SMEs Losing Trust In Their Financial Institutions' Fraud Prevention Practices

Guardian Analytics, the behaviour-based fraud prevention solutions provider, together with independent research firm, Ponemon Institute, has announced the results of the third annual Business Banking Trust Study. Nearly 1,000 owners and executives of small-and-medium-sized enterprises (SMEs) in the United States participated in the study. Year over year results show that SMEs are ongoing victims of account takeover and still piling up losses due to fraudulent ACH, wire and other transactions. The most revealing findings are that, as a result of fraud, SMEs are not only losing confidence in their financial institutions’ fraud prevention practices (30 percent of responses), but are taking some or all of their banking business elsewhere (40 percent).

The study revealed that 73 percent of online fraud attacks result in the successful transfer of money. Despite efforts by financial institutions to recover funds, 61 percent of reported fraud attacks result in lost funds. Reimbursement of losses varies – in some cases the business takes the full loss, in some instances losses are shared, and in one quarter of instances, banks reimburse the business fully for any losses. In the end all parties suffer significant financial loss as a result of fraud.

“The Ponemon Institute’s study clearly outlines the strategic impact that fraud has on a financial institution – lost profits and lost customers,” said Terry Austin, CEO, Guardian Analytics. “Further, recent court cases have sided with businesses when it comes to fraud liability, emphasising financial institutions need sound practices and security to protect customers from account takeover attacks. Fortunately, there are fraud prevention solutions that are proven to be effective, giving financial institutions a significant opportunity to restore trust with their customers by taking a more proactive stance in preventing fraud.”

Additional Findings From The 2012 Business Banking Trust Study Include:

SMEs are rapidly increasing their use of online and mobile banking.

• 54 percent of businesses now use mobile devices to access online banking, up from 23 percent in 2010

• The proportion of businesses doing all business banking online has more than doubled from 9 percent in 2010 to 20 percent in 2012

Fraud attacks against businesses are widespread

• 74 percent of SMEs have experienced electronic banking fraud

• 52 percent have been hit by fraud in past 12 months

SMEs expect their financial institution to be the expert, but think they’re not doing enough

• 72 percent indicate that they hold the financial institution primarily accountable for ensuring that their online bank account is secure

• However, only 43 percent say their financial institution takes appropriate action to limit risky transactions

There is room for improvement for all parties’ fraud prevention efforts

• Money left the financial institution before it was noticed in 73 percent of cases

• Year over year, businesses have not improved their own fraud prevention practices

Fraud losses result in lost business for financial institutions

• 56 percent of SMEs indicate that it would take only one successful fraud attack to lose confidence in their financial institution’s ability to provide adequate security

• 70 percent of respondents indicate that online fraud – either successful or just attempted – diminished their trust and confidence in their financial institution or caused them to take some or all of their banking business elsewhere

“This year’s data confirms that SMEs are looking to their financial institution to be the expert on fraud prevention, and they have every right to do so,” said Dr. Larry Ponemon, Chairman and Founder, Ponemon Institute. “Fraud techniques continue to evolve rapidly and financial institutions must continually monitor and update defenses to stay ahead of criminal activity. The FFIEC Guidance reinforces this by requiring layered security that, at a minimum, includes anomaly detection, plus risk assessments whenever something in the threat landscape changes, such as the discovery of another new threat."