Protecting Customers in an Era of Growth in Fraud

As financial fraud cases continue to rise, it becomes increasingly crucial for banks to take a proactive stance against criminal activities. A University of Notre Dame study reveals that customer loyalty improves when banks successfully identify and address fraudulent transactions.

When banks fail to attribute fraudsters, customers are significantly more likely to close their accounts due to dissatisfaction. The research indicates that victims of fraud abandon their financial institutions at a rate 40% higher than those who have never faced such issues.

However, the situation dramatically alters when banks successfully catch fraudsters. Not only do customers feel safer and more secure, but they also exhibit increased loyalty towards their bank, staying with the institution at a much higher rate—62% fewer victims choose to leave compared to those who have never experienced fraud.

Vamsi Kanuri, author of the study, explains that the impact on customer relationships is not primarily driven by the fraud itself but rather how the financial institution handles it and demonstrates its commitment to protecting customers.”

Long-Term Trust and Reputation

Banks must demonstrate a strong dedication to fighting on behalf of their customers. This is essential for building lasting loyalty and trust.

According to Suzanne Sando, Lead Analyst of Fraud Management at Javelin Strategy & Research, banks can foster customer loyalty by showing that they genuinely care about what happens to their clients during such incidents.”

The study highlights the persistence of positive perceptions. A bank that successfully catches fraudsters earns a reputation for competence that endures over time. Conversely, a bank that fails to stop criminals risks being seen as unreliable.

For customers with shorter relationships or fewer touchpoints with their financial institution, undetected criminal activity can lead to higher likelihood of account closure. Yet, long-standing and frequently interacting customers are generally more forgiving.

Customer Resilience Against Fraud

The resilience of victims who experience identity fraud is also noteworthy. Despite having a negative experience with their bank due to fraud, these customers might still be willing to close their accounts and move on.

Sando adds that this suggests the interconnected nature of our financial and non-financial accounts, along with the growing digital footprint.” However, the effort required to establish new banking relationships often outweighs sticking with a problematic bank.