Fraud continues to grow, and consumers know it. In fact, they’re downright afraid of the prospect of fraud and identity theft. When it occurs, bank customers want to know who’s responsible. If they can’t assign blame elsewhere, they’re likely to hold their financial institution responsible and switch banks, a new study from Carnegie Mellon University found.
The study looked at more than five years’ worth of anonymized data for more than half a million customers of a leading U.S. bank. Researchers concluded that when it comes to whether fraud victims stay or leave their bank, how the bank responded and how successful investigators were in discovering the source of the fraud matter as much as how the fraud actually occurred.
Researchers found unauthorized transactions — ones that ended in merchants crediting back the fraudulent transactions, and ones in which the bank concluded an allegedly fraudulent charge was actually valid — increased the probability that the customer would leave the financial institution. Unauthorized transactions increased the likelihood of switching by 3.2 percent and merchant credits increased it by 2.3 percent. Customers were least happy in instances where a charge they thought was fraudulent was determined valid by the bank; that situation increased the likelihood of churn more than 7 percent.
“User outcomes depend on bank intervention as well,” researchers wrote. “If the bank can compensate the user, resolve her concerns, and ensure that she is satisfied, it is likely that user outcomes remain unchanged. However, we also argue that much of this loss in trust is an outcome of uncertainties. When the losses are not traced back to perpetrators, and not clearly attributed for, and the reasons are not clearly explained to the users, they are more likely to worry about similar attacks occurring in the future.”
Consumers already lack trust
Consumers are already worried about the possibility of falling victim to fraud, and they don’t the efforts financial institutions, companies, and regulators are taking to protect them.
A TransUnion survey found 83 percent of consumers fear having their identities stolen. What’s more, fear is preventing at least some consumers from making greater use of valuable banking features; Kaspersky Lab found that more than a third of banking customers don’t use mobile banking, and of those, 74 percent said security fears were the main reason. The majority of both users and nonusers also said they would increase their use of mobile banking if security were better.
When fraud occurs, it can change user behaviors and prompt the severing of consumer/brand relationships. In addition to the Carnegie Mellon study that illustrated the relationship between fraud and switching, a survey by ACI Worldwide and Aite Group found 56 percent of fraud victims changed their card usage and shopping behaviors. Further, 22 percent of fraud victims will close a bank account, and 14 percent have complained on social media about the incident, according to a survey by FICO. Millennials reacted even more strongly, with 29 percent saying they would close all accounts with the bank, and a quarter would write a negative social media post about their experience.
Banks must act quickly
The FICO survey reveals a kernel of good news for banks. If a bank handles a the incident well, 41 percent of millennials say they would recommend the financial institution to others.
All this data and research communicates a compelling warning: When bank customers fall victim to fraud, financial institutions can’t just assume resolving the fraud will be enough to keep the customer. While speedy resolution is key, banks need to take additional steps to help victims rebuild their faith in their financial institutions.
When fraud occurs, banks must:
- Have systems in place to quickly detect fraud not discovered or reported by the account-holder. Protocols must include speedy and clear notification of the affected customer.
- Communicate clearly with account holders at every step of the resolution process about what the financial institution is doing to resolve the situation. Moreover, it’s important to communicate how the bank is facilitating any law enforcement investigation to identify the source of the fraud.
- Make resolution as simple as possible for consumers. In instances where resolution is unavoidably complex, provide a dedicated resolution professional to assist with tasks such as closing affected accounts, opening new accounts and transferring automatic payments and deposits from the old account to the new.
- Resolve issues and refund defrauded sums as quickly and efficiently as possible. Provide affected account-holders with a definitive time frame for refunds and resolutions.
- Provide identity theft protection. In addition to the initial injury of having their account and hard-earned money fraudulently used, many victims fear subsequent identity theft. Providing complimentary identity protection through a qualified provider is a relatively easy and low-cost way for banks to assist fearful victims.
- Provide consumer education tools, but be careful not to give the perception the financial institution is pointing the finger of blame at the fraud victim. In the Carnegie Mellon study, fraud victims who were told the charges were valid — who received no refunds from the bank but did get the tacit message that the fraud could be their fault — had the strongest negative reaction to the situation.
- Resolution and recovery are now as important to the bank/customer relationship as prevention. When taken, extra efforts can result in a deeper, more trustful and mutually rewarding relationship between financial institutions and fraud victims.