In today’s digital-first world, online fraud management is no longer a back-burner concern—it’s a critical business priority that can either propel or hinder growth.
During our recent webinar, industry leaders Andras Cser, Vice President and Principal Analyst at Forrester Research, and Alex Bolante, National Managing Director at Deloitte & Touche LLP joined Sift Chief Marketing Officer Armen Najarian to unpack the evolving landscape of fraud prevention and its implications for the C-suite. Here’s a deep dive into the key takeaways from their discussion.
The Growing Cost of Fraud: A Direct Hit to Profitability
The financial toll of fraud is staggering. Companies are losing nearly 3% of their total revenue to fraudulent activities—a figure that underscores the urgent need for robust fraud prevention measures. The cost goes beyond the immediate financial impact; it also includes long-term consequences like damage to brand reputation and loss of customer trust.
On average, merchants spend 11% of yearly revenue on fraud management, a figure that can quickly erode profitability. The takeaway is clear: Companies cannot afford to view fraud management as an optional or secondary concern. Instead, it must be integrated into the broader business strategy to safeguard profits and ensure sustainable growth. Reducing risk is becoming not just a sidebar activity or cost of doing business. There’s a meaningful investment being made into mitigating fraud so businesses can operate profitably.
Najarian shed light on the significance of these losses, stating:
“The C-suite’s perspective on fraud management has evolved rapidly. It used to be seen primarily as a cost of doing business, with a focus on minimizing fraud losses. However, it’s now recognized as an existential threat to running a profitable business. Executives understand that making the wrong fraud decisions can significantly harm the consumer experience, which in turn can negatively affect revenue.”
AI is Revolutionizing Fraud—For Better and Worse
Artificial Intelligence (AI) is a game-changer in the fight against fraud, but it also poses new challenges. While AI-driven tools are enhancing the accuracy and speed of fraud detection, they are also being exploited by fraudsters who are using AI to create more sophisticated attacks.
Cser highlighted the dual nature of AI in fraud prevention:
“The only chance that you have on the defensive side is to use AI and GenAI to defend against AI and GenAI-based attacks. It’s basically beating the adversary at their own game with their own tools. Better threat detection, using artificial intelligence, using a multitude of traditional models and an ensemble of models in decision-making usually yields better and more accurate responses.”
The rise of AI-powered fraud tactics, such as deepfakes and AI-enhanced phishing schemes, demands that companies stay vigilant and continuously adapt their defense strategies. AI can simulate human behavior with alarming accuracy, making it increasingly difficult to distinguish between legitimate and fraudulent activities. As a result, businesses must invest in advanced AI-driven solutions that can keep pace with these evolving threats and outsmart the fraudsters at their own game.
The Importance of Multi-Layered Defense: Combating Sophisticated Threats
In a world where cyber threats are becoming increasingly complex, relying on a single layer of defense is no longer sufficient. Deepfakes represent a new frontier in fraud, where AI is used to create hyper-realistic fake audio, video, or images that can be incredibly convincing. The data is striking: There’s been a 3,100% increase in deepfake fraud attempts over the last year and 1,265% increase in phishing emails since the launch of ChatGPT. And across the Sift Global Network, ATO attacks jumped 354% year-over-year in Q2 2023.
When asked about mega trends predicted over the next few years that would further affect investments or organizational structures, Cser highlighted deepfakes as a major focus:
“Deepfakes and the prevention of deepfakes will keep people busy. Big time. It’s something that’s really hard. All the biometrics vendors are investing in deepfake detection. But it’s a cat and mouse arms race at this point.”
Implementing a multi-layered approach to fraud prevention is especially crucial when dealing with advanced threats like deepfakes, which require sophisticated detection methods. To combat these threats, companies must implement a combination of advanced technologies, such as biometric verification, AI-driven anomaly detection, and continuous monitoring. By layering these defenses, businesses can create a robust barrier that’s more resilient against the increasingly sophisticated tactics used by fraudsters.
Bolante adds:
“Most leading organizations understand the interconnected risks between cyber fraud and financial crime. The siloed approach to fraud detection and prevention just isn’t tenable or working for them, particularly around those fraud risk signals or indicators. I see organizations, or at least my clients, centralizing those risk signals and risk indicators from an aggregation response and overall strategy perspective so they have a holistic risk view of the fraud events and attacks.”
Fraud Prevention is a Dual-Faced Strategy
Fraud prevention is not just about mitigating risks—it’s about driving business outcomes. Najarian highlighted that effective fraud management can simultaneously reduce losses and enhance the customer experience, ultimately leading to higher revenue. There’s two sides to the coin—preventing fraudulent activity and delivering a better consumer experience, increasing conversion, and driving incremental revenue.
The traditional view of fraud management as a cost center is outdated. By preventing fraudulent transactions, businesses can protect their reputation and build trust with customers. At the same time, leveraging these protections to streamline and personalize customer interactions can lead to increased loyalty and higher conversion rates. In essence, the right fraud prevention strategy can transform a necessary operational cost into a powerful driver of growth.
Elevating Fraud Management to a Strategic Imperative
The insights shared during our webinar underscore a pivotal shift in how businesses should approach fraud management. No longer just a reactive measure, fraud prevention must be integrated into the core business strategy as a driver of growth and a protector of profitability. By embracing AI, investing in multi-layered defenses, and aligning fraud prevention with customer experience goals, companies can turn a potential vulnerability into a competitive advantage.
In a world where customers interact with a business almost entirely through digital channels, digital trust has become a significant differentiator for customer experience.
“If you’re a company that’s offering seamless, secure, speedy digital interactions, a digital interface, and a simple and secure experience, you’re going to see a positive impact on revenue. When executives are able to tell that story to the C-suite, let alone the board to gain sponsorship and buy-in, and it becomes about revenue protection or revenue recapture versus just being a cost center for the organization—that’s how I’ve seen some of my clients build the case for change,” said Bolante.
In today’s digital economy, where the cost of fraud continues to rise, the C-suite cannot afford to overlook the importance of robust fraud management. Make it a priority, and you’ll not only safeguard your business but also position it for long-term success.
Watch the full webinar for more insights.