In the U.S., fraud is an underground economy that costsindividuals and businesses an estimated $200 billion a year.Gartner predicts that the overall cost of card fraud to thefinancial services industry will increase threefold over the nextthree to five years.

Clearly, the challenge of fraud prevention in the bankingindustry continues to be paramount in the minds of institutions andconsumers alike – and the cost and implications don't stopthere.

The latest wrinkle on this front is litigation, with severalhigh-profile cases coming to light recently, including Choice Escrowand Land Title LLC vs. BancorpSouth and PATCO Construction Inc. vs. Ocean Bank.

With the cost of fraud already at astronomical levels, theadditional losses that are mounting due to legal actions, possiblyeven class actions, will only heighten the severity of this matterand reaffirm the urgency for finding solutions to stem thetide.

As a result, banks and credit unions are increasing theirinvestment in fraud detection and prevention enhancements.Multifactor authentication, regular risk assessments, transactionverification, account monitoring and customer/member education arenow top of mind for bank security executives who fight fraud everyday.

The increased focus on security is also due in part to theFederal Financial Institutions Examination Council's updatedauthentication guidance. However, according to the recent Faces ofFraud survey report, 29% of respondents don't fully understand thedesires of the regulators, and 88% don't even believe thatconforming to the guidelines will have a great effect on haltingonline fraud.

The reason for such attitude is likely that in general,guidelines are simply that –guidelines – and typically representlowest common denominator, not highest common factor. Against suchbackground the tendency is to simply comply, and not exceed, whichleads to the lack of confidence.

In addition, when discussing fraud, the conversation typicallyhones in on how fraudsters obtain such personalinformation about their victims, and whilst as an industry weshould of course focus on preventing data breaches, the sad realityis that we must also assume that such breaches will continue toprevail and will follow the trend of recent attacks, increasing involume and impact.

As a counter measure, the industry needs to place equal if notmore emphasis on preventing criminals from using thepersonal information and data they steal. As Peter Hurst, chiefexecutive of CIFAS, the UK's fraud prevention service, says:“Prevention . . . remains better than cure, and it is time for allorganisations and consumers to start reviewing their approaches topreventing fraud rather than trying and failing to recoverlosses.”

In this context, prevention of abuse is as important asprevention of theft.

Of note now is that smart technology exists that can alertindividuals whenever a fraudster is trying to access their money orhijack their mobile phone, for example.

Much of this new technology is “invisible” and context aware,yet non-invasive from a data privacy and data protection standpointbeing totally anonymous and compliant with stringent dataprotection and data privacy standards.

By adopting an out-of-band approach to the verification processand approaching security using a multi-layer model, the customercan be alerted to a potential crime in real-time, thereby fullyenabling the customer with the power and resources to combatit.

Whilst as an industry we may never have a perfect cure to fraud,it's important to realize that intelligent, advanced preventionsolutions already exist.

Pat Carrollis the founder and CEO of ValidSoft in London,England.