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Customer Futures Perspective: I don’t just want my bank to fight fraud - I want my digital wallet to help too
Monzo Bank's new 'Call Status' feature is a breakthrough. But what else becomes possible if we fight fraud with our digital wallets too?
Hi everyone, thanks for coming back to Customer Futures. Each week I unpack the fundamental shifts around Personal AI, digital customer relationships and customer engagement.
This is the PERSPECTIVE edition, a regular take on the future of digital customer relationships.
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PERSPECTIVE: I don’t just want my bank to fight fraud - I want my digital wallet to help too
Last week I wrote about how digital wallets could become a legitimate ’RegTech’ feature to help verify customer identities. And perhaps a quiet new way to drive the adoption of new digital identity wallets themselves.
With clever new technologies around ‘zero knowledge proofs’ and ‘selective disclosure’, digital identity wallets have the potential to massively impact the way businesses collect and verify customer identity data.
Today I want to point to a related opportunity: using digital wallets to fight fraud.
New phone, who ‘dis?
A few weeks back I received a call from my bank’s fraud team. It turned out they were checking (correctly) that I had approved the movement of some larger-than-normal funds.
But I spent a good ten minutes on the phone with them getting them to convince me it was really my bank calling.
I was checking that they were who they say they were.
Of course, I was playing with them a little. Knowing that in the end, I’d simply call the bank’s official phone number to reach the same team. I’d never respond to a call directly from the bank.
But I wanted to find out what happened when I challenged them on their identity, not mine.
Banks aren’t allowed to share any of your personal account information until you can prove that it’s really you. Until you can ‘pass security’.
But of course, it’s a catch-22.
By proving that it’s really you - using your personal data and doing some ‘knowledge-based authentication’ - you’re doing the exact thing that the fraudsters want you to do. Handing over the very personal information they need to later pretend to be you somewhere else.
So we’re in a bind.
And it’s no surprise that when the ‘bank’ calls, and customers are put on the spot, many people just hand over their account information. And sadly their personal data is later used to commit fraud.
But there’s been an exciting market development.
Well, exciting for banking.
Monzo, one of the UK’s leading neobanks, has launched a brilliant new app feature: ‘Call Status’.
It’s one of those beautifully simple product features that you look back on and question why it wasn’t done years ago.
Monzo’s customers can now easily see if it’s really their bank calling them, just by looking at a new 'Call Status' icon in the banking app.
Green means “Yes, we’re on the phone with you right now”. And orange means “We're NOT talking to you right now… so if someone calls saying it’s the bank, then hang up".
But let’s look at this differently.
Please hold caller
What does that mean?
Customers will soon be able to ‘connect’ their digital wallet to their existing accounts. The wallet can become a ‘companion app’ for all the businesses you deal with. Including your bank.
It takes the digital wallet concept way beyond tokens, NFTs, digital assets and funky artwork. The wallet can become an authentication channel. A messaging channel.
A new verified customer channel.
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OK, so who cares?
Let’s look at this ‘Call Status’ thing again, but this time through the lens of a connected digital wallet.
When your bank calls, they could instead send you a verified message directly to the digital wallet associated with your bank account. It could say “We’re on the phone to you right now.”
Remember: your digital wallet has been privately, digitally and securely connected to your bank’s protected systems. So you can instantly know that it’s the bank calling.
But let’s go further.
We can also use this connected wallet feature in reverse. The bank can instantly check that it’s you calling them.
So when I phone the bank’s contact centre to discuss an overdraft or whatever, when I need to ‘pass security’, the call centre agent can simply notify my digital wallet to confirm it’s me on the phone.
My wallet then wakes up and asks me ‘Are you on the phone to the bank right now?’
I tap ‘yes’, and I’m in. What used to take 60 seconds now takes 6 seconds.
No more silly (and easily guessed) questions from the contact centre agent. No more confirming my date of birth. No more ‘first line of your address’. No more mother’s maiden name. And no more one-time passwords.
Once businesses realise the power of this new verified digital connection, I’m betting that every company, not just the banks, will want to add this helpful feature to their customer experience.
Or indeed, to let customers choose which digital wallet they want to use for the ‘Call Status’ feature.
I can imagine entire industries like banking or insurance coming around to this idea. Agreeing a sector-wide anti-fraud pattern using digital wallets.
First, they’d need to get agreement on the liability and authentication rules (how do you know it’s Jamie tapping ‘Yes’?). And second, they’d need to certify a number of digital wallets in the market.
But then they’d have a universal ‘you’re on the phone with X’ protocol for the whole banking sector. (Which in realty would be a simple open API call, available to any bank, any company, or even any individual business department).
So well done Monzo. An excellent new safety feature that many are going to copy.
But we should also make sure we don’t miss the opportunity to add connected digital wallets to the mix. So that together the banks can fight fraud in a smart and customer-empowering way.
A new paradigm: Customer Wallet Present
With me so far? Great. Now hold on to your hats.
The knock-on implications of ‘verified customer connections’ using digital wallets are profound. Especially when it comes to managing customer risk and fraud.
Think of it like card payments.
When you pay with a card over the phone (so-called ‘Card-Not-Present’ transactions), the business can’t see you using the card in front of them. It means there’s a higher chance of fraud, or a ‘charge back’ (when the customer disputes a payment).
As a result, the payment processing companies charge the business a slightly higher fee for Card-Not-Present transactions.
But when you are physically in the store or shop, any card payment made is considered ‘Card-Present’. It’s less likely to be fraudulent, and therefore lower risk. So the payment processing companies can charge a lower fee to take the payment.
Here’s where I’m going with this: We can do the same with digital wallets.
When a customer interaction involves an approved digital wallet, one already connected to the verified account, then the customer must have been involved. They must have approved the interaction or transaction.
By definition, with this digital wallet approach, it would be harder for fraud to happen. Harder for fraudsters to trick the business. And therefore lower risk, and lower overall cost to the business.
Let’s call this ‘Customer Wallet Present’.
Any other interaction where the customer’s digital wallet isn’t involved? Let’s call that ‘Customer Wallet NOT Present’.
The wallet-less transactions would likely be exposed to more fraud. To carry more risk. And therefore would cost more to the business.
As a result, digital wallets have the potential to disrupt the very economics of customer risk management and fraud.
And not only across the banking sector, but the digital economy full stop.
Given time, digital wallets will crowd out the fraudsters. Who will have to move over to less trusted channels, making the connected digital wallet even more valuable to the bank.
Verified customer connections are why I’m bullish on digital identity wallets.
Not just because I can carry around and share my digital ID and other personal data easily. But because I’ll also be able to use it across all my customer relationships, and in any channel.
Online. On the phone. In branch.
And here’s the best bit:
With ‘Customer Wallet Present’ transactions, we can tackle the accelerating wave of AI-driven customer hacks.
Bad actors are increasingly using AI to create a digital twin of your voice or face, and then attempt to access your personal accounts - including at the bank.
Yes we’ll need to make sure that the right person is accessing the digital wallet. But with biometrics stored (and kept) on the device, that’s a damn sight easier than making sure it’s the right person accessing your bank account.
Your digital wallet just became your first line of defence.
So the next time my bank calls, I want to be able to use my digital wallet to prove it’s me. And for them to prove it’s them.
I’ll feel safer and more confident to do business with them, especially when I need to move my money around.
Plus, it’s a bonus for my bank’s fraud team. The next time they call, they won’t need to get so hot and bothered about me asking difficult questions about who they are…
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