over US$55 billion. The report shows that between 20% and 35% of the $55 billion in operational losses is actually fraud. However, these percentages represent a broad estimate and don´t include fraud that is never detected.
“Enterprise fraud architectures can help combat fraud as it occurs to protect the customer relationship across the life cycle and relationship portfolio,” noted Garcia. “While institutions cannot completely eliminate fraud, they can put architectures in place to detect and report it in a timely manner to minimize impact on the institution, customers, shareholders, and other constituents. Those that approach fraud management as a mandate to protect their reputations and build customer trust will also improve operational efficiencies and see significant payback to their bottom line through reduction of losses.”