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/   Insights

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/   Insights

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/   Insights

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/   Spotlight

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What We’re Reading: Thanksgiving Edition

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/   Spotlight

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First the good news – banks in Britain stopped nearly £1 billion in attempted fraud in the first six months of 2015.

Banks prevented £7 in every £10 of attempted fraud, according to Financial Fraud Action (FFA) UK, which reports that losses on payment cards, online and telephone banking and cheques totalled £325.3 million in the first half of 2015.

The organisation said: “Banks’ and card companies’ security systems detected and prevented a total of £910.9 million worth of attempted card, online and telephone banking and cheque fraud.”

It’s an impressive effort, but the bad news is that, whilst some banks are successfully preventing lots of fraud, there are some that are not – and while some banks are investing in intelligent fraud detection systems, others are not, potentially leaving customers more exposed to losses.

Investment lacking?

Banks face multiple investment choices as they upgrade legacy systems. Costs are huge, particularly when regulatory changes mean some upgrades are forced upon them. The loser in this race, at some banks at least, may be the fraud systems.

At four in ten banks, the card fraud management systems are older than core banking systems, according to a survey by CEB TowerGroup. It found that solutions were installed prior to 2006 in 40 per cent of banks it spoke to.

“Best-in-class players, however, constantly evolve their offerings to adapt to change; some provide comprehensive turnkey solutions, while others might require the purchase of additional modules,” it says.

“Although machine learning is certainly a strong aspect, an effective operation will also have trained staff to make command decisions, test parameters, and design expert rules.”

Customer loyalty

Failing to tackle fraud has important implications for customer satisfaction and loyalty – with cyber security breaches happening frequently, consumers are very aware of the threats posed by criminals. Customers expect their banks to fight fraud and will leave if they don’t feel safe.

A study from TSYS found that while most people would blame the merchant if card details are breached, they firmly expect their bank and/or the card network to fix the problem. Nearly two-thirds believe it’s up to the banks to sort. Moreover, failure to act is detrimental to the bank as two-thirds (63 per cent) of customers would switch accounts to one they felt offered better security features.

UK fraud figures

To see where banks are doing well, we need to look at the figures a bit closer. Losses on UK cards were £249.9 million during January to June 2015, up one per cent on the same period in 2014. However, this is not all bad, as FFA UK notes: “Over this period overall card spending has grown substantially, so card fraud as a proportion of card purchases has fallen to 6.9p for every £100 spent, the lowest level since 2011 and down from 7.5p at the end of 2014.”

Banks and card company security systems stopped a total of £355.4 million of card fraud over this period. Online, phone and mail order (card-not-present) fraud was flat. Within this, e-commerce card fraud was steady at £109.9 million despite a 14.3 per cent rise in spending.

First-party fraud is more of a worry, with cases of fraudsters setting up a new account in someone else’s name or taking over an existing account using stolen information up 28 per cent. The EMV picture is also important – card fraud losses in the UK fell four per cent, while overseas losses were up 14 per cent. Fraud on contactless remains very low at just 2p in every £100.

Telephone banking losses nearly doubled, although the value is relatively low at £14.4 million, around four per cent of all fraud. Internet banking losses were up 27 per cent to £51.2 million – but a third of those losses were recovered after the incident.

Banks also seem very good at stopping online and telephone banking fraud as they prevented a total of £293.5 million of attempted remote banking fraud, equivalent to £8 in every £10.

“Banks use sophisticated security systems to protect their customers, stopping over two-thirds of fraud from occurring. However, the industry is never complacent and banks are continuously improving the tools they use to beat the evolving threat of fraud,” FFA UK director Katy Worobec.


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James W. Gabberty

Gabberty is a professor of information systems at Pace University in New York City. An alumnus of the Massachusetts Institute of Technology and New York University Polytechnic Institute, he has served as an expert witness in telecommunication and information security at the federal and state levels and holds numerous certifications from SANS & ISACA.

Brad Strothkamp

Marisa Mann

Marisa Mann brings over 15 years of experience in consulting and financial services industries to the Solstice team, working on large scale enterprise initiatives across many technologies, including specializing in the digital space – Internet and mobile. Mann is passionate about mobile and the endless possibilities for the enterprise, delivering business value through strong brand recognition and driving to excellence in the consumer experience. Prior to Solstice, Mann worked at JP Morgan Chase, Diamond Management and Technology Consultants, Washington Mutual, Inc, and Accenture.

Zachary Ehrlich

25-year-old writer, and as a native San Franciscan, I am unreasonably loyal to Bank of America, if only for their superhero-like origin story, involving the 1906 earthquake and Italian fruit vendors.