When it comes to Trust and Safety, users believing that they are safe while on a platform is a critical component to increasing customer retention rates and decreasing user churn. It also costs companies less in the long-run to proactively deal with risks to Trust and Safety rather than reactively respond to them.
These are the primary benefits of implementing proactive anomaly detection:
1. Automatically identify problems
By evaluating the risks in the industry and the primary threats a customer may experience while on the platform, clear markers can be established to look for potential issues and respond to them immediately.
Example: Banks are responsible for protecting a customer’s deposited cash. Bank A has proactive rules in place that prevent New Account Fraud from occurring, and immediately flags new accounts being opened in the same name as an existing customer, while Bank B does not.
Bank A can automatically identify the issue, and take action to prevent it, while a customer that experiences New Account Fraud while using Bank B is likely to close their account and open one with Bank A, even if they are reimbursed for their losses immediately.
2. Built-in prevention rules can automatically take action quickly
A proactive detection system can automatically prevent an event from occurring if it deems an event suspicious or fraudulent. The platform empowers teams to create rules with automatic responses to help block suspicious events before they can happen.
Example: A marketplace platform requires user logins and allows customers to save payment information to easily make purchases in the future without re-entering their payment information. Someone tries to log in to the account from a completely different IP address, in a different country, at a different time of day than is typical of the user. The platform could automatically block the attempted sign-in, or require the user to verify the sign-in through an automated email.
3. Reduced risk of customer churn
If unsafe activities are common on a platform, and the company does little to mitigate the risk of these things occurring while using the platform, users are unlikely to stay.
If a platform can identify threats to its users before they take place and the user experiences actual losses, the likelihood they will stay on that platform (rather than move to a competitor) is significantly increased.
Example: Users are unlikely to feel safe using a ride-sharing company that allows new drivers to onboard immediately (same-day) without any identity verification, while a competing ride-sharing platform that requires identity verification and has an enhanced due diligence onboarding process for new drivers is much more likely to retain its users long-term.
4. Faster responses and quicker problem analysis
A proactive alert system means a platform can respond to an issue before a customer even becomes aware of it. A clear-cut set of rules and automatic responses to follow once a threat is detected means analysts or customer service representatives can deal with an issue and make a customer aware before they find out on their own.
Providing the customer with an immediate overview of what the suspicion was and what was done to prevent it is much more appreciated by a customer than finding out days later that something has happened, and having to try to solve the issue on their own.
Example:
The proactive approach: A credit card company detects a fraudulent purchase, immediately reverses the charges, automatically sends out a new credit card (with updated numbers), and then calls a customer to inform them of what happened, explains how they solved the problem, and offers assistance with making payments until the new card arrives.
The reactive approach: A customer is doing a monthly review of their credit card statement, sees 10 purchases from three weeks ago all in the span of one day that they didn’t make, has to call their credit card company and wait on hold, then must answer a series of questions about whether or not they made each purchase in their statement, and then must wait weeks to receive a new card with no means of making purchases in the interim.
It’s obvious which experience a customer would prefer.
5. Saving on internal resources and financial costs
Proactive detection requires rules to exist that inherently automate this process, as proactive fraud detection - by definition - cannot be done manually. This reduces the cost to the company overall by reducing the amount of cases that must escalate to an investigative state (manually), which saves analysts time they can dedicate to other issues, or may even reduce the number of analysts needed.
The reactive approach requires refunding money to customers, incentivizing them with reasons not to leave (credits, promotions, incentives to spend money on the platform in the future, etc.). Proactive fraud detection rules can reduce false positive rates and lower the investigative time needed from compliance or fraud analysts.
Example: An eCommerce platform allowing users to make purchases without re-verifying aspects of the payment methods could offer the opportunity for fraudulent purchases or account takeover to occur. This then requires a complaint ticketing system to be managed internally, customer service representatives to listen to the issue and escalate it, funds to be reimbursed to users, and - depending on company policies - additional credits or incentives to be offered to discourage users from leaving. All of these stages require financial cost, and manual employee labor.
6. Increased adherence to applicable regulations
Automated rules and clear-cut compliance processes are the best way to ensure a platform is compliant with all applicable regulations based on the areas the platform operates in. This can be especially difficult to navigate for platforms that operate in multiple countries or regions around the world.
Example: A bank that is regulated by any governing body (the SEC for example), must investigate any suspicious activity that could be fraudulent, file SAR reports, and ensure they are following every aspect of an ever-changing regulatory system.
Automated rules based on compliance checklists go a long way to reducing the risk of failing to adhere to regulations, which can also result in massive fines, especially for Fintech platforms.
That covers the reasons why proactive threat detection is so important. Now let’s cover how to implement it.
