Enteprise Fraud Management

1. CEB TOWERGROUP | RETAIL BANKING
ENTERPRISE FRAUD MANAGEMENT MARKET UPDATE
January 2015
Restoring Consumer Confidence Through
Enterprise Fraud Management
Enterprise Fraud Management Market Update
Abstract

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3. CEB TOWERGROUP | RETAIL BANKING
ENTERPRISE FRAUD MANAGEMENT MARKET UPDATE
EXECUTIVE SUMMARY
While data breaches are hardly the sole driver for fraud and identity theft, recent major retail breaches have
put fraud management in the public spotlight like never before. Overall fraud increased, both in the
incidences (+4.9%) and total dollar amount (+14.9%), even in regions where fraud management solutions
are ubiquitous. There is a constant downward trend in costs per fraud incidence, indicating positive
momentum in dealing with fraud even as the numbers grow. We recommend banks take the following
actions to get the most out of their fraud management strategies:
1) Establish key metrics on cost per fraud incident. As complex data analysis drives improvements to
fraud detection, fraud solutions must also turn analytics inward to improve cost per incidence and other
key metrics.
2) Enable development of better tools for consumers. Consumers take little action to address fraud
because they lack the tools to do so. This inaction is often mistaken for apathy. Back-office
improvements in fraud management should continue to enable better consumer-facing tools.
3)Don’t break down fraud management siloes, but build efficiencies on common processes. While
investment in specialized solutions continues, efficiency gains can be made by recognizing
commonalities in data and process management.
KEY MARKET TRENDS
THE FINANCIAL IMPACTS OF FRAUD GO BEYOND THEFT
Reported fraud incidences are climbing, and the majority of banks indicate an increase in financial losses over 2014
(Figure 1). There has been a steady beat of high profile data breaches which increase the costs of managing data
theft and further damage customer confidence. While difficult to quantify the direct impact fraud has, these breaches
combine to undercut the collective confidence in banks’ ability to stem the tide of compromised credentials and their
use. The impacts to financial institutions come in the form of measurable effects (reissuing payment cards, lost time
and resources from having to respond to fraud incidences), but also the less tangible, but perhaps more alarming
impact: the reputational damage incurred by banks (Figure 2).
Figure 1 Figure 2
Financial Losses from Fraud in 2014
Percentage of Respondents
9%

4. Impact of Data Breaches on
Banks and Customers
Percentage of Bank Respondents,
Multiple Responses
Allowed
51%
13%
Unsure
27%
Lost Time and/or Resource
50%
Due to Incident Response
Fraud Incident Directly
No Change
Compromises
No Impact From the
26%
Breaches
Reputational Loss
Source: iSMG Faces of Fraud Study, 2014. Source: iSMG Faces of Fraud Study, 2014.
14%
2
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5. CEB TOWERGROUP | RETAIL BANKING
ENTERPRISE FRAUD MANAGEMENT MARKET UPDATE
PER-INCIDENT FRAUD LOSSES ARE DECLINING
Fifty-one percent of banks indicated an increase in overall losses from fraud and the overall numbers support this
expectation. Consumer complaints of fraud continue to climb, increasing 5% in 2013 (Figure 3). Some gains are
evident despite the dark news, when we note that the average cost of fraud is generally stagnant, but the m edian
continues to drop (Figure 4). This indicates that there are some incidents of large-scale fraud that bring the average
up, but with the midpoint continuing to drop, there are many more cases of small-scale fraud. Efforts to detect and
remediate fraud quickly are working, both in speed to detect as well as in forcing criminals into schemes with smaller
paydays.
Even the 36% of respondents who said that their fraud losses are stagnant or lower could experience a reversal as
more compromises occur. As fraudsters become increasingly sophisticated in their methods for working around
prevention efforts, early detection capabilities will become critical to keeping fraud losses down.
Figure 3
Consumer Fraud and ID Theft Complaints
North American Consumers, 2001-2013, in Millions
1,400
FraudIdentity Theft
1,200
1,000
800
600
400
Figure 4
Cost of Identity Fraud Per Customer
North American Consumers, 2011-2013, in USD
$3,000
AverageMedian
$2,500
$2,297 $2,146 $2,294
$2,000
$1,500
$1,000
$538 $500
200
$0
0
Source: Consumer Sentinel Network, February 2014.
Source: Consumer Sentinel Network, February 2014.
Figure 5

6. Abnormal Churn Rates Due to Fraud, By Industry
STAKES ARE HIGH FOR BANKS TO
IMPROVE CONSUMERS’ CONFIDENCE Percent of Abnormal Customer Churn, 2014
There are many reasons for churn in the financial
services industry, but the severity of churn as a result
of fraud demands a multi-faceted approach. Abnormal
attrition rates after fraud incidences for financial
services institutions rank second for all industry
categories, trailing only pharmaceutical companies
(Figure 4). This is not surprising, as one of the retail
banking industry’s essential value propositions is to
keep customers’ money safe.
If financial services organizations cannot restore the
confidence in their ability to protect consumer
information and finances, this churn rate may increase
as consumers question whether they need banking
services and begin to explore solutions of non-
traditional competitors.
© 2015 CEB. All Rights Reser v ed. www.ex ecu tiv eb o ard .co m

7. CEB TOWERGROUP | RETAIL BANKING
ENTERPRISE FRAUD MANAGEMENT MARKET UPDATE
CONSUMERS ARE REPORTING MORE INCIDENTS OF IDENTITY THEFT AND FRAUD
Figure 6
Stolen Personal Information Online By Age Segment
Percentage of US Internet Users Who Have Had
Important Personal Information Compromised Online,
2013-2014
All age segments of incidents of online fraud have
experienced a big jump in the incidents of fraud
from 2013 to 2014. The 18-29 range saw the
greatest jump, recording an increase of 114%
(Figure 6). This is due in part to the willingness of
18-29 the younger demographic to give up personal
information online.
20%
30-49
15%
20%
50-64
11%
13%
65+
9%
n = 1,002.
Source: Pew Research Center’s Internet Project.
However, worries about the risk of sharing
personal information online has also shifted, with
50% of adult Internet users reporting concern
over the safety of their personal information, up
Center’s
from 33% in 2009 (Pew Research
Internet Project).
CONSUMER AWARENESS IS NOT TRANSLATING INTO ACTION
Despite a near-universal level of concern regarding information security, very few consumers take steps to
protect themselves, even after widespread and highly publicized breaches. Customers are unlikely to take
any high-effort actions after incidences of fraud, such as shopping at different stores, requesting a new
card from their bank, or signing up for credit monitoring (Figure 7). Consumers still view fraud prevention
largely as the responsibility of banks or merchants, and not as a direct result of their own shopping
behavior. Furthermore, consumers are beginning to feel an inevitability to the theft of their personal
information and account credentials. Consumers are equally divided between those who want more tools
to protect themselves and those who are almost apathetic to identity theft, so long as their financial

8. institution makes their finances whole. Ultimately both groups have an expectation that their financial
institution will protect their money, but both need reassurance.
Figure 7
Actions Taken by Consumers After Fraud Incidence
Percentage of Respondents Who Answered “Yes” or “No”
80%
66% 66% 69%
61%
57%
41%
37%
32% 31% 29%
Yes
18%
No
Checked Your
Credit Report
Cards
n = 1,060.
Use Cash
Instead of
Online
Retailers
Shopped At
Different Stores
Number From
Your Bank
Source: Associated Press-GfK poll, 2014. 4
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9. CEB TOWERGROUP | RETAIL BANKING
ENTERPRISE FRAUD MANAGEMENT MARKET UPDATE
BANKS STILL LACK CONFIDENCE IN FRAUD PREVENTION
The number of ways an account may be compromised, and the multitude of ways that criminals can use that
information once they have it, presents a truly daunting task. Detecting fraud is particularly challenging when
customers use their credentials for purchases in a financial ecosystem with highly variant information security
standards. But confidence to prevent credential theft involving the online and mobile banking tools provided by
the financial institution is not much better, and has actually seen a decline over the past year (Figure 9). It’s clear
that the prevention of these events is a significant challenge, and has driven many to renew their focus on
detecting the use of stolen credentials.
Figure 8
Confidence Versus Occurrence of Credit/Debit
Card Fraud
Percentage of Respondents, 2014
65%
Reported
Occurrence
37%
Confidence in
Ability to
Prevent
Figure 9
Confidence Versus Frequency of Account
Takeover
Percentage of Respondents, 2013-14
50%
40%
36%
26%
2013
2014
Credit/Debit Card Fraud Reported
Frequency
Confidence in
Ability to Prevent
Source: iSMG Faces of Fraud Survey, 2014, CEB analysis. Source: iSMG Faces of Fraud Survey, 2013 and 2014, CEB analysis.
FRAUD MANAGEMENT SOLUTION SPEND VARIES SIGNIFICANTLY BY CONTEXT
“Fraud” is a term that is used in different contexts within different siloes in financial institutions. As much as there
are common tools that may be used in each of these, the solutions to address each of them are often procured
separately. Spending on all aspects of the fraud management paradigm is up, but regulatory focus is driving
investments in specific fraud prevention solutions, such as anti-money laundering (AML) (Figure 10). While
spending on AML has increased over 2014, confidence in the ability to prevent money laundering is still relatively

10. low in comparison, with only 40% of banks reporting their confidence in their ability to prevent it.
Figure 10
Planned Installations of Technology by 2018
Percentage of Global Financial Services Respondents, 2014
Anti-Money Laundering Systems
Authentication and Identity Management
Card Fraud Management
Fraud Management for Commercial Banks
Fraud Management for Retail Banks
Know Your Customer
n = 39-101.
Source: CEB 2013-2014 Technology Adoption & Investment Survey.
41%
21%
30%
34%
22%
32%
5
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11. CEB TOWERGROUP | RETAIL BANKING
ENTERPRISE FRAUD MANAGEMENT MARKET UPDATE
FRAUD MANAGEMENT IMPLEMENTATIONS ARE AN IMMEDIATE NEED
As a result of high fraud incidence rates, flagging consumer trust, and low confidence in the ability to address the
problem, 47% of retail banking executives said they plan to increase spend on fraud management solutions (Figure
11). Most of those who were increasing that spend were planning to replace their current solution. Particularly at
large retail banks, fraud management solutions are among the technologies with oldest installment dates, and are
ripe for replacement (Figure 12).
Figure 11Figure 12
Current State of Fraud Management Implementation
Percentage of Retail Banking Executives, 2014
Age of Retail Banking Technologies for Large Banks¹
Relative Rank, Indexed from Responses, 2014
Technologies with Oldest Install Dates
19% 2%
Unsure
33% 47%
1 Card Fraud Management 6
Automation
2 Fraud Management 7 Pricing Analytics
3 Core Banking Systems 8 Credit Risk Management
Increase No change
4
Management
5 Card Analytics 10 Loan Servicing Systems
Authentication/ Identity
9
Systems
¹Banks with over $100 B in assets
n = 56.
Source: CEB 2013-2014 Technology Adoption & Investment Survey.
n = 504.
Source: CEB 2013- 2014 Technology Adoption & Investment Survey.
Figure 13 ROI FROM FRAUD MANAGEMENT DRIVEN BY
High-Value Retail Banking Technologies
Percentage of Retail Banking Executives
Indicating "Very High" or "High" Value, 2014
OPERATIONAL EFFICIENCIES
Fifty-three percent of respondents said fraud
management is “very high” or “high” in value,
Core Banking Systems Credit Risk Management

12. Card Fraud Management
Consumer Credit Scoring
Branch Sales and Service
Software
67%
61%
61%
61%
57%
placing it in the top ten highest value technologies
of the 35 retail technologies we include in our poll
(Figure 13). Ultimately fraud management
solutions are judged by the return on investment,
and as the cross-channel, cross-fraud efficiencies
mature, those ROI gains are being met through
improvements in process and maintainability
benefits.
Online Banking Solutions
Bill Pay Solutions
Consumer Collection Systems
Fraud Management
Application Development and
Maintenance
n = 39.
56%
55%
54%
53%
52%
Investment in fraud management solutions is
driven primarily by operational considerations, as
banks are able to leverage finely tuned scoring
rules to reduce analyst time required for fraud
monitoring, and significantly reduce the number of
false positives.
Source: CEB 2013-2014 Technology Adoption & Investment Survey. 6
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13. CEB TOWERGROUP | RETAIL BANKING
ENTERPRISE FRAUD MANAGEMENT MARKET UPDATE
NICE ACTIMIZE – ACTIMIZE INTEGRATED FRAUD MANAGEMENT
KEY STATISTICS
Founded: 1999
Company Type: Public
Headquarters : New York City, NY (USA)
FY 2013 Revenue: $163 millio n USD
Full-Time Employees: 600+
FIRM OVERVIEW
NICE Actimize is a technolo gy develo per specializing in
providing financial crime, enterp rise risk, and compliance
solutions for financial institutio ns and govern ment regulators.
Actimize was acquired by the Israel-b ased security
technolo gy firm NICE Systems in 2007, becoming a wholly
owned independen t subsidiary. In additio n to its wide range of
fraud systems, NICE Actimize’s produ ct offerings also
encom pass solutio ns for anti-money laundering, compliance
monitoring, and trade surveillance. With major offices in New
York, London, Paris, and Hong Kong, the company’s
internatio nal team of more than 600 professionals serve a
global client base.
PRODUCT OVERVIEW
NICE Actimize offers Actimize Integrated Fraud Management
as a fraud detection software for remote banking, commercial
banking, private banking, emplo yee, deposit, and cards. The
product provid es enterprise-level support to financial
institutions in four key areas of fraud and payment expertise,
analytics, end-to-end fraud management, and platform
adaptability and openness, and provid es fraud investigators
with the necessary tools to detect and block fraud in real-time.
RECENT UPDATES
Finan cial institutions can enhance fraud detectio n and risk
scoring using Actimize Integrated Fraud Managem ent and
several of its new features. The solution utilizes a risk hub
framew ork and open platform that can aggreg ate data and
informatio n from multiple channels, systems, and vendors.
Additio nally, while the solution includes out-of-the-b ox
analytics models, clients can also choose to apply customized
models to their implementations, and support the executio n of
runtim e models with industry standard tools, such as SAAS
and SPSS.
CEB TowerGroup View:

14. CUSTOMER SUCCESS STORY
A top US bank implemented Actimize Integrated Fraud
Manag ement to protect their Demand Depo sit Account
portfolio. The solution provided coverag e for:
•Check Deposits
•Check Payments
•Debit Card activity: ATM, POS, CNP authorizations
•Online Banking
•Mobile Banking
•
IVR and Call Center
The bank benefitted from Actimize’s cross-channel and
customer-centric approach to fraud management, taking
advan tage of the solution’s self-d evelopment capabilities
to enhance Actimize’s out-of-the-box logic. The bank
provided consumers with new products such as support
for card provisioning, usage in mobile wallets, and mobile
remote deposit acceptance. The bank is expandin g their
coverag e into the EMEA and APAC regions.
Client Coverage by Asset Size
<$1 B $1-10 B $10-50 B >$50 B
Curren t Clients
None in this Segment
Distribution of Clients by Region
0-4%
5-19%
20-39%
40-59%
60-79%
Often the science of transactional analysis and security is a
80-100%
clandestine, black-box effort, but in providing their services,
NICE Actimize stresses a level of transparency to their
approach, including the use of open-source programs and
other opportu nities to customize and optimize a financial
institutio n’s fraud management based on their own diverse
set of processes and risk tolerances. In our Enterprise
Fraud Management Technology Analysis, NICE Actimize
received three “Best-in-Class” achievem ents in the Fraud
Detection, Workflow Management, and Business Process
Improvem ent categories.
Distribution by Service Model
96%
Installed SaaS (2%) ASP (2%)
0% 25% 75% 50% 100%
7
Source: NICE Actimize; CEB analysis.
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15. CEB TOWERGROUP | RETAIL BANKING
ENTERPRISE FRAUD MANAGEMENT MARKET UPDATE
Related Resources CEB TOWERGROUP RETAIL BANKING
Executive Director
2012 Enterprise Fraud
Matt Dixon
Management Technology
Analysis
Technology Spending Forecast
Technology Adoption and
Investment Survey
Research Director
Jason Malo
QUANTITATIVE INSIGHT TEAM
Project Manager
Kevin Wu
Research Analyst
Edward MacDonald
VENDOR ASSESSMENT TEAM
Managing Director
Jaime Roca
Senior Director
Magda Rolfes
Senior Research Analyst
Madeline Storck
Specialist
Rachel Griffin
Contact CEB TowerGroup
+1-866-913-6450
towergroup_support@executiveboard.com
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