Don't Let Fraudsters Steal New Revenue
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For as long as I can remember there has been an ongoing debate in deposit taking, it's yin and yang so to speak. On one side you have marketing constantly attempting to get more deposits and depositors. On the other side you have the risk management folks warning of increased risk. The harder you push for deposits the riskier the accounts that you attract. My reference to yin and yang is purposeful, because these seemingly opposing and independent elements are in fact interconnected.
In this classic trade-off that banks face, is the institution capable of adding more customers without increasing fraud loss? Most banks are stuck on a risk-revenue frontier like the one pictured below. The graph below is for illustrative purposes only, actual shape may vary significantly based on institution and product.
In this picture it is obvious that as banks add more customers and revenue, the further they travel along the Risk-Revenue curve to the right. This means Risk is increasing and the loss prevention group is right. New customers do mean more risk and the gain in revenue might not be worth it (the good old law of diminishing returns).
But what if better fraud detection could stop losses before they occurred on new accounts? By watching new accounts more closely with the right monitoring, it is possible to increase the revenue gained through customer acquisition without increasing the fraud losses.
Banks are now able to increase revenue without increasing losses. And the old argument that increasing customers increases risk? Well that's a thing of the past. For once, both Sales and Marketing and Loss Prevention are happy. The interconnectivity of the two opposing groups is recognized, (yin and yang) and the whole organization benefits.
This different perspective of risk management value sheds new light on the business case for it because it recognizes its contributory value to market penetration. The organization that is more secure in its risk mitigation capabilities can be more aggressive in the deposit taking market place and come out ahead in that never ending battle. The forward thinking risk manager would do well to talk to marketing about how much they could increase deposit taking by working together.