Fraud Management with a Competitive Edge Transaction Technology for the Financial Services Industry

The financial services industry has recently experienced a number of significant events that have altered the competitive landscape. Changes in interest rates, the increased number of mergers and acquisitions driven by the Gramm-Leach-Bliley Act, and the introduction of online-only financial institutions and internet banking, are a few examples of events that have directly impacted the business environment. These changes have fueled the need for differentiation, steering financial institutions to find ways in which to deliver services that put them at a competitive advantage.

Providing consumers with improved access, convenience and speed in conducting transactions can create that competitive advantage. Recent advances in technology enable institutions to deliver these enhancements while simultaneously containing costs. Unfortunately, the implementation of new technologies for transaction processing can give rise to heightened vulnerability to fraud. Cross channel migrations to environments in which the customer is not physically present at the “Point of Sale” (such as Internet banking, phone banking) result in increased exposure to hackers and imposters. This “transaction anonymity” can put a financial institution in a vulnerable position, unless rigorous fraud controls are in place.

Many financial institutions strive to gain a competitive edge by expanding their service portfolios or attaining economies of scale through mergers and acquisitions. However, with increasingly larger databases to manage, these institutions are facing the added challenge that a single breach could place millions of accounts and customers at risk.

The challenge of developing a competitive advantage is further compounded by the need for compliance with industry mandates, such as the 2005 Federal Financial Institutions Examination Council (FFIEC) guidance “Authentication in an Internet Banking Environment” and the Payment Card Industry (PCI) Data Security compliance standard, that have resulted from the increased incidences of transaction fraud. The magnitude of the problem is staggering. In 2003, statistics were compiled from five top banks with an average asset size of $102 billion, that reported individual losses of $10,000 or more. During the first quarter alone, they reported 224 loss cases totaling $7.7 million, and external fraud (including credit card fraud and check fraud) accounted for 58% of the total losses.* According to FBI statistics, overall U.S. financial fraud totaled $315 billion in 2005. And global card issuer fraud losses have quadrupled in absolute value since the early 1990s, approaching $4.5 trillion in 2004.**

Given the financial impact of fraud and the need to comply with industry regulations, it is incumbent upon financial institutions to actively integrate fraud management into their strategy. Loss prevention and compliance, however, are not the only reasons for addressing fraud management. In fact, enhanced fraud control can provide a competitive advantage from a customer service standpoint, improving customer confidence in the security of transactions, thus helping deliver differentiated service to customers.

A holistic approach should therefore be considered when developing a competitive strategy. Financial institutions will be much more effective at differentiating themselves and controlling operational costs, when addressing business challenges collectively. This approach requires two broad areas of focus:

1. Targeting improvements throughout the business cycle to include both: customer service touch points and areas of customer exposure/risk
2. Addressing risk management across the organization in a centralized fashion (vs siloed product/department approach)
   In doing so, financial institutions can leverage best practices, exchange information throughout the organization and respond to fraud or the possibility of fraud more effectively.

The resulting improved service levels throughout the organization can help customers perceive value in both the consistent quality of service offered and the privacy and security of their financial data – which can lead to increased loyalty and to the purchase of additional services.

The Right Technology for Delivering on a Competitive Strategy

Large financial institutions that deal with a broad range of transactions -- such as acquiring/issuing banks, for example -- retain fraud prevention and customer service responsibilities spanning a large number of customer activities or touch points and a variety of customer types - e.g. individual end users/cardholders transacting over the phone, as well as merchants whose customer transaction data needs to be tracked and managed. This scope of responsibility requires technology and related services that can help manage service levels and prevent fraud among many transaction types, and that can be integrated to effectively support an institution’s efforts to centralize operations.

Choosing a technology provider that is strategically aligned with a financial institution’s competitive approach is critical to the success of execution. Therefore, choosing a provider with the comprehensive functionality to address all service and exposure impacting touch points, and the infrastructure and integration capabilities to centralize risk management, is critical to institutions that manage a broad scope of transaction responsibility.

Verizon Business offers the technology and related services to holistically address the business needs of the financial sector. Enterprise solutions are custom designed, integrating the specific capabilities needed to effectively improve customer service while reducing exposure to fraud across the organization.

Meeting Financial Industry Growth and Security Needs in Concert

Business Management Consulting

The Verizon Business Contact Center Business Management Consulting team works with financial institutions to assess opportunities for improvement and make technology recommendations that will meet business growth needs while also mitigating risk. An example of the Verizon Business consulting team’s extensive experience with the financial services industry is an engagement with one of the top ten issuers of MasterCard and Visa cards. Providing virtual customer service to customers from three sites handling 1.3 million calls per day, this financial institution needed consulting expertise to address contact center performance issues that had hindered its competitive position. The Business Management Consulting team redesigned call handling procedures, resulting in improvements to service levels, call abandonment rates and hold times. One of the keys to the success of the project was the Verizon Business consultants’ expertise at working closely with the three location management teams as a whole while maintaining overall performance of the virtual call center, thereby avoiding the risk of making improvements in one site that could inadvertently adversely affect the other sites. This approach resulted in immediate and tangible benefits. Savings of over 1.1 million were estimated upon completion of the first quarter of implementation. Estimated savings over a full year could reach over 4.5 million.

Customer Contact Technology

Considering the cost of fraud and fraud management, coupled with the pressures financial institutions face to differentiate themselves competitively, technology investments should be considered in the context of their ability to deliver the highest overall value. The question to ask is: can this particular technology comprehensively and cost-effectively address all facets of the institution’s business challenges?

Verizon Business offers a comprehensive suite of contact center services that can deliver the following benefits to financial services enterprises:

• Transaction security
• Control of customer sensitive information
• Added value services for end users
• Efficient customer handling .

A prime example of a Verizon Business service that simultaneously delivers several of these benefits is Speaker Verification. This feature of our Hosted IVR – Speech Services provides enhanced security while improving caller convenience and controlling transaction costs. Speaker verification is a biometric process that compares a caller’s voice pattern against a pre-stored “voice print.” This method is highly effective in maintaining security because it relies on the uniqueness of an individual’s physical voice characteristics. Speaker verification, when combined with traditional authentication processes – such as the use of PINs, passwords, or security questions – can satisfy the multi-factor authentication requirements mandated by the FFIEC guidance. Furthermore, callers can feel more confident about the security of their transaction. As customers are more likely to embrace self-service, a financial institution can improve service levels and service consistency, and at the same time control costs by reducing the need for engaging agents to perform routine tasks.

Improving access, accuracy, speed and safety in transacting are key elements of service improvement that technology can help facilitate. Verizon Business’ Hosted IVR – Enhanced Call Routing (ECR) platform addresses these key elements with built-in redundancy, scalability and security. Handling over 2 billion minutes of customer traffic per month, the ECR platform is designed to efficiently route calls in an automated fashion, reducing agent connect times and even freeing up agents to handle specialized calls.

Financial institutions striving to obtain a competitive edge can build upon these authentication and call processing capabilities and aim for strong industry differentiation by delivering unique and personalized customer interactions. Verizon Business’s Hosted Intelligent Contact Routing (ICR) technology opens up additional avenues to differentiated service while at the same time boosting operational efficiencies needed for cost control. With Hosted ICR, a financial institution can have multiple centers operate together as a virtual enterprise. This capability facilitates the centralization required to address risk management effectively and provide consistent service. For complex tasks that are not suitable for automation, Hosted ICR allows financial institutions to differentiate valued customers by recognizing caller entered digits or Automated Number Identification, and priority routing them to the appropriately skilled agent or the same agent they spoke to last time…even a personal banker or broker if applicable. Among its many features, Hosted ICR provides insight into a customer’s transaction history and allows personalized interactions based on data collected from previous calls or website visits.

The movement to Internet Protocal (IP)-based contact center services will make it even easier to integrate data from multiple sources and to deliver personalized applications, all the while controlling costs via improved network efficiency. Verizon Business offers a host of Voice over IP (VoIP) services, including IP Toll Free and IP IVR.

Security at the Infrastructure Level

Verizon Business delivers this range of contact center solutions by employing robust network-based platforms that dynamically access customer-controlled data. At any and every level, Verizon Business networks provide some of the highest levels of performance and security in the industry. Customer information is protected by maintaining multiple layers of security, including physical, perimeter, host-based, personnel, and procedural security measures.

Professional Security Services & Security Programs

Beyond customer contact technology, Verizon Business holistically addresses risk mitigation for financial services institutions by offering complementary security services.

Professional Security Services offer security assessments, reviews, and programs to help identify vulnerabilities in both wired and wireless networks and applications. The Verizon Business team reviews policy or network impact on overall security, develops effective security policy and assesses its compliance through periodic evaluation and revision.
Security Management programs and an Online Compliance Program for the Payment Card Industry (PCI) are some of the programs that Verizon Business offers to help mitigate risk and secure the integrity of customer data. The PCI program, for example, is designed to manage vendors and large amounts of data, providing online compliance tools and online dashboards for merchants and acquiring institutions to gain automatic access and control of information. A full suite of complementary services is also available, including Professional Services for remediation, training, and Forensic and Investigative Response Services. Given the scope of this comprehensive offering, it is no surprise that Verizon Business currently provides security solutions to 72% of the Fortune 100.

Choosing a Technology Provider

The Financial Services Industry faces a multitude of competitive challenges. Many of these are exacerbated by fraud -- with fraud in and of itself becoming an additional challenge. A holistic approach is recommended as an effective means toward achieving and maintaining a competitive advantage: one which incorporates fraud management into the differentiating service equation and one which targets change across the organization collectively. Technology plays a key role in implementing this approach.

To ensure the value of your technology investment, a technology provider chosen to implement risk avoidance and competitive strategies for a financial institution should bring the following to the table:

• Broad scope of products and services for financial transacting
• Interoperable products/services that seamlessly uphold security standards
• A consulting practice with deep financial industry expertise and an integrated approach to building solutions
• Comprehensive security programs, e.g. including PCI Qualified Security Assessors and Approved Scanning Vendors.
• Automated Reporting and Tracking Tools – to provide access to key metrics with minimal effort
• Products that support customer satisfaction through enhanced security measures to authenticate
• Flexible delivery of technology in support of unique information security policies/control requirements, e.g. provider hosted telephony combined with enterprise control of sensitive customer information
• Proven expertise in implementation and delivery of customer contact and risk avoidance functionality
  
• A secure network infrastructure

Verizon Business meets all of these needs, providing technology and related services that help enable financial institutions to deliver innovative new services and realize contact center efficiencies, while effectively managing exposure to fraud.

• Northwestern Financial Review, 9/15 – 9/30 2003
• Edgar, Dunn & Company – 2/2007 Issue (original info from Nilson Report, EDC estimates