When Fraud Prevention Gets in the Way of Customer Experience

Anyone who's driven a car with a manual transmission understands the challenge of getting the perfect balance between the clutch and gas pedals. Too much of one or the other causes stalling and unintended traffic jams. If you leave the clutch in, the gears spin freely. If you let the clutch out too soon, you'll buck and stall. Finding that sweet spot so everything syncs the way it's supposed to provides a controlled experience--and truly puts you in the driver's seat.

A similar dynamic occurs when shopping for goods and services online. Whether you are a bank, an insurance company, or a retailer, the last thing you want to do is implement new processes that will hinder the great online customer experience you've worked so hard to create. Simultaneously, all businesses recognize the impact fraud can have on reputation, customer retention, and the bottom line.

According to the Kroll 2013/2014 Global Fraud Report, 70 percent of companies have experienced some type of fraud. Stopping fraud is certainly a priority, but so is processing a credit card transaction, closing an online shopping cart, and delivering an exceptional customer experience. It's too easy for customers to abandon a transaction or leave behind their cart and go to a competitor. Especially during the busy holiday season, it's important for companies to fine tune their customer experience. According to a recent study by IBM, 83 billion dollars in sales are lost in the U.S. each year due to poor and inconsistent customer experiences.

The ubiquity of cloud, social, and mobile technologies has made it easier for businesses to engage, market, and sell products and services to their customers. At the same time, buyers have the expectation that they can seamlessly make purchases when and where they want to make them. This is particularly true for the holiday shopping season. Based on trend data from the IBM Digital Analytics Benchmark, we saw significant increases in both online and mobile shopping as consumers become more hyper-connected in the cloud.

False positive fraud alerts during those interactions can hinder the purchasing process, likely causing the buyer to abandon the transaction. A recent study of digital shoppers showed that 67 percent of UK and 51 percent of U.S. shoppers cited slow loading times as the top reason they abandon a purchase.

One big challenge some organizations face is that some fraud detection systems are transactional--they're not looking at potential patterns of fraud. Using real-time analytics, a smarter system can recognize any anomalies such as user error, for example, versus an identified pattern where fraudulent-looking transactions are linked to previous instances of fraud.

Consider this example. An insurance company can use these smarter systems to proactively review new policies to determine if they represent a potential for fraud--primarily through links and associations with known scammers, suspicious prior claims activity by policy holders, or other trends that come to light in the data. Previously, an analyst would spend approximately 40 hours to manually evaluate more than 50,000 new policies each month. Because of the manual nature of the analysis, the analyst was not identifying all the potentially problematic polices and also had no real way to discern if there was a case of user error.

By creating a single repository and using sophisticated big data and visual analytics capabilities, the analyst can now identify and understand the links between new policy holders and known scammers, and identify prior suspicious or problematic claims. The analyst now completes the work in about a third of the time while finding three times as many problematic polices.

This example demonstrates the ability to predict and reduce fraud while simultaneously processing more legitimate claims. Countering fraud while preserving an exceptional customer experience goes hand in hand. Smart retailers and marketers recognize this challenge and partner closely with their counterparts across the C-suite, working with the CEO, CIO, CISO, or even the head of physical security to ensure they are incorporating the best counter-fraud measures possible without sacrificing service. Organizations that work hard to get the perfect balance will always win in the clutch without wasting too much gas.

Robert Griffin is the vice president of industry and counter-fraud solutions at IBM. He has spent more than 35 years in the software and services industry. Geoff Galat is the vice president of marketing at IBM Smarter Commerce. He joined IBM in 2012 when it acquired Tealeaf.

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