There is a line of thought that exists - banks actually do not care about fraud because they can write off the losses as a deduction against their tax burden. This is similar to the methodology banks use to remove bad loans from their books.
Writing off losses from fraud gives the impression that banks have no motivation to prevent it because it does not ultimately affect their bottom line. However, this belief is flawed; the idea that banks do not care about fraud is a myth.
Banks certainly do not want to be seen as complacent in managing fraud; this would erode faith in the entire banking system. Regulations, KYC, and AML also force banks to be fraud conscious, and there are serious penalties for non-compliance, in addition to reputational damage. This myth seems to be propagated by banks’ apparent willingness to write off fraud losses rather quickly.
But the reason that banks are so willing to write off fraud losses is not because of the tax incentive; it’s because, according to a 2019 KPMG survey, less than 25% of fraud losses are ever recovered. A loss, even if it can be written off, is still a loss. The low recovery rate and high cost in pursuing fraudsters often makes write offs the most economically viable option, but that does not mean it's desirable.
In fact, quite the opposite is true. Banks globally have listed cyber fraud and data breaches as their number one concern, and have made massive investments in fraud prevention and prediction. Account takeovers, phishing, cyber breaches, identity theft/impersonation fraud,have reportedly all seen increases globally in the banking industry.
The current mechanisms around the management of fraud highlights the need for potentially additional preventative measures. The old aphorism ‘an ounce of prevention is worth a pound of cure’ certainly rings true here.
One consideration is to evaluate the use of strong authentication to help provide assurance around the integrity of customer interactions.LoginID offers a suite of FIDO-certified biometric authentication solutions that combat digital fraud before it occurs such as passwordless login, transaction confirmation/digital receipts with digital signatures, and identity verification.
LoginID has created simple and effective SKDs and APIs that provide developers the ability to integrate quickly, through a highly scalable SaaS platform. The rationale for inclusion around the use of biometrics are clear.
According to a Visa survey of their customers 86% of consumers want to use biometrics as a part of their payment experience. Not only do consumers want secure, passwordless experiences, passwords are also an expense for banks to manage. Up to 40% of call-center contacts relate to password resets, taking up to 15 minutes for the customer and call-center agent.
Fraud is clearly an evolving issue for financial institutions. It is clear there are additional ways to help minimize its impact financially, and improve the customer experience.
LoginID is disrupting the Consumer Identity and Authentication market. We are a FIDO-certified passwordless authentication company providing a SaaS-based Strong Customer Authentication Solution coupled with Digital Onboarding, Identity Verification and eKYC solutions. Backed by serial fintech entrepreneurs and strategic partners such as Visa, we are a strong global team based in San Mateo, California and Toronto, Canada, and are experts in security, encryption and tokenization.