In the first blog in this series, we looked at the challenges facing financial institutions as they seek to identify and mitigate cases of Card Not Present (CNP) fraud.   As we noted, high performance fraud management is closely tied to the development of the right capabilities, accompanied by careful execution.  A multi-discipline approach to fraud management can help institutions make better use of available data.   

There are typically four types of fraud operating models: 

  1. Diversified.  In a diversified model, fraud management is siloed within each business unit as there are few common customers, suppliers, or ways of doing business.  Our experience with leading companies is that they are more likely to share fraud intelligence and preferred practices with other business units. This model is often seen in e-commerce businesses which have rapidly extended their ecosystem across products and services. 
  2. Coordinated. In a coordinated operating model, fraud technology and core capabilities such as analytics and operations are integrated but there is little standardization of fraud management. The benefits include shared investment costs, services and capabilities. However, business units are autonomous, often creating siloed fraud management teams delivering unique fraud services. This model is often seen among banks and merchants where regions, specific channels or product and/or service offerings are autonomous. 
  3. Replicated.  In this model, fraud is managed by business units who are responsible for implementing a set of standards developed by a central fraud function. In a replicated model, success is dependent on efficient, repeatable processes and central innovation.  Due to the prevalence of legacy systems, this is often the default position for banks and merchants. 
  4. Unified.  The unified model integrates fraud management across the enterprise around a standardized set of processes. These increase efficiencies and customer services by presenting integrated data and driving fraud risk out of business processes.  The unified model is in our view the gold standard, sought by organizations with a collaborative culture.   

Organizations considering adopting or changing operating models should be asking questions including:   

  • What are our business objectives? 
  • What is the measure of success? 
  • Which of our activities impact other organizational units? 
  • Which other organizational units impact our activities?  
  • Which activities could help enhance our customer experiences? 
  • Which organizational units should have accountability for which activities?  
  • Are we using shared services, centres of excellence, joint ventures and/or partnerships and outsourcing appropriately? 
  • In which specific location should each activity be performed? 
  • Where is decision-making and governance currently not sufficiently effective? 
  • Where are there worthwhile opportunities to improve measurement and performance? 
  • Which capabilities are currently not fit for purpose?  
  • How, specifically, should our capabilities (technology, analytics, training, recruiting, processes, etc.) be improved? 
  • Which activities will have fixed or variable costs and how will these be identified and managed? 

In the next blog in this series, we will look at authentication, another key element in fraud management best practice.

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