BOSTON -- Financial institutions need to get their arms around the whole issue of enterprise risk as new channels of both consumer service and criminal activity emerge and mature.
That's according to Aite Group analyst Nick Holland, who penned a recent report on the topic after an in-depth survey of a group of banks and credit unions ranging from small to large.
A presumed vulnerability of new channels is helping to drive that issue. As online and mobile banking environments mature, the growth of fraud risk accompanying these environments seemingly comes in tandem, the Aite Group report said.
Fraud management, loss prevention and corporate risk also are now household banking terms, as both financial institutions and their members and customers battle this newly energized enemy.
In his qualitative survey, Holland said, he sought out both key issues in banking and fraud and ways to combat it:
"Fraud management is a balancing act," he said in his new report. "It requires an anticipatory mindset to predict new types of threats waiting around the corner, but is always tethered to the need to justify pre-emptive expenditure."
The issue of greatest concern, Holland said he found, lies in enterprisewide case management of fraud issues. Specifically, almost two-thirds of those surveyed highlighted this reality as an unfortunate obstacle in addressing fraud. Almost universally, outside hackers were seen as the dominant risk in this area.
The survey also found that 77% of these same institutions perceived most fraud management cases as reactive measures. Only half of Holland's sample fathomed their credit unions and banks actively taking steps to prevent fraud before it occurred. This preference toward reactive approaches, however, might point more to business concerns than those security-related, the Aite Group analyst said.
"Fraud management is not typically used for competitive differentiation," Holland said, noting that one about a third of the respondents perceived anti-fraud measures to be a key market differentiator.
Holland's report--titled Fraud Management Strategies of U.S. Financial Institutions: The Drive Toward Enterprisewide--also noted that most financial institutions measure the cost of fraud in dollars and cents, defined by the amount of money lost, the amount recovered, recovery rate effectiveness and time until recovery.
Only a handful of the institutions that Holland contacted inserted consumer satisfaction into fraud prevention measurement criteria. And most saw the greatest risk of fraud not coming from the online world but rather at the physical branch.
The report said that nearly two-thirds of the respondents identified that entry point as their greatest concern, although they expected this risk to decrease over the coming years. Conversely, they expect ATMs to be the source of a substantial increase in fraud by 2010.
Meanwhile, the clear winner in terms of identified perceived risk is mobile banking. Perhaps due to its newness and abundance of interfaces and devices, cell phones have fraud specialists on full alert. According to Holland, voice-recognition and online banking fraud are expected to follow in tow.
On the bright side: Mail fraud--a persistent pest in recent past--is expected to diminish into nonexistence.
"Not a single financial institution surveyed rated mail fraud as an important or extremely important component of fraud losses, either now or in three years' time," Holland said in his report.
At the end of the day, meanwhile, to borrow the football clich?(C), the best offense is still a good defense. Holland advised a proactive approach to fraud that covers all potential access points.
"With the rapid evolution of new fraud types, and the ability for criminals to attack institutions remotely and on an unprecedented scale using the Internet and inevitably, mobile, it is becoming mission-critical for financial institutions to have a holistic view of fraud being committed across the enterprise," reasons Holland.
"The need for the left hand to know what the right hand is doing was never more important," he said.