November 03, 2019 - 76 views|
AI offers an opportunity for banks to minimize credit-card fraud – and maximize the customer experience.
When it comes to using artificial intelligence (AI) for credit-card fraud management, the benefits are more than meets the eye. Yes, AI-powered detection systems spot fraud more quickly and help contain losses. But the systems also put a new spin on fraud for credit card providers: Real-time fraud detection helps inspire customer confidence and boost loyalty.
Call it the upside of fraud. According to at least one study, organizations with a formalized program in place to monitor and prevent fraud dramatically improve their customer satisfaction and retention rates.
Defending consumers from bad actors trying to infiltrate credit card systems is a chance for financial services providers to forge better relationships with customers, the majority of whom point to security as a top concern in online transactions, according to research by Experian. (Coming in a distant second at 18% is convenience.)
Using AI to proactively disrupt fraudulent transactions makes for an even greater opportunity to strengthen customer relationships. Brands forge stronger bonds with customers; cardholders feel comfortable about continuing to charge purchases. We’ve seen this in action: The real-time fraud analytics platform we created for a leading financial services provider not only slashed the company’s fraud losses by $60 million annually but also boosted customer spend by $480 million.
But for most card providers, real-time analytics aren’t the norm. Banks’ traditional anti-fraud controls come up short in several ways. For one thing, old-school anti-fraud controls are no match for the volume of data – videos, emails, images, text files – that can now be put to use to effectively detect fraud.
What’s more, the false positives that traditional systems generate are costly. Imagine the annoyance of a U.S. resident whose card is declined in Cambodia because the location doesn’t match. In one study, only one in five fraud predictions were found to be correct. In addition to being an inconvenience to cardholders, these errors can cost a bank $118 billion in lost revenue, according to the study, when customers refrain from using the declined credit card. For customers, an abundance of false positives is a like a system crying wolf: Providers lose their credibility.
AI is an important ally for banks in reducing false positives. With its superior ability to quickly detect patterns in large data volumes, AI-powered systems can go far beyond assessing a single data point like “location.” They’re better equipped to analyze a wider variety of data points generated by a traveling cardholder and distinguish these from someone using a stolen card overseas. Using its real-time fraud platform, our financial services client reduced its false positive by 450,000.
We often say the best approach for AI is an iterative one that starts small and keeps improving. This is especially apt for fraud detection because the risk of error is so high for cardholders. We recommend a graduated path of AI adoption that gives your organization a sure footing and cardholders greater protection.
While no credit-card provider would welcome fraudulent activities into the services they provide, it’s also true that there’s no way to completely eliminate the presence of fraud. By putting AI-enabled detection systems in place, banks can at least minimize the impact of fraud while also establishing a trusted relationship with their customers.