Paperless Banking: Leaving the Mailbox Door Wide Open for Fraud

In our last post, we discussed how paperless banking has unwittingly created a multi million-dollar return mail problem, particularly for smaller institutions that can ill afford wasteful spending. Today, we want to talk about how paperless banking may be giving financial institutions a false sense of security when it comes to fraud protection.

Developing the digital channel has consumed significant resources over the past few years, and this is especially true with respect to fraud detection. Institutions have enabled two-factor authentication and various other fraud detection capabilities to secure the digital channels. While this is important, there are only so many resources to go around, and this focus on protecting the digital channel has left the mailbox wide open for criminals seeking easy money. The criminals look for the system of fewest controls, and when the digital channel becomes much tougher to defeat, they have once again turned to easier paths. This is a big reason why old school account takeover schemes have been back on the rise.

One common flavor of Account Takeover Fraud (ATO) occurs when a fraudster changes the legitimate customer’s address and shortly thereafter requests a new credit or debit card. Another common type of fraud is Non-Receipt Issue (NRI) fraud. This occurs when the criminal intercepts a debit or credit card in the mail and makes purchases. In many NRI cases, the card actually shows up in the mail at the stale address that the financial institution has on file, but the customer is no longer living there. Because the chip technology has made counterfeiting cards much more difficult, ATO and NRI fraud rates are expected to rise even higher with the EMV rollout.

Even if financial institutions exercise greater diligence in locating and updating customer addresses, there is still a risk for fraud due to natural database decay. According to the U.S. Postal Service, people move at the rate of 12 to 17 percent per year, yet only 60 percent of movers inform the post office of the move in a timely manner. Couple this trend with the fact that most banking customers prefer a multi-channel approach to communicate with their financial institutions (this Gallup survey cites 64 percent of respondents using four or more different communication channels) and it’s easy to see why managing and maintaining continuity in customer relationships is such a difficult task.

What can be done to stem the rising tide of address fraud related to stale customer address lists? Our next post will focus on steps every bank can take immediately to ensure their customers are well protected.

Written by Jack Sundstrom
Chief Product and Marketing Officer
Jack has over twenty years of experience in building data strategies and developing advanced analytics solutions on behalf of clients across several industries including financial services, retail, telecommunications, consumer packaged goods, and automotive. He is passionate about developing products that use data to distinguish “good” from “bad” so that clients can make informed and profitable business decisions.

Date Posted: December 1, 2015 Author: Jack Sundstrom Category:   Featured, IDI Blog

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