Balancing fraud management and the customer experience

Forming solid relationships with customers while protecting them from fraud and financial loss is a constant balancing act for banks. The author details the steps involved in developing a strategy that puts customer protection at the center while providing a hassle-free customer experience.

Finding the middle ground between customer protections from fraud and the inconvenience that can be caused by those protections is a delicate balancing act that can have bottom-line and reputational impacts if not handled with care.

What exactly does this balancing act look like in practice? Let’s take transaction risk scoring as an example. Transactions are often scored by a centralized fraud decision engine, which allows lower-risk items to pass through and flags medium- or higher-risk items for further authentication and/or manual review by the fraud team. Imagine a scenario in which a customer attempts to make a legitimate purchase, such as a new TV. This legitimate purchase is inaccurately flagged as high risk for fraud, and the customer receives a text asking if it’s really them attempting the transaction. The customer responds yes and may then attempt the transaction a second time. Most customers will be comfortable with this initial barrier, but what if the transaction gets flagged again? This sometimes happens if the scoring engine doesn’t integrate that real-time feedback swiftly enough to ensure that the same transaction isn’t flagged a second time. It can also happen if fraud model thresholds are set too tightly, resulting in a high rate of legitimate transactions inaccurately flagged as fraud. Either way, we’ve now bothered a good customer twice for a single transaction. What started out as a customer protection has turned into a customer inconvenience.

In the financial services industry, customer experience has always been a priority. It’s especially important now in an evolving fraud threat landscape characterized by ever-present fraud interventions or warnings designed to mitigate those threats. Offsetting customer frustration with too many rules, checks or restrictions to transactions with customers’ desire for a more convenient, efficient banking experience is a double-edged sword.

Many consumers are ready to change banks over inadequate fraud protections. They believe the institutions they bank with are ultimately responsible for protecting them from fraud — and compensating fraud victims. In fact, a 2024 survey found that 75% of customers would change banks if fraud protection measures weren’t strong enough. And in certain scenarios, customers don’t just change banks but publicly share their stories via social media posts and articles. Some resort to litigation, with claims that their institutions failed to protect them, leading to branding and reputational harm and a loss of trust. (See “Jumio 2024 Online Identity Study.”)

Luckily, there’s light at the end of the tunnel. It’s possible to strike the right balance between a robust fraud prevention program and a positive customer experience. But it requires building a customer experience strategy within your fraud management program.

Here are four key steps to developing an effective customer experience fraud strategy:

1. Identify and map your fraud customer journeys.
2. Identify and source available feedback data.
3. Define fraud program customer experience metrics.
4. Establish continuous monitoring.

Identify and map your fraud customer journeys

Fraud journey mapping involves understanding where and how fraud interventions occur throughout key customer journeys, such as initiating an Automated Clearing House (ACH) transaction in the banking app. It’s important to first catalog customer journeys across products, channels and processes.

With a catalog of key customer journeys, you can then identify the moments that matter. Each fraud journey features moments that matter, which reflect the points of highest potential impact on the customer and on fraud risk mitigation. The purpose of identifying these moments is to enable a strategic, targeted approach to subsequent steps.

Table 1 below shows two standard fraud customer journeys that likely occur in every financial institution, with some variation in nomenclature, processes and technology, including inbound customer calls to the fraud hotline and mobile outbound ACH transactions.

Table 1: Fraud customer journey with sample moments that matter

Identify and source available feedback data

Collecting the right data at the right time is crucial to successfully building an effective customer experience fraud strategy within your fraud management program. As part of this effort, you’ll need to understand the data available within each key fraud customer journey, particularly within each moment that matters.

When it comes to the customer experience, there are two key types of feedback — active and passive. Active feedback is direct feedback from a customer, such as fraud-related customer complaints and customer surveys or questions via email, app or follow-up call. Passive feedback is collected in the background or behind the scenes, such as transaction approval rates (i.e., the percentage of approved transactions out of the total attempted transactions over a fixed period), or false positive rates (i.e., how often legitimate events are incorrectly flagged as fraudulent).

Table 2 shows the fraud customer journeys we outlined in the previous step with sample active and passive feedback data.

Table 2: Fraud customer journey sample feedback data

Define fraud program customer experience metrics

Define your suite of customer-experience metrics. This should include aggregate metrics that cut across your key fraud customer journeys and underlying moments that matter. Additionally, this should include more granular metrics to enable detailed deep-dive reviews. For example, an aggregate metric may focus on the total volume and cross-cutting drivers of themes across fraud-related customer complaints month-to-month, while a more granular view may break out fraud-related customer complaints by transaction type and fraud intervention or control (e.g., complaints related to account restrictions placed by fraud).

With insight provided by your customer experience metrics suite, you can determine how fraud controls and interventions need to be adjusted within crucial customer journeys. The goal is to provide a high-quality experience for customers while maintaining friction for bad actors (i.e., make it more difficult for fraudsters to commit fraud through fraud controls and interventions with minimal or no impact to good customers, where possible).

Establish continuous monitoring

Continuous monitoring is a crucial step in implementing your fraud customer experience strategy. It involves developing the processes, tools and dashboards needed to monitor your customer experience metrics in as much real time as possible. This type of monitoring enables a consistent pulse on the impact of fraud interventions, enabling proactive responses to address negative customer experience impacts that arise as the fraud management program evolves.

Let’s revisit our transaction monitoring example from the beginning. How would continuous monitoring help address what happens when the customer is hit by the same fraud intervention twice? This example illustrates a potential fraud strategy or model issue, and in this case, a false positive. Your fraud customer-experience metrics and related monitoring will help you track this type of issue and help you understand if this is a one-off occurrence or a trend affecting multiple customers. If this wasn’t a one-off occurrence but rather a pervasive trend, the fraud team may then launch a review of the fraud strategy or model that triggered the fraud intervention. This means adjusting the model to address the root cause identified, such as adjusting the underlying rules of the model or lowering the threshold to reduce false positives.

The balancing act between customer experience and fraud management will continue. But having a defined fraud customer experience strategy founded in a clear understanding of crucial fraud journeys, identified moments that matter, and a defined fraud metrics suite provides needed insight to protect customers while providing positive, seamless experiences.

Sophia Carlton, CFE, is a fraud risk executive. Contact her at sophiacarltoncfe@gmail.com.