Banks that identify fraudsters can boost customer loyalty, according to research from the University of Notre Dame Mendoza College of Business. .According to the report, customers who fell victim to fraud but were informed of the perpetrator were 62 percent less likely to leave their bank than customers who never experienced fraud. When banks did not identify perpetrators, churn increased 40 percent compared to customers — especially those who had a shorter relationship with the bank or less frequent interactions — who had not been defrauded.The study was based on five years of data from more than 422,000 customers at a major U.S. bank. “When fraud is resolved with clear accountability, customers not only stay but often become more loyal,” said Notre Dame Professor of Marketing Vamsi Kanuri. “This is a real-world demonstration of the service recovery paradox, where effective handling of a failure can actually strengthen relationships.”Banks should continue to invest in fraud investigations even if the odds of financial recovery are limited, said Kanuri and co-authors Sriram Somanchi from Notre Dame University and Rahul Telang, professor of information systems and management from Carnegie Mellon University. The report was released as financial institutions face increasingly complicated scams, including phishing campaigns, to geo-spoofing, when a criminal broadcasts false geographic signals or alters a device’s location to trick someone into believing they are in a different spot than where they are — and SIM jacking, where criminals fraudulently transfer phone numbers to a SIM card they control, allowing them to receive their calls or texts.The vast majority of data breaches are tied to human error, said Cody Delzer, principal consultant at Madison, S.D.-based computer and network security firm SBS CyberSecurity. “Cybersecurity is more than a technology issue,” he said. “It is a business issue.” To prevent data breaches, Delzer said banks should train and educate employees on what a potential intrusion looks like. Speaking last month during the Upper Midwest Automated Clearing House Association Navigating Payments conference in Brooklyn Center, Minn., Delzer said most attacks today are automated. Hackers now use artificial intelligence for cyber intrusions. Delzer advised banks to develop a cybersecurity culture by training employees before testing them on what they learned. He also called on banks to hire a director with a background in technology or cybersecurity; hold director cybersecurity training; and have IT staff work with the board and executive team to improve understanding and identify risks.
