There is a new twist on the “generation gap” these days―and fraudsters are exploiting it to win, while financial services organizations (FSOs) are mining it for better personalization and competitive differentiation in their product offerings and target markets.
Today virtually all FSOs, no matter their size or location, are aware that fraud threats are evolving as fraudsters get smarter. If they have not already taken proactive steps to adapt to the pace, volume and intensity of the ever-changing risks these new fraudsters present, they are certainly in the early stages of a digital transformation at their organization. With new ways of engaging with FSOs that range from digital banking to chatbots, fraudsters have created additional attack vectors to harm customers.
Fraud volumes have continued to increase in recent years. Since the beginning of the pandemic, application fraud for new account openings has increased by over 134%. By 2023, forecasts estimate that synthetic identity fraud will make up over $1 billion of annual demand deposit account fraud losses, according to research by Aite-Novarica Group from November 2020.1
One of the most concerning factors shaping fraud patterns today is not just the digital transformation and the pandemic, but how fraudsters adapt their tactics according to the unique generational personas. The techniques they use to target the upper age brackets are not the same tactics they use to lure Generation Z, also known as Gen Z, and millennial customers. Even more clever, the fraudsters are sometimes leveraging many financial institutions’(FIs)very own generation-targeted marketing schemes and product offerings to snag each of these widely different groups of consumers.
Today’s digital channels naturally produce more data. As open banking brings even more players into the payments’ ecosystem, the pressure increases to verify and authenticate legitimate activities. As fraudsters adapt and become more organized, they are recognizing the need to become more technically sophisticated. Fraud and financial crime programs need to understand the new normal and adjust quickly.
In this “new normal,” customers of all generations are unlikely to migrate back to physical branches. Approximately 85% of consumers who have used digital platforms for financial services will favor digital forms of interaction post-pandemic, according to enterprise fraud management solutions provider NICE Actimize. There is a substantial generational shift in purchasing power from the older generations to the emerging younger and newly affluent generations, creating market demand for digital-first offerings and modernized payments. Currently, this movement is protected by technology innovation to allow a more agile banking system. Just as fraudsters are customizing their attacks, FIs are now seeing the requirement to customize their fraud strategies and educational offerings―pivoting away from a one-size-fits-all approach.
Fraud Attacks and Generational Triggers
Fraudsters continuously seek to exploit new weaknesses and love to engage with the challenge of new technologies and activity patterns. As they do so, sometimes an FSO’s most concerning threat can turn out to be the customer who inadvertently lets the fraudster in the door. Each generation interacts, understands and uses technology differently; therefore, fraudsters target customers based on this demographical distinction.
For example, millennials and Gen Z are the emerging affluent generations and will be the recipients of the significant wealth created by the baby boomers over the next 10-15 years. In addition, these generations were the early adopters of online and digital banking. As these generations will be experiencing significant life changes soon, including buying homes and cars, FSOs will want to establish early relationships with these customers and provide heightened experiences to retain them.
Conversely, Generation X and baby boomers are established and they bank with the future in mind. Unlike other generations, they are used to standard banking interactions but are often open to new ideas. A decade ago, it was a novelty for grandparents to text their grandchildren; today, they post pictures on Facebook with their grandkids. And what was initially assumed to be slowness in embracing and adopting new technology was proven wrong by the pandemic. Baby boomers’ activities often mirrored younger generations in their adoption of online and digital banking platforms.
Executing effective fraud prevention within the context of these generational dynamics can challenge an FSO’s ability to deliver safe, customer-centric experiences.
Customer Education and Building Trust in Uncertain Circumstances
So how do FSOs educate customers to prevent potentially risky behavior and avoid potential fraud? Both FSOs and their customers must share the responsibility of fraud prevention, and customer education and knowledge are vital pieces of the fraud prevention puzzle.
“Consumers are readily looking toward their primary FIs for guidance on how to handle the complexities of identity fraud. As a result, this is a great opportunity for banks to demonstrate how they can be trusted advisors to their accountholders during moments when they feel vulnerable,” explains John Buzzard, lead fraud and security analyst for Javelin Strategy & Research.
According to a WSFS Bank study of millennials and Gen Z consumers that was released earlier this year, “When it comes to financial literacy, 61% of respondents agreed that most of what they’ve learned about finance was through osmosis, with 75% of men agreeing compared to 49% of women.”
The research also noted that, “For financial lessons, they learned from others, parents topped the list of sources at 36%, followed by romantic partners (33%), grandparents (31%), teachers (29%), and siblings (27%), while 23% said they learned these skills in school and just 17% from their bank or financial institution.” Therefore, this data indicates that there is plenty of room for FSOs to step in and provide education across generations.
As part of the educational process, FSOs should be transparent and communicative to their customers. They should be clear about how fraud protections may work and indicate how they might experience friction with access and such activities as two-factor authentication or added layers of captchas and identifiers. Digital banking transactions continuously introduce new techniques to educate and increase customer awareness of fraud at relevant points in time.
This transparency enables FSOs to grow more meaningful relationships with their clients and succeed in becoming trusted partners during stressful, uncertain circumstances when fraud does happen. Without building trust and showing the consumer why they are going through these protections, the frustrated digital native consumer, especially the younger generations that demonstrate less brand loyalty, will jump to a digital competitor with just a few clicks.
Tailored Protection for Every Consumer
Optimizing the digital journey represents a significant market opportunity for FSOs to acquire and retain members of any generation with high expectations of “digital-first” banking. Delivering a trusted, digital-first engagement experience can drive benefits across the business. Methods to empower customers must be integrated into the fraud prevention process, including engaging them via digital tools and new interaction channels. This approach introduces organizational efficiency, customer stickiness, cost optimization and ultimately new opportunities.
Using advanced analytics powered by artificial intelligence that consumes vast amounts of data in real time is the cornerstone for safely enabling the new and faster payment methods that younger generations are adopting. Furthermore, it also allows FSOs to hone and accelerate their digital-first, mobile-first presence. While customers require 24/7 access to financial services, they also expect security. Currently, FSOs are focused on developing specific, segmented strategies that focus on the risk at hand. Adding some targeted friction enables FSOs to drill down on fraud without making authentication difficult for customers, such as randomized step-up authentication. Customers expect a certain degree of friction, but they also expect to move forward with minimal interruption.
At its core, fraud is a data problem. To fight fraud effectively and minimize customer impact, it is necessary to customize approaches at the individual level and utilize all available data to view customers and their risk profile fully. Then, in order to deliver an optimal customer experience, FSOs must manage a cross silos, fragmented tools and data sets. And finally, to achieve this holistic view of customer risk across their lifecycle, a fraud team must utilize a singular fraud management system that unifies data, enables intelligent, real-time decisions and prevents friction while protecting customers.
No matter the generation that is targeted, the FSO’s objective is to stop financial crime, keep customers safe, protect the organization and stop the funds from leaving the FSO to be used for illicit activities. Certainly, the other high priority is keeping the customer from moving to a competitor through strong fraud prevention policies and an unwavering trusted advisor relationship.
- “Application Fraud: Accelerating Attacks and Compelling Investment Opportunities,” Aite-Novarica Group, November 2020, https://aite-novarica.com/report/application-fraud-accelerating-attacks-and-compelling-investment-opportunities