Community banks are under pressure from the latest apps or start-ups that attempt to lure customers away with features that they may lack: cutting edge technology, international capabilities and a digital-first approach.
However, much less attention is focused on where established banks thrive: compliance. It might not be as flashy as the latest app, but being able to offer customers a sense of protection is more valuable than many would believe. Main Street banks have long been integral parts of their communities, serving both local businesses and families through their people-first approach. These institutions are well known for reinvesting back into their communities, making them intertwined with their neighborhood. This approach is unique and solidified the reputation of these institutions as personable — a sentiment that remains today, even as tech giants grow within the financial sector. Established institutions have an edge as their long histories and reputations are deemed by consumers as more trustworthy than fintechs.
Public trust is a valuable asset, especially after high-profile data breaches in recent years and coronavirus scams. Payment scams suffered by banks and companies are typically front-page news and can cause significant damage to the business with costly fines and reputation harm. More than 75% of customers say security is a top consideration when choosing a financial institution. Interestingly, even if the organization is not directly at fault, consumers still consider them culpable. In fact, 63% say a company is always responsible for their data — even if the scam resulted from their direct actions, including falling for an email scheme.
$1 Billion Threat
The realization that banking customers hold their banks accountable for all types of fraud and scams may be surprising to some financial leaders. It underscores the importance of banks taking an active role in educating users, as well as protecting their own security behind the scenes.
One of the most common schemes is business email compromise: a cyber crime where a payee sends fraudulent banking information to a business or individual, who unknowingly sends funds to the wrong account. The fraud grew during the coronavirus pandemic as many businesses worked remotely for the first time and relied on email in place of phone calls or in-person interactions. The FBI reported $26 billion in losses in just a three-year period.
Such numbers should concern financial institutions, especially since these funds can be difficult to recover. These incidents are likely underreported, meaning the real figures are likely much larger.
Three Immediate Actions
Today’s challenging environment for financial institutions means that little focus is placed on non-revenue generating activities, especially with the emergence of new fintechs and start-ups. However, helping to ensure that customer funds are protected and providing them with preventative advice could become a huge value-add for banks.
- Though some banks do make information available on their websites or in-branches, this is often an afterthought. Showcasing your institution as an authority on these matters will emphasize your desire to put customers first — and they will take notice.
- Many customers ignore the threat of fraud because they do not see themselves or their business as a potential victim. Taking the time to explain how a scam targets each customer segment will demonstrate your institution’s ability to identify and mitigate risks to each person.
- Monitoring fraud is particularly difficult for many institutions because threats are constantly evolving. Working with larger partners can be an asset, as bigger organizations are more likely to invest both funds and personnel in monitoring and combatting scams.
Many misconceptions regarding fraud still exist, and customers may not realize they are at risk before it’s too late. Transforming your institution into their financial protector could be a low-cost — yet valuable — way to stand out.