Banks Make Strides in Fighting ID Fraud, But Lag in Mobile Alerts

Financial institutions have made big strides in fighting identity fraud over the past year but still lag in preventing the crime by using such technologies as mobile alerts, according to a report released this week by Javelin Strategy & Research. “Despite so many consumers having mobile devices, banks are still behind the curve on alerts,” James Van Dyke, president of the Pleasanton, Calif.-based firm, tells Digital Transactions News. Generally, banks need to do more to enlist cardholders and other customers in the effort to thwart fraudsters, he says. The results come at a time when economic conditions make it harder than ever for banks or consumers to bear the costs of ID fraud, a crime often linked to electronic payment instruments and channels. The average case costs $5,574 and requires 26 hours to resolve, according to research by Javelin. Overall, ID fraud losses total about $45 billion annually, the firm estimates. The good news, says Javelin, is that banks have made significant progress in the year since the research firm's last report on the subject in both preventing and resolving ID fraud. The firm's scorecard evaluating anti-fraud efforts, based on research among financial institutions that control half of all U.S. deposits, awards a 52% rating on prevention, up from 44% in 2007. Similarly, the score for resolving ID fraud cases rose to 86% from 77%. That for detection, however, remained virtually flat at 50%. Across all three categories, Javelin awards its top rating to Bank of America Corp, at 77%, followed by National City Corp. (recently acquired by PNC Corp.) and Wells Fargo & Co., both at 73%. Still, Van Dyke says many banks remain reluctant to involve customers in initiatives and technologies that could protect individual identities. Such involvement, for example, includes letting customers define thresholds and then notifying them when transactions exceed those limits. “It's a philosophical issue,” says Van Dyke, who says Javelin interviewed bank executives as part of its research, which included so-called mystery-shopper conversations with customer-service representatives. “ID fraud is something your classic risk and fraud practitioner wants to control. They want to fight it solo. Yet cardholders are saying, 'We want to be involved,' and we're not seeing any information that they can't be effective being involved.” Just 44% of financial institutions allow customers to set limits on transaction size, the report says. Those that allow limits or bans on card-not-present transactions number only 4%, while none do so with respect to foreign transactions?which can be the source of much fraud. Bank's performance is spotty even when it comes to a function as seemingly simple as alerting customers when certain transactions take place, Javelin's report shows. While 76% send balance-level alerts, only 32% notify customers about online transfers. For foreign and card-not-present transactions, 12% of banks send notices. Similarly, alerts regarding changes to accounts can be useful. Some 64% send alerts regarding a change to a physical address (for e-mail addresses, the figure is 68%), but only 8% notify customers about a change to their PINs. Alerts can be most efficiently delivered via mobile phones, says Van Dyke, given the proliferation of the devices and the rapid evolution of mobile-banking systems that link to data about customer accounts. While the report finds 48% of banks offering mobile banking, Van Dyke says he expected a much higher percentage. “You can argue 48% is pretty good, but that number should be really high given all the people who are texting,” he notes. “Banks that want to be future leaders in mobile payments should be investing in mobile SMS [short-message-service transmissions]. Our study shows they just aren't there yet.” Still, Van Dyke says he expects to see major improvement soon in the proportion of financial institutions adopting mobile banking and using the channel to deliver alerts to customers. “Banks will evolve mobile banking to be more about alerts,” he says.