When Fraud Strikes, Customers Want Answers — Not Just Refunds

In the classic comedy movie “The Father of the Bride Part II,” Steve Martin’s character George Banks works himself into a personal crisis upon learning he’s going to be a grandfather. He hilariously tasks an assistant with compiling a list of celebrities who are older than him. Even though it doesn’t change his own age, hearing that the likes of Paul McCartney and Jack Nicholson are his elders gives George a sense of satisfaction and reassurance.As it turns out, a list of names is something financial fraud victims find reassuring as well. Except, the names the fraud victims are looking for are those of the perpetrators of their fraudulent financial loss.Identifying Fraudsters Has Real ValueA new large-scale research study from the University of Notre Dame and Carnegie Mellon University — reviewing data from over 420K customer fraud cases provided by a major US bank — reveals that the outcome of a fraud investigation is crucial for customer retention. Customers who experience fraud in which the institution could not identify a perpetrator are 41% more likely to leave than those who never faced fraud.In contrast, when a financial institution is able to attribute blame and demonstrate to the customer that the fraudster was identified, not only does retention recover, but loyalty is reinforced. Even fewer customers who experienced fraud switch institutions in those instances than among those who have never suffered fraud. The study provides more granular insight into how financial fraud affects customer loyalty. Another survey in 2024 found that 75% of consumers globally would switch banks if they discovered that their bank’s fraud protection measures were insufficient.Results Surprise EveryoneThe results of the latest study are surprising not only to banks but to the researchers from the University of Notre Dame and Carnegie Mellon University. Vamsi Kanuri, an associate professor at the University of Notre Dame who served as a researcher on the study, told U.S. News magazine: “We never thought in our wildest dreams that we’d actually find this in our study.”The findings challenge the assumption that uncovering fraud and refunding losses is sufficient. This unexpected prioritizing of identifying the entity behind the fraud underscores how perceptions of competence hinge on visible investigative follow-through. The lesson is that a shrug won’t do when a defrauded customer asks about the origin of the fraud. When the bank is able to name the perpetrator, customers are encouraged about the bank’s technical prowess in dealing with fraud. That translates into greater loyalty.The Challenge for Financial InstitutionsFinancial institution executives must recognize that fraud’s aftermath is as important as fraud prevention. The study’s findings underline the ROI for investing not just in detection, but in investigative and communication capacity. Leaders should:

As fraud grows in sophistication, the ability to demonstrate accountability — especially in cases that hit closest to home — may be the single strongest driver of future customer loyalty for community banks. Investing in powerful fraud tracking measures can pay off in reduced customer churn. Says researcher Vamsi Kanuri, “Now this particular bank that collaborated with us is able to use our evidence as proof for making more investments in safeguarding customer accounts."