FICO Survey: 3 in 4 APAC Banks Believe Fraud Will Increase in 2019

Almost three in four banks in the Asia Pacific anticipate that fraud in their country will increase in 2019, according to a recent poll by FICO, the Silicon Valley-based NYSE-listed company, which is a pioneer in the use of predictive analytics and data science to improve operational decisions, holding more than 195 US and foreign patents. Of specific concern are transactions completed when neither the card nor the cardholder is physically present (card-not-present or CNP fraud), as well as cards taken out by criminals under false identities (application fraud). These were identified as the two key concerns, as well as the biggest fraud challenges faced by banks in 2019.

Dan McConaghy, president of FICO in the Asia Pacific, said that the volume and velocity of transactions are growing in Asia. Over 50 percent of global online retail sales in 2018 originated from the region. This growth in e-commerce along with the efforts of banks to digitize more services has seen a change in fraud risk. Dealing with an ocean of transactions means that AI and machine learning are essential when it comes to detecting fraud.

The survey found that efforts to keep up with changing fraud patterns remain mixed. Most APAC banks surveyed continue to take a precautionary approach to stop fraud. More than 50 percent of APAC banks continue to simply block cards on the first fraud alert, a rate that remains unchanged from the 2017 survey. In contrast, 6 percent will keep the card open while trying to confirm fraud with the customer. Positively, this number has doubled since the same question was asked in the previous poll.

McConaghy said that while protection against fraud is important, some banks are still struggling to balance prevention with customer convenience. Smart communications is one tool lenders can use to deliver a frictionless customer experience. Engaging customers with an automated SMS or call to check if a transaction is genuine, while they are still at the register, engages them in the protection of their account and can have a positive influence on their impression of the bank.

Interestingly, banks in the region, are still measuring their fraud departments on key fraud metrics other than customer satisfaction. Overall fraud losses remain the leading indicator for 80 percent of APAC banks, followed by revenue at 10 percent. Only six percent of APAC banks ranked customer satisfaction as their number one metric and only four percent said customer attrition was their key measurement.

He said that the results are a little surprising as fraud rates are still relatively low, even though they are starting to climb. In developed markets where their lenders compete over the share of wallet, they start to see a greater emphasis on customer experience. Potentially, what they are seeing is that in some organizations the fraud department remains a more siloed operation. However, as fraud levels climb, increased levels of customer churn are likely to shift the priorities for banks, he said.

Of the banks surveyed, 54 percent of respondents said there would be a moderate rise in fraud in 2019 while 20 percent said there would be a significant jump.