Merging company

How UCs Can Use Advanced Tools to Fight Fraud

Credit Union Tracker December 2021 - Find out how AI and digital identity innovations can help credit unions reduce fraud while digitizing their operations

Technology has become fundamental to society as the pandemic continues to impact all corners of the world. Consumers have flocked to digital channels to tackle day-to-day tasks including shopping, managing medical appointments and meeting banking needs. As individuals focus on online platforms and mobile apps, organizations have been forced to follow suit or risk seeing consumers flock to digitally savvy competitors.

Few organizations have had to respond to this digital shift as quickly as those in the banking industry, especially credit unions. kelly albiston, Senior Vice President and Chief Technology Officer of Digital Product Development at Mountain America Credit Union (MACU), explained that the volume of Paycheck Protection Program (PPP) loans and stimulus payments that have passed through his company has intensified its need for infrastructure innovations.

“We have seen a much greater need to improve self-service experiences as face-to-face interactions have become difficult during the pandemic,” he said. “This includes continued investment in services such as account opening and consumer loan applications, as well as [continuing to enhance] card-related services.

This trend is not exclusive to MACU, and some UCs have chosen to increase their investments in key services by merging. National Credit Union Administration (NCUA) Insurance Activity Report revealed 43 mergers were approved in Q3 2021, nine more than Q3 2020. Twenty-eight of those mergers occurred because the CUs wanted to expand their offering, and eight could be awarded on poor financial terms. CU merger rates are expected to continue to rise in 2022 as smaller credit unions aim to expand the digital services available to their members by integrating with larger organizations.

Data breaches pose challenges

Digital expansions and mergers improve user accessibility and help CUs meet new member demands, but these changes have also created several challenges. The main one is fraud: more than $ 154 million in losses due to fraud have been reported globally in 2020, and 56% of consumers in the United States report being victims of fraud in the past two years.

“With all the data breaches of the past few years that have disclosed a lot of personal information in the wild, the Know Your Customer (KYC) process continues to be difficult because [MACU] to improve[s] more self-service capabilities, ”he continued.

The increase in online profiles – combined with the less than ideal digital hygiene of many consumers – has contributed to a steady increase in fraud. The problem has also not gone unnoticed by members of credit unions. PYMNTS data shows that 11% of CU members use tools and services from Financial Institutions (FIs) other than their primary CUs because they believe their data is less likely to be stolen when they do. This means that failure to adequately tackle fraud and neglect to innovate could lower the generally high approval ratings of CU members.

“Preventing bad actors from opening accounts is a challenge, but existing members are also at risk of falling into scams or gaining access to their accounts compromised by constantly evolving techniques used to obtain passwords and intercept multi-factor authentication PINs, ”Albiston said. “These threats, along with the speed at which money can now flow out of accounts through new channels, pose a greater risk of fraud.”

AI and ML lead the anti-fraud charge

Luckily for CUs, there are plenty of ways to combat fraud and deliver the personalized customer experiences members expect. Albiston said that while some frauds are inevitable, MACU’s goal is to minimize the number of instances and their impact. Cutting-edge technology now incorporates artificial intelligence (AI) and machine learning (ML) to eliminate scammers while creating minimal friction for real users. Part of this approach is to enable technology to better establish what constitutes legitimate member behavior based on member history and device usage.

“Like all security, you need a very layered approach to be successful,” he explained. “We use… identity services to establish our KYC processes, which have been very effective in minimizing account opening fraud. We’ve improved authentication services that profile member devices and require strong authentication from unknown devices.

Albiston also said that implementing biometrics can help CUs distinguish bad actors from members and that using AI and ML to examine the movement of money across channels and even internally can help. credit unions to detect fraudulent traffic. Additionally, he said MACU supports credit lockout and account creation tools that notify members in real time about access and changes to their accounts.

Credit unions are rushing to roll out digital innovations that can help them compete with FinTechs and digital-only banks, and some are partnering or even merging with other CUs to make these developments a reality. However, it will be imperative to keep fraud to a minimum while they make these changes. There is no one-size-fits-all fraud protection formula for every institution, but leveraging AI, ML, and other advanced technologies can give CUs more strength to thwart sophisticated bad actors while maintaining smooth and convenient interactions for members.