GenAI has made it easier for scammers to generate synthetic documentations and deepfake accounts, complicating detection and driving up the cost of prevention efforts. As a result, the financial industry’s losses are projected to reach $40 billion in 2027. Even more troubling is that the cost of fraud management has outpaced the fraud itself. Financial institutions now face costs of $4.41 for every $1 of fraud.
The True Cost of Fraud Management: Beyond Financial Losses
The true cost of fraud management goes beyond financial losses. Back-office processes that are required to investigate disputes, to process claims, and to provisionally credit accounts during fraud investigations are often manual, labor-intensive, and time-consuming.
When a cardholder calls to dispute an unauthorized transaction, a whole range of requirements kick in. Provisionally crediting accounts during investigations can be costly for banks, and programs may incur significant losses, especially with a high volume of first-party, or “friendly,” fraud. Credit card networks estimate that as much as 70% of all cardholder claims are driven by friendly fraud. While advanced technologies are critical in detecting fraud, optimizing back-office operations is key to cutting costs and reducing operational strain, all while fortifying fraud protections. Here are two key strategies to get you there: back-office expert optimizations and communication optimizations.
How to Maximize Efficiency and Reduce Fraud Costs Through Back-Office Expertise
Managing disputes and chargebacks in house is a significant challenge, especially when it’s difficult to find or afford staff with the necessary expertise. Scaling up or down quickly to meet seasonal demand like around Back to School and holiday shopping or after tax refunds or stimulus checks hit accounts also can be a challenge.
1. Build an Agile Team to Manage Fluctuations
Seasonal spikes can overwhelm internal resources, leading to slower response times, higher operational costs, reduced accuracy of fraud detection and dispute resolution, and potential loss of customer trust. This is where outsourcing to a team of experts can be a game-changer, enabling you to tap into a scalable, expert team to relieve the pressure and ensure that customer and compliance delivery scores remain high.
2. Operationalize Loss-Reduction Strategies
Operationalizing strategies for reducing losses will ensure that the front-office customer experience and loyalty aren’t compromised. One example is conducting merchant outreach early in an investigation to try to validate transactions before filing a chargeback. This can reduce investigation time, operational costs, and overall losses.
3. Leverage Chargeback Avoidance Networks
Another strategy is to participate in so-called “chargeback avoidance networks,” such as Verifi and Ethoca. These services seek to connect banks and merchants for faster, less expensive resolution than that of network chargebacks.
How to Master Communication to Reduce Fraud Costs
If you’re already using a third party to manage disputes, make sure that it’s helping you achieve the best results. Rigorous training and ongoing quality assurance are critical, but you also need robust reporting and communication to measure performance and identify fraud trends.
1. Prioritize CX to Minimize Impacts of Fraudile Team to Manage Fluctuations
When customers are worried that their accounts have been compromised, they want the situation to be resolved quickly, with as little friction as possible. Having the right combination of empathetic and knowledgeable support while also protecting yourself from unnecessary losses is key to maintaining customer loyalty and trust during a stressful situation. Consider implementing proactive fraud alerts to notify customers of suspicious activity and reduce their anxiety to help prevent unnecessary chargebacks. Empower your support teams with tools and data for proactive and efficient follow-through to address concerns faster and reduce case-handling times.
2. Integrate Data for Faster, More Accurate Fraud Detection
Effective, expedient communication goes beyond agents to include data systems. Consolidating data (e.g. transaction data, historical fraud data, geospatial data, external threat intelligence) from multiple sources ensures that all departments are aligned and working from the same insights. This integration accelerates decision-making and improves fraud response times, enabling teams to act swiftly, accurately, and in many cases, proactively to stay ahead of increasing criminal activities.
3. Cultivate a Strong Compliance Culture to Mitigate Risks — In-House and Third-Party
Building a strong compliance culture is essential. Regular training, clear communication of anti-fraud policies, and an emphasis on accountability at all levels and across all internal and external teams reduce the need for external interventions and minimize risks. Incorporating automated compliance checks, fraud detection systems, and audit trails in everyday operations can streamline regulatory compliance, reduce false positives, and reduce human errors.
4. Streamline Back-Office Operations and Technology to Cut Costs
Simplifying and standardizing compliance processes within back-office operations and partners who offer a flexible, custom workflow and scalable support can significantly reduce fraud-related costs, especially during seasonal spikes when quick onboarding and scaling are essential. By automating routine tasks with advanced technology like inCharge, which offers timers, alerts, and guided case management, organizations can stay on track with regulatory timelines and maintain consistent communication with both team members and customers.
With fraud-related costs steadily increasing, financial services providers need to implement strategies that reduce both costs and risks while maintaining strong customer relationships. Partnering with an expert can help streamline fraud prevention, enhance operational efficiency, and improve customer experience.
Read more about how to find and vet the right partner for your needs.
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