Consumers Are Ready to Protect Their Accounts, But Will Bankers Let Them?

By James Van Dyke, Javelin Strategy & Research

A popular misconception about consumers' willingness to be involved in fraud protection is holding back retail bankers' profitability. New Javelin factual research debunks the mistaken belief that consumers won't sacrifice convenience in order to increase security. By analyzing rigorous data comparing latest behaviors and preferences toward banking security, Javelin identifies steps bankers can take to not only lower their fraud mitigation costs but to launch marketing efforts to strengthen customer relationships. On top of decreased losses, the customer value proposition of security partnering can be translated into profitable opportunities such as: increased online shopping, retaining customer revenue, gaining new customers, creating a top-of-wallet card, and garnering income from identity protection offerings.Consumers are already participating in identity theft programs outside financial institutions, applying many different ways to protect themselves against criminals. Over half of consumers use anti-virus protection, and one in four subscribes to services that offer credit monitoring, fraud alerts, and/or transaction alerts, even though these activities require additional efforts. Javelin makes it clear that bank customers not only seek opportunities to get involved in their banks' security efforts, they actually prefer providers that give them the chance to do so.

Identity monitoring companies such as Affinion and Intersections and credit bureaus Equifax, Experian and TransUnion provide co-branded opportunities for FIs. Wins for security-partnering for merchants, financial institutions, and card issuers include increased online shopping, card choice as "top of wallet," and opportunities for banks to partner with security and identity protection companies to attract consumers and increase fee income. While Wells Fargo, Bank of America, Chase, and Citi all currently offer ID protection services to their customers, there are still many opportunities to address customer needs.

By understanding consumer preferences, financial companies can redirect their security approach to optimize consumer involvement. Specific methods for sharing account security responsibility preferred by consumers include better authentication, alerts, user-defined limits and prohibitions (UDLAPs), Extended Verification SSL, and discounted third party services such as PC protection software, credit monitoring and fraud prevention services. By using self-detection methods such as monitoring accounts, consumers can discover fraud sooner than they would through external notification. Partnering reduces the time of the abuse and therefore lowers the mean dollar value of the fraud losses for consumers, thereby reducing the total expenses for all parties involved.

With half of fraudulent activity first detected by consumers, it is not only helpful for institutions and customers to work together in the fight against I.D. fraud, but in both parties best bottom-line interest. Nearly four in ten consumers turn off paper statements out of concern that someone will steal their personal information. Friendly frauds are among the most pernicious, requiring 50 hours for resolution compared with the average of 30 hours, resulting in higher consumer costs. In addition, victims may be reluctant to press charges against friends or family, resulting in average consumer costs twice as high. Not surprisingly, research shows that consumers are willing and able to share the responsibility for fraud protection with their financial institution, with the most enthusiastic response from those who bank electronically.

Safety spurs action to create more profitable relationships, and presents new marketing challenges for banks and card issuers to promote a 'secure' image. When consumers are either selecting a new credit card company or one of the several existing payment cards for their next transaction, they rank security against identity fraud as their paramount concern, overtaking interest rates, rewards, customer service, and other costly offerings. Increased security and privacy protection not only make a consumer spend more online, but credit cards that are perceived as more secure will generate more transaction income for the issuer as well and will win over competition that is perceived as less secure.

With consumers seeking greater participation in their security, banks, issuers, merchants, and vendors can take advantage of the tremendous growth opportunities in the financial security sector. Security professionals can improve their ability to fund strategic investments in customer-partnered security methods, using factual research data to bolster business cases with benefits such as increased customer acquisition, cross-selling, loyalty, and increased preference at point-of purchase. This is both an exciting and innovative time for industry professionals to shape their practices offer services and products that increase security, thus increasing profits for financial institutions, merchants, and credit card companies.

James Van Dyke is the founder of Pleasanton, Calif.-based Javelin Strategy & Research.