With the upcoming changes to overdraft fee policies coming to the banking industry July 1st, courtesy of the Federal Reserve, banks and credit unions are re-examining the revenue growth opportunities through their new account opening process. We frequently hear from our fraud risk and operations client partners that when there is a push for revenue growth, fraud detection gets de-prioritized as a trade off to bringing in more new customers.  A DDA-friendly risk based authentication approach may offer some compromise to this seemingly “one for one” exchange.  Here are some quick revenue-friendly, risk-averse practices being seen in the branches, call centers, and online channels of Experian clients: • Drive referrals to knowledge based authentication (KBA), negative record checks (account abuse, fraud records) or both off of an upfront fraud score, such as the Precise ID(SM) for Account Opening score. Segmenting based on risk is cost efficient and promotes an improved customer experience. • Bolster the fraud defenses of your online channel by raising the “pass” or “accept” threshold. The lower acquisition costs for this online account opening are tempting but this is also the venue most exploited by fraudsters.  Some incremental manual reviews should work out as a small price to pay to catch the higher prevalence of fraud. • Cross sell and up sell with confidence based on more comprehensive authentication. By applying appropriate risk based authentication strategies, more products can be offered and exposure is reduced because you know you are dealing with the true consumer.    

I often provide fraud analyses to clients, whereby they identify fraudsters that have somehow gotten through the system.  We then go in and see what kinds of conditions exist in the fraudulent population that exist to a much lesser degree in the overall population.  We typically do this with indicators, flags, match codes, and other conditions that we have available on the Experian end of things. But that is not to say there aren't things on your side of the fence that could be effective indicators of fraud risk as well! One simple example could be geography.  If 50% of your known frauds are coming from a state that only sees 5% of your overall population, then that state sounds like a great indicator of fraud risk!  What action you take based on this knowledge is up to you (and, I suppose, government regulation).  One option would be to route the risky customers through a more onerous authentication procedure.  For example, they might have to come into a branch in person to validate their identity. Geography is certainly not the only potential indicator of fraud risk.  Be creative!  There might be previously untapped indicators of fraud risk lurking in your customer databases.   Do not limit yourself to intuition either.  Oftentimes the best indicators of fraud risk that I find are counterintuitive.  Just compare the percentage of time a condition occurs in your fraud population to the percentage of time it occurs in the overall population.  It might be that you have a fraud ring that is leaving some telltale fingerprint on their behavior–one that is actionable in ways that will jumpstart your fraud prevention practices and minimize fraud losses!

In case you’ve never heard of it, a Babel fish is a small translator; that allows a carrier to understand anything said in any form of language.  Alta Vista popularized the name but I believe Douglas Adams, author of The Hitchhiker’s Guide to the Galaxy, should be given credit for coining the term.  So, what does a Babel fish have to do with Knowledge Based Authentication? Knowledge Based Authentication is always about the data – I have said this before.  There is one universal truth: data doesn’t lie.  However, that doesn’t mean it is easy to understand what the data is saying.  It is a bit like a foreign language.  You may have taken classes, and you can read the language or carry on a passable conversation, but that doesn’t mean it’s a good idea to enter into a contract – at least, not without an attorney who speaks the language, or your very own Babel fish. Setting up the best Knowledge Based Authentication configuration for risk management of your line of business can sometimes seem like that contract in a foreign language. There are many decisions to be made and the number of questions to present and which questions to ask is often the easy part.  To truly get the most out of fraud models, it is necessary to consider where the score cuts that will be used with your Knowledge Based Authentication session will be set and what methodology will be used to invoke the Knowledge Based Authentication session: objective score performance, manual review and decision, etc.  It is also important to consider the “kind of fraud” you might be seeing. This is where it is helpful to have your very own Babel fish – one designed specifically for fraud trends, fraud data, fraud models and Knowledge Based Authentication.  If your vendor doesn’t offer you a Babel fish, ask for one.  Yours could have one of many titles, but you will know this person when you speak with them, for their level of understanding of not only your business but, more importantly, your data and what it means.  Sometimes the Babel fish will work in Consulting, sometimes in Product Management, sometimes in Analytics – the important thing is that there are fraud-specific experts available to you. Think about that for a minute.  Business today is a delicate balance between customer experience/relationship management and risk management.  If your vendor can’t offer you a Babel fish, tell them you have fish to fry – elsewhere.