Risk and reward

As tech creates greater convenience, it also creates new opportunities for fraud

Posted on Nov 1, 2017 :: Financial Services
Kat Boogaard
Posted by , Insight on Business Staff Writer

When’s the last time you set foot in a physical bank building?

For many Americans, that question is surprisingly challenging to answer. With the rise of digital and online banking methods, people need to pay a visit to their friendly neighborhood teller far less frequently than they used to.

This increase in electronic financial services is mostly owed to consumers.

“We’re living in a very ‘I want it now’ world,” Debbie Weyker, vice president of marketing at Bank First National in Manitowoc, says. “Financial institutions have to evolve to meet those needs.”With that in mind, it’s likely

With that in mind, it’s likely demand for convenience isn’t going to slow down anytime soon.

“We’ve been growing our digital service adoption double digits year over year, over year,” Brent Tischler, executive vice president and director of retail banking at Associated Bank, says. “We think that mobile banking and digital adoption will continue to grow at an accelerated rate.”

Many other financial experts agree with that prediction.

“Now you see things like different fintech (financial technology) companies partnering up with banks to better understand the regulatory side of things,” Kelly Fischer, chief operating officer at Bank First National, says. “Digital certainly isn’t going away anytime soon.”

While this move to online methods provides plenty of convenience and accessibility for consumers, it also presents some unique risks and requirements that the financial industry has had to meet. The biggest one? Security.

Cybercriminals and growing security concerns
“Before you can talk about risk, I think you need to start with the premise that your identity and all of your credentials are likely out there already,” Jeff Olejnik, director of risk advisory services at Wipfli LLP, says of the recent Equifax leak.

With the assumption that your identifying information has already been compromised, the world of digital transactions becomes a whole lot more terrifying. As a result, many people are rightfully concerned about how they can protect themselves from threats such as fraud, identity theft, and other cyber crimes.

“Cybercriminals and cybercrime is an industry all on its own,” Fischer says. “It continues to constantly seek opportunities to defraud our customers.”

That idea alone is enough to make consumers nervous. However, rest assured, financial institutions are doing everything they can to mitigate any potential risks their consumers might face.

How the financial industry is keeping up
Cybercriminals are smart — which means banks continuously challenge themselves to be even smarter by using new measures they can put in place to better protect their consumers.

If you’ve ever had a fraudulent charge on your credit card, for example, you’ve likely noticed that banks have become much faster when it comes to identifying purchases that are out of the norm. This is owed to improved algorithms, software and tools that banks use to better learn about their customers.

“We have systems that digitally fingerprint you, for lack of a better term,” Jon Biskner, vice president of information technology at Nicolet National Bank, says. “There may be 14 different things that we identify for you as a person. When seven of them all of a sudden don’t match,

then red flags start going up and we place calls to our consumers.”

Aside from understanding customer behavior, banks are faced with another big challenge related to digital financial services: verifying identity.

“When identity starts leaking like it did at Equifax, you really have a challenge because the modes of how we identified a person in the past is going to change in the digital world — and it’s going to have to,” Biskner says. “We’re not going to be able to use that issued number or your birth date.”

“This trusted source was compromised,” Olejnik says. “So, banks are going to need to change and do some more thorough due diligence.”

Of course, this is something that financial institutions have already been actively working on, including exploring different ways of confirming identity — even using biometrics such as a fingerprint. While that technology evolves, multifactor authentication is one method banks are putting into practice to ensure people are who they say they are.

“We have what are called out-of-wallet questions,” Fischer says. “They’re not simple things that somebody who is hacking would be able to obtain — things like where did you buy your last car or where did you get your last home loan. Those types of questions protect you a little more than standard birth date questions.”

What consumers can do to protect themselves

Although the financial industry is doing its best to protect consumers from fraud, some of the responsibility still rests on the consumer to take precautions with their identity and personal information.

Measures such as being wary of any suspicious emails from your bank (you can always call to confirm legitimacy) and taking advantage of free shred days at a local bank branch can help to keep information safe.

But, above all else, experts share that staying aware is the smartest strategy — and, fortunately, that’s a luxury and advantage that online banking provides.

“The simplest and most straightforward advice I would give is to regularly monitor your accounts and statements and set up alerts within your mobile and online banking,” Tischler says. “So, if there’s unexpected activity, as a customer you are aware and empowered to take action.”

Indeed, this accessibility to financial information comes with some risks. But, it also offers some benefits for consumers, who are now able to be far more alert and in-the-know about any strange transactions or potential fraud.

“Having people close to the transactions and the accounts themselves at any given time provides a better stopgap in a fraud situation,” Biskner says.

Security has always been a concern in financial services and likely will continue to be. It’s an area of common ground among banks and other institutions to innovate new methods to address — and maybe even prevent — fraud.

“Banking and financial services is a very competitive industry,” Tischler says. “However, when it comes to fighting fraud, I think we’ve found that it’s really a collaboration among banks. Increasingly, the banking industry is more open to sharing threat information so we can better manage risk on the bank end.”