Improving customer trust: Fraud and security strategies for financial institutions

In today’s digital age, consumers’ top priority in financial services is undoubtedly cyber safety and identity protection. Understanding and addressing these needs can significantly help enhance trust and loyalty among your customers – something that is easier said than done. To effectively improve customer trust around fraud protection, financial institutions should take on a multi-faceted, customer-centric approach to fraud prevention that leverages technology, education and industry collaboration, all while empowering customers to stay protected.

The current landscape: Rising fraud, rising concern

Cyber and identity safety involve two primary crimes: data compromise and data misuse. Breaches are a major cause of data compromise, facilitated by phishing, social engineering and other evolving tactics. Interestingly, breaches are not predominantly occurring at financial institutions but at healthcare and educational institutions, according to a 2024 fraud report by TransUnion. However, this ongoing trend highlights the importance of securing third-party vendor relationships to protect customer data.

Most financial consumers are concerned about their financial safety, and for those accumulating more financial assets, their focus on safeguarding their hard-earned wealth is intensifying. This concern is most pronounced among those highly engaged with their finances, often referred to as “financial warriors.” Marketers that want to speak to this audience need to understand that they’re already aware of cyber threats. As such, marketing strategies should focus on addressing pre-existing needs rather than trying to create new concerns.

Fraud and security strategies that help build trust

So, what are the barriers to fraud protection? What is keeping consumers in the dark, and how can financial institutions illuminate a path to security and trust?

While their passion for protection remains high, many consumers struggle to take effective action due to confusion and overwhelming information.¹

1. Simplify the confusion conundrum

One significant barrier to consumer action is the conflicting advice from various expert sources. Trusted sites often provide differing recommendations, and there are few personalized tools to guide consumers effectively. This lack of clear, actionable advice leaves even the most motivated individuals unable to protect themselves adequately.

Simplifying security measures and making them user-friendly can help banks enhance trust. A convenient and easily understandable approach is crucial for customer engagement.

Clunky and confusing experiences also have a negative impact on consumers’ perception of their bank. They prefer seamless interactions with their financial institutions, with an ease that doesn’t compromise safety. To help with this, financial institutions should focus on educating customers about the importance of security measures and offering personalized advice to make the information more manageable and less overwhelming.

2. Differentiation in digital capabilities

Identity verification and security is one way that financial institutions help keep their customers’ assets and personal information safe. According to research by Business Insider Intelligence, consumers have long expressed a desire for more powerful identity safety features from their banks, but there’s a notable variation in how well different financial institutions are able to meet these needs.

To differentiate yourself from your competitors, it’s all about directly addressing these concerns about identity safety through robust digital capabilities. Offering bundled services that include identity theft protection, credit monitoring, and financial education under a financial wellness umbrella can be an effective way to set your organization apart, and integrating fraud prevention with broader financial wellness initiatives can help enhance customer engagement and protection.

3. Education and empowerment

There’s a huge play to be made in terms of educating consumers about their options. Many are unaware of their zero-liability status for certain types of fraud, and others still aren’t sure what steps they should take if they become victims. Educating consumers about these aspects may enhance their ability to protect themselves, while also strengthening their trust in their financial institutions.

Banks need to educate their customers about fraud and security threats. Simplifying the information and focusing on key protective actions can help consumers feel more in control of their financial well-being.

4. Personalized risk scoring

Another step some financial institutions are taking in strengthening security is the adoption of a personalized approach to fraud risk, much like credit scoring. By assessing consumers' breach exposures and responses to phishing attempts, institutions can provide tailored advice and actions to help the consumer better understand their risk. This method not only enhances security but also offers a significant return on investment by proactively helping to prevent fraud losses.

5. Continuous investment in fraud prevention

As fraudsters adopt sophisticated methods like artificial intelligence, financial institutions must also leverage these technologies to stay ahead. This requires ongoing investment and collaboration between fraud teams, business lines and customer support to ensure a unified and effective approach.

Banks should adopt a comprehensive approach to security that covers all potential entry points and transaction types. This includes using technologies like AI for real-time decision making to prevent fraud.

6. Advocating for the customer

Institutions need an internal advocate for the consumer who can balance security and user experience; they need someone who speaks the customers’ language. Transparent communication, clear messaging and a hands-on understanding of customer preferences are key to retaining trust and preventing customer attrition.

For instance, having differentiating strategies for small businesses versus consumers is essential. Small businesses often face more complex fraud due to multiple account privileges and higher balances. Tailoring security measures to the size and complexity of the business is key.

Closing thoughts

Financial institutions have a critical role in ensuring cyber and identity safety for their customers. By addressing consumer concerns, bridging knowledge gaps, leveraging third-party research, and investing in advanced technologies, banks can work towards significantly enhancing their fraud prevention strategies. Balancing security with customer experience – while maintaining clear internal and external communication – is key to retaining customer trust and loyalty in the ever-evolving digital landscape.

Source: ¹TransUnion Consumer pulse survey, Q1 2023