Banks Must Recruit Consumers to Fight ID Fraud, Researcher Warns

Losses to identity fraud will be hard to reduce unless banks and other financial-services providers begin working harder to recruit consumers to look after their own accounts, a noted researcher said on Wednesday. “The important change that needs to happen today is a much stronger partnership between the person who owns the credentials and the company that thinks it owns the account,” said James Van Dyke, founder and principal of Javelin Strategy & Research, Pleasanton, Calif. A survey of 5,000 consumers that Javelin released last month indicated identity-fraud losses dropped 11.8% in 2007, to $45 billion (Digital Transactions News, Feb. 13). Chiding financial-services firms for a “proprietary” attitude toward consumer accounts that prevents them from working more closely with consumers to circumvent fraud, Van Dyke told an audience of online merchants and transaction-processing executives that identity fraud will be hard to reduce further unless that attitude changes. “As long as we have this proprietary thinking, we won't be able to get this fraud down from $45 billion,” he noted. Underscoring the importance of involving consumers, Van Dyke said the amount of identity fraud detected by account holders is roughly equal to that found out by banks, merchants, and other providers. Moreover, the damage is likely to be reduced if the fraud is detected by consumers. Javelin's study indicates the time to detection is 51 days on average when the fraud is self-detected, compared to 78 days when discovered by third parties. “People who are motivated will take action,” Van Dyke told his audience at the annual meeting in Las Vegas of the Merchant Risk Council, an organization of Web merchants and vendors that combats online fraud. “People are spotting it. There's a big opportunity here.” One way banks can work more closely with account holders, Van Dyke told Digital Transactions News, is by sending alerts to consumer desktops and mobile phones when suspicious activity occurs. The alerts solicit instructions from the consumer. He says some banks have told him they have tried such two-way alerts only to find consumers don't “care” about them. But Van Dyke blames overly complex systems rather than consumer apathy. “What I see are poorly designed programs,” he says. Sometimes even logins for such responses are needlessly complex, Van Dyke says, adding instructions are murky. “The advanced alerts I see are hard to use,” he says. “And sometimes the advice is so complex no Mensa member could do it.” The payoff in getting this right could be substantial in terms of reduced fraud. And consumers will use alert programs that offer easy-to-use interfaces that allow them to respond to alerts, Van Dyke argues. “Consumers are ready to adopt the right product,” he says. “I'm convinced of that.”