Fraudsters never stop innovating. They never stop coming up with new techniques to defraud consumers and financial institutions. As such, financial institutions can never rest. They need to ensure that their fraud management strategies are evolving to stay one step ahead of the fraudsters. Location-based fraud detection is the most cutting-edge fraud management tool available to banks today. The concept is fairly straightforward—by confirming that the consumer identity that is being used to apply for credit or make a purchase matches the physical location of that consumer, banks can ensure that a fraudster has not inserted themselves into the middle of the transaction for their own gain.
Cell phones are a great way to determine the physical location of a consumer because our phones are truly a proxy for our location—they are almost always with us. CTIA reported in June of 2012 that the number of cell phones exceeds the US population, more than 320M, making the total penetration at 101%. They also reported that the number of households with only wireless phone service is up to almost 35%. Last year, the Chicago Tribune reported on a survey from mobile app company TeleNav Inc., which showed that 40% of people with iPhones said they’d rather give up brushing their teeth for a week than go without their phone.
Many banks are pushing the idea that a smartphone app, which in addition to enabling all kinds of online banking functionalities, can be used to determine consumers’ physical locations. The problem is that using an app along with on device GPS is a less than optimal solution to prevent fraud or to create a premium customer experience. Smartphone penetration is currently at just above 50% and recent reports indicate that it will take until 2016 to reach 60%—meaning that if you are using an app, you are leaving about 50% of your customer base on the proverbial table. Additionally, location data from the mobile device’s GPS can be spoofed or manipulated by clever fraudsters, making this source of location data less reliable.
A better strategy is to obtain secure location data directly from the wireless carrier’s network. Consumers simply complete a onetime enrollment process that links the mobile phone with their account and then financial institutions are able find the secure location of the mobile phone at various frequencies—once a year, once a month, or every 15 minutes without impacting the end users’ experience—no battery drain, working indoors as well as outdoors, and no application to download or open. By authenticating consumers’ locations through a realtime, cloud-based service rather than through a smartphone app, banks can increase their coverage to 98% of all the mobile devices in the U.S and a growing share of the international market.
In addition to fraud management, this service-based approach to location authentication can also be used to drive extremely targeted, proximity marketing programs. Using an approach called ‘geofencing’, institutions can detect when a consumer is in close proximity to one of their physical locations and then present a compelling call to action to the consumer in realtime. Imagine the impact if this realtime location insight could be used to drive interested traffic to the more than 50,000 retail banking branches, 1.5 million retail locations, and 160,000 quick service restaurants in the U.S.
As exciting as these use cases in fraud management and proximity marketing are, the truly exciting thing about realtime location authentication is all of the possible use cases that are still being defined. Using secure mobile location for account validation, merchant account validation, mobile wallet authentication, monitoring of high value customers and IP location validation for wire transfers—the possibilities with secure mobile location data are truly endless.
This is an exciting technology and we are really interested in hearing how you think secure mobile location will revolutionize the banking industry. Please leave us a comment.
Editors Note: Locaid is a world leader in location technologies. Locaid’s secure mobile location products are now integrated into Zoot’s solutions.