ARE THE CURRENT METHODS USED BY FINANCIAL INSTITUTIONS TO EDUCATE

CLIENTS ON FRAUD PREVENTION EFFECTIVE AND CAN INCENTIVES HELP?

by

Taneeya Sharelle Bryant

A Capstone Project Submitted to the Faculty of

Utica College

December 2019

in Partial Fulfillment of the Requirements for the Degree of

Master of Science in
Financial Crime and Compliance Managment
 ProQuest Number: 27666612

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ii
 Abstract

Fraud is a prevalent issue that does not appear to be going away anytime soon. It does not

discriminate and affects millions. Anyone can become a victim of fraud. The losses and affects

are felt by individuals and businesses. One industry that is constantly impacted by fraudulent

activity is the financial industry. Retail and business clients of financial institutions are under

constant attack by criminals.

This paper will attempt to determine if the current methods used by financial institutions

to educate clients on fraud prevention are effective and if incentives can help. The way financial

institutions educate their clients is imperative in their fight against fraud. Clients have the

potential to aid financial institutions in their fraud prevention methods if they are being presented

the appropriate information in manner that is conducive to the various ways people learn and

retain knowledge.

Incentives are used in various industries to alter behavior and entice change. Financial

industries offer incentives but not in fraud prevention. This will be investigated as part of the

research for this paper. The use of incentives will be analyzed to learn about their uses,

advantages, and disadvantages to establish if they can be used by fraud departments at financial

institutions.

Client education is important if banks want to protect themselves and their client’s assets.

However, the challenge can be finding a method that works for different people. This paper will

review if the methods being used are effective and if more can be done to ger clients to protect

themselves and their information. Keywords: Financial Crime and Compliance Management, Dr.

Kyung-Seok Choo, fraudulent activity, rewards, customers, banks.

iii
 Acknowledgments

I would like to thank my husband Curtis Bryant Jr. and my daughter Corinne for their patience,

love, and understanding while I completed this program. My husband acted as a cheerleader and

fill in editor. I think he knows as much about fraud and financial crime as I do at this point. Next

I would like to express gratitude to Alexis Bell for being an amazing professor and mentor. Brad

Warren (former Fraud Manager at First Midwest Bank) and Joseph Broz (First Midwest Bank)

thank you guys for all of your help. Whenever I needed assistance with an assignment you were

willing to take time out of your work day to help and I truly appreciate you for it. Julinda Lewis

thank you for stepping in last minute to take on editing duty for me. And lastly, thank you to all

those who shared words of encouragement and support while I pursued my degree. It has been a

long journey but the end is near. I hope all those reading this paper find it interesting and

inciteful.

iv
 Table of Contents

List of Illustrative Materials.............................................................................................. vii

Introduction – Section One ..................................................................................................1
Literature Review – Section Two ......................................................................................12
What is Fraud Prevention? ................................................................................................12
Multifactor Authentication…………………………………………………………….13
Security ..........................................................................................................................15
What are Incentives and why are they used? ...................................................................16
What are the Benefits and Risks of offering Incentives? .................................................18
Reward and Punishment .................................................................................................21
How do People Learn? ....................................................................................................23
Lecture Based Training .................................................................................................24
Technology Based Training ...........................................................................................25
Skills Based Learning ...................................................................................................26
Inquiry Based Training .................................................................................................27
Conclusion ....................................................................................................................28
Discussion of Findings – Section Three ............................................................................30
Current Method Being Used by Financial Institutions ....................................................30
Incentives Being Used by Other Industries .................................................................33
Use of Incentives..........................................................................................................34
Cost to The Financial Institution to Implement Incentives ..........................................36
Cost to Financial Institutions If Changes are Not Made ..............................................36
Recommendations and Conclusion – Section Four ...........................................................38
How Banks Educate Their Clients ...................................................................................38
Incentives and Fraud Prevention ......................................................................................39
Conclusion .......................................................................................................................41
References ..........................................................................................................................44

v
 List of Illustrative Materials

Figure 1– How do banks identify fraudulent activity? .....................................................10

Figure 2– Multifactor Authentication, by HP Store ..........................................................14
Figure 3 – Knowledge of How People Learn ...................................................................24
Figure 4 – Are You Exposing Yourself ............................................................................32

vi
 Introduction

The focus of this paper will be on the clients (consumers and businesses) of financial

institutions that fall victim to scams. The purpose of paying attention to these individual groups

is to determine if the methods used by banks to educate these clients are effective. Educating

consumers on protecting their information can be beneficial to financial insitutions. Consumer

and businesses can be a first line of defense in preventing fraud at financial institutions. They can

be an asset in terms of fraud prevention.The Federal Trade Commission (FTC) reported that

consumer fraud losses from the year 2018 were up thirty eight percent more than they were in

2017. The top three complaints received by the FTC were imposter scams, debt collection

complaints, and identity theft. Consumers suffered fraud losses of $1.4 billion in 2018 and much

of this loss can be attributed to the ingenious and persistent work of scammers. Scammers are

those individuals that commit fraudulent acts to swindle victims out of their money and personal

information. For instance, government imposter scams are when scammers call victims

pretending to be from a government agency, like the IRS or Social Security Administration.

Victims will be told that their social security numbers are inactive in an attempt to get them to

give their social security numbers or pay to have them reinstated (FTC, 2019). They will also

pretend call and tell victims tht they owe the IRS and will be arrested if they do not pay. And

while the scams being used are not all new, the methods are. Modern advances in technology

have created a new way for consumers to bank. These innovative ways of banking are also

creating fraud risk for the consumer.

With financial institutions offering their customers more convenient ways to bank, they

are also creating more ways for the customers to have access to their accounts without physically

entering the bank. Customers have twenty-four-hour access to their accounts and are responsible

1
for keeping this information and the access to it confidential. Popular Bank, for example, asks

their clients to keep their information private by not sharing it with anyone. This bank, like most

others, also gives instructions on password security and client account monitoring. There is no

longer a need to physically be at a computer to log into online banking to check an account or

transfer funds. With smart phones, customers can access their bank accounts anytime and

anyplace.

This ease of banking has also been extended to business banking clients. They can submit

wire transfer requests to their financial institutions electronically, a convenience that has

inadvertently created an opening for scammers. Business customers are being victimized through

email compromise scams also known as BEC. This ploy involves an email being intercepted or

hacked with wire transfer instructions to a vendor. The account information in the bank’s email

is changed to the account information belonging to the hacker. It is usually noted that there has

been an update to the account information due to an error in the original wire instructions. If the

account holder opens the link from the scammer, the wire transfer is sent to the scammer instead

of to the business’ financial institution.. These transfers can range from several hundred dollars

to millions of dollars.

They can also pretend to be one of the company executives in an email to human

resources. The email will be a request for a list of employee information. This will include

personal information such as addresses, social security numbers, and pay information (AARP,

2019). This information is considered valuable and can be sold or used to file the victims tax

returns fraudulently. The personal information can also be used to obtain credit and loans in the

victims name. The goal is to find someone in the company that has access to important

information and get them to forward that information or release company funds.

2
 According to the Federal Bureau of Investigation (FBI) victims have suffered a loss of

$10 billion due to business email compromises (BEC) since 2013 when they started monitoring it

(FBI, 2019). The businesses may have suffered the loss, but the wire transfers were conducted by

the financial institutions. These crimes can have a negative reputational effect on the banks and

severe financial losses for their customers.

Another way victims are targeted is through social engineering. This is when criminals

use human connections to obtain information about a business or a person (CISA, 2019). The

goal is to find a vulnerable individual within a company and trick them into providing non-public

information or access to an organization. This information is then used to compromise the

business. Social engineering preys on human emotion making people a weak link in fraud

prevention. Norton lists six types of social engineering as: baiting, phishing, email hacking and

contact spamming, pretexting, quid pro qou, vishing (Norton, 2019). And the goal of all six is to

retrieve information from an unsuspecting employee or getting that employee to take some type

of action. Although there are six types of social engineering a closer look will be taken at

phishing.

The FBI states that phishing is, “Unsolicited emails purportedly from a legitimate

company requesting personal, financial, and/or log in credentials” (FBI, 2019). Consumers may

receive an email that they believe is coming from their financial institution or another reputable

business requesting their account number, social security number, and online banking log in

credentials. The emails are fraudulent but appear to be valid. They will ask that personal

information is verified for some reason or they will request that the recipient click a link within

the email.

3
 There are different types of phishing and Cisco (the worldwide leader in IT, networking,

and cybersecurity solutions) defines four of them: Deceptive phishing, Spear phishing, Whaling,

and Pharming. Deceptive phishing, the most used tactic, is when scammers request personal

information from their victim. The fraudulent email discussed above is an example of deceptive

phishing. Spear Phishing is when scammers go after a set victim instead of a random group.

They take the time to research and collect information on their intended target prior to contacting

them. Whaling is when scammers attack a company and go after a high-level executive. They are

targeting Chief Risk Management. And finally, Pharming is when victims are routed to

fraudulent websites by the scammers.

Retail bank customers can transfer funds, pay bills, and deposit checks to their accounts

through online banking. Customers are also scammed into giving out their log-in credentials

when they apply for what they believe are valid online loans. They are putting their personal

information into generic fraudulent loan applications. These applications request their social

security number, name, address, employment information, driver’s license information, bank

routing and account numbers, and the username and password for their online banking account.

With the information provided on the application the criminals can make counterfeit check

deposits through remote deposit capture or transfer funds between the customers’ accounts. The

goal is to get the customer to purchase gift cards or send Western Union funds to the criminal.

The criminal also has possession of the victim’s personal information to use later. They can use

this information to apply for credit cards, loans, and open fraudulent bank accounts.

Clients have also given out their personal information and online log in credentials under

the guise that they were applying for a work from home job. Online job ads are answered by

consumers hoping to become secret shoppers or personal assistants. Personal information may be

4
given on the job application and online log in credentials may be given so that the consumer can

receive a “direct deposit.” This behavior creates losses for the banks and their customers. In

educating consumers about employment scams, the Better Business Bureau (BBB) warned that

consumers, “May need to provide their personal banking information to run a credit check or set

up direct deposit.” They then went on to explain how to spot and report employment scams.

Through research this paper will attempt to determine if financial institutions offering

customers an incentive could empower customers to protect their personal information. Many

other industries such as credit card companies and grocery stores use rewards and incentives to

elicit certain behaviors. These behaviors benefit the company and the customer. Credit card

companies offer cash back rewards when their customers make a certain number of purchases.

Grocery stores offer buy one get one free for those customers that participate in their rewards

program. This entices the customer to use the card more in order to earn the cash back and the

credit card company makes a profit from the purchase.

The purpose of this paper is to evaluate if the current methods used by financial

institutions to educate clients on fraud prevention are effective and if incentives can help. This

will be achieved by answering the following questions:

1. What current methods are banks using to educate clients on fraud prevention?

2. Do learning styles effect how the information provided by the bank is received?

3. What incentives are being used in other industries?

4. What are the benefits and risk of offering incentives?

5. What is the cost to financial institutions to implement incentives?

6. What is the cost to the financial institution to implement incentives?

7. What is the cost to the financial institution to continue to educate in the same manner?

5
 8. What does the discipline of psychology say about reward vs punishment?

Multiple financial institutions will be researched to determine how they are educating

their clients on fraud prevention. An assessment will identify any trends among the various

methods being used. Financial institutions will be studied to compare how they are interacting

with their clients regarding fraud prevention.

When discussing fraud and consumers, education is always listed as the preferred method

of prevention. However, everyone does not learn the same way. Nancy Chick the University

Chair of Teaching and Learning, and Acadamic Director of the Taylor Institute for Teaching and

Learning at the University of Calgary tells us that there are a multitude of learning styles and

individuals have the most success when they learn in their preferred style (Chick, N., N.D).

These styles will be researched to understand if the methods being used by banks are the most

effective.

Incentive and reward programs are very popular these days across different industries

from car insurance to healthcare. They have been around for years but what exactly are they? An

attempt will be made to define incentives and reward programs. A better understanding of

reward programs can help determine if they would be useful to banks as a tool to help prevent

fraud.

Different industries will be researched to analyze what type of incentive or award

programs they offer their customers. The industries reviewed will be credit card companies, car

insurance companies, health insurance companies, and a selection of retail companies such as

restaurants, clothing stores, and supermarkets. The goal is to gain an understanding of the

various types of programs being offered and how they affect those businesses and their

customers.

6
 Multiple financial institutions will be reviewed to see what types of services they offer

customers to protect their personal information in an attempt to see how customers are being

encouraged to keep their data safe. Are customers being told to protect their information; are

they receiving brochures; or are they being referred to a third-party monitoring service?

After finding out what banks are currently offering clients, the cost of banks to not do

anything extra will be assessed. Will these institutions incur more losses or fewer losses if they

choose to operate in the manner that they have been? If the banks choose not to incentivize their

customers to prevent fraud will the customers continue to lose money, and will they continue to

rely on their banks to protect them?

If financial institutions choose to adopt an incentive program, they will have to spend

money to do so. Research will be conducted to determine an estimate of the costs that the bank

would incur to incorporate a reward or incentive program. The research will evaluate whether the

expenses would be a one-time fee or payment or if it would be ongoing. Marketing would need

to be conducted to inform customers of the new incentive program. There will also be a cost for

whatever incentive or reward the bank will offer to customers in response to them being more

diligent.

Incentives and rewards are used as means to get people to alter their behavior.

“Traditional incentives can effectively encourage behavior change, as they can help to both

create desirable and undesirable habits” (Behavior Economics). A probe will be completed to

determine the benefits of banks adding an incentive/reward program. Will the program have a

positive effect on the customers, and will this benefit the bank in any way? Will the result be

worth the ongoing cost that the bank will have if an incentive/reward program is implemented?

7
 Incentives and rewards can be beneficial to businesses and their customers, but they can

also create issues. An inquiry will be conducted into the risk that could be acquired by a bank for

instituting an incentive program to prevent fraud. The types of risk that can be acquired by

financial institutions will be explored and identified. A determination will be made if there will

be any risk at all and which parties would be affected.

In the field of psychology studies have been conducted on the effects of rewards versus

punishment. The research has been done to explore the effects on people of being rewarded and

punished. Is one proven to have better results than the other? How do people react to receiving

rewards for good behavior as opposed to being punished for not exhibiting the appropriate

behavior? The paper will examine the effects of being rewarded and punished on bank customers

and which would be more useful in getting them to protect their personal information.

By answering the above questions this paper will seek to determine if fraud prevention

incentives can mitigate risk for financial institutions and their customers. Each question will be

researched in-depth to provide insight into the use of incentives and the manners that they can be

used. Banks say that the branch personnel is their first line of defense against fraud, but it

appears that the customer is, too. If each customer took a more proactive approach in securing

their information and monitoring their behavior and accounts, it would decrease the amount of

risk to the bank and minimize losses suffered by both parties.

Empowerment is key to getting people to change their behaviors. To paraphrase the

words of Michael J Formica, MS, MA, EdM, it is not a feeling, it is an action. An action that

allows individuals to stop being the victim and gives them a sense of control. By conducting

research on education and incentives this paper will attempt to evaluate if financial institutions

can empower their customers to take the necessary precautions to secure their information. It is

8
an attempt to see if there is a way that both parties can benefit from getting customers to change

their behavior.

Relying only on a company or financial institution to educate and protect personal

information cannot be the only option. Criminals are working together to gather information and

victimize more people so financial institutions and their customers should work together as well.

Financial institutions can use incentives to further include their clients as part of the fraud

detection and prevention process. Customers can become a bigger part of the solution and less of

a problem.

Customer involvement is already taking place in fraud detection but is it enough? Is there

something that can be done to get consumers to take a more proactive stance in safeguarding

their accounts? Are there additional steps that need to be taken to get customers to utilize the

knowledge that they are obtaining from their financial institution?

Scams are the costly act that is relentlessly victimizing bank clients. The losses suffered by

customers and banks is growing. KPMG list some scams affecting consumers as romance,

government agency/tax office, investment, lottery, business email compromise, technology

support/remote access, and grandparent (KPMG, 2019). There are also work from home and loan

scams. A few of the scams listed have already been discussed in detail above to show how the

clients are engaged and conned. The KPMG Global Banking Survey is taken to obtain a view on

how banks across the world are dealing with fraud KPMG, 2019)

9
 Bank fraud is a global problem that will persist because it is profit bearing. People across

the globe are being victimized. According to the 2019 KPMG Global Banking survey, “Banks

globally are seeing an increasing trend in scams. Fraudsters are manipulating and coercing

customers into making payments to them, bypassing bank controls” (KPMG). This is one of the

reasons why the education of bank customers needs to be analyzed. Banks can use automated

detection systems to detect fraud, but human behavior can be used to prevent it. Customers are

the strongest defense that banks have against scams and the people behind them. They are the

targets of the scams and can mitigate risks before damage is done. According to the Global

Figure 1. How do Banks Identify Fraudulent Activity?

https://assets.kpmg/content/dam/kpmg/xx/pdf/2019/05/global-banking-fraud-survey.pdf

Banking Fraud Survey conducted by KPMG customers are main the source for detecting

fraudulent activity. The second source are the automated systems that some banks utilize to

detect fraud. The third way fraud is identified per the survey are manual systems which are

reports run and analyzed by employees. The fourth source shown is the whistleblower. A

whistleblower would be an individual that knows of wrongdoing or illicit behavior and they

10
report it. Fifth on the chart is internal/external audits and those are reviews conducted by

someone within the organization or a paid outside entity.And the last source listed was third

parties which are any persons are vendors that are not direct employees of the banks. The survey

also states that “more can be done to educate customers and that criminals are choosing to target

them through scams because they are the most vulnerable ” (KPMG, 2019).

Figure 1 was used in the survey to show that most of the participants play an active role

in detecting fraud. In the figure customers identified fraudulent activity at banks more than

automated systems, whistleblowers, audits, and third parties. This is evident that banks should

allot more funds towards educating their clients on scams and fraud prevention because of the

role they are already playing in pinpointing the activity. With the proper educational tools and

knowledge the weakest link in financial insitutions can also be their greatest method of fraud

prevention and detection.

11
 Literature Review

The goal of this paper is to determine if the current methods used by financial institutions

to educate clients on fraud prevention are effective and if incentives can help motivate clients to

better protect their information. Clients are being educated by their financial institutions about

fraud prevention in various ways. Educational methods include websites, social media,

pamphlets, electronic communications, and conversations with bank employees. These methods

need to be able to reach a plethora of individuals through maximum means to be effective.

However, such communication means alone may not be enough as some fraud can be avoided

with reasonable attention to personal information or awareness. This is where incentives could

prove to be an asset. The use of incentives could persuade clients to monitor their information

more closely to better benefit both the client and financial institution.

The use of incentives to help with fraud prevention will be defined and evaluated in this

section. Since the incentives could drive clients to use the information they receive from their

financial institutions about fraud prevention, incentives can also be a way to reduce the amount

of losses that the customers and the financial institutions are experiencing. There are benefits and

risks to consider with implementing fraud-awareness incentive programs. Therefore, it would be

up to the financial institutions to determine if the benefits of implementation outweigh the costs

of an incentivized client-program for fraud prevention. The use of incentives would not

necessarily need to be permanent or monetary. This portion of the paper will answer specific

questions to support the purpose of this paper.

What is Fraud Prevention?

Fraud prevention can be described as the established process and measures taken to stop

fraudulent activity from occurring. Implementation of these preventative measures should

12
include all parties that fraud can potentially affect. This includes both business organizations and

clients, with respect to fraud affecting their tangible goods, electronic information, and currency.

Fraud prevention should be considered a top priority for consumers and businesses because it

negotiates how losses are prevented and mitigated. Fraud prevention decreases the chances of

fraud happening while increasing the chances of identifying and stopping fraudulent behavior

(Biegelman and Bartow, 2006)

Fraud prevention is an ongoing, evolving process because fraud is a continuous, evolving

problem. Advancements in business practices, technology, access to information, and hyper

connectivity of people present fraudsters and scammers with the opportunity to exploit

unsuspecting consumers. Using secure websites, being cautious and knowledgeable of scams,

and keeping account numbers and personally identifiable information (PII) private are some

methods of fraud prevention for consumers. Financial institutions make provisions to prevent

fraud by educating customers with the above-mentioned strategies. Some institutions also make

fraud prevention provisions by evolving how personal information is accessed. Several of these

provisions will be discussed in detail below.

Multifactor Authentication. Multifactor authentication pertains to the use of two or

more methods to identify a customer. It can be a combination of passwords, pin numbers,

security questions, and images. For example, when the client of a financial institution attempts to

access their financial accounts, they may be required to authenticate using their username and

password, followed by identifying a preselected image, to access their account. In the event of a

client successfully entering their login information, but noticing an image different than what

they initially preselected, this could immediately alert the consumer to a hacking attempt or a

scam. This multifactor authentication measure allows banks to identify their clients properly

13
especially when using digital platforms. It also makes it harder for criminals to gain access

(Britton, 2019).

Multifactor authentication leverages information that the client knows along with

something that they tangibly possess (Whitman, Mattord, Mackey, and Green, 2013). An

example of this would be the client knowing their pin number and using it along with their debit

card to make purchases or retrieve funds from an Automated Teller Machine (ATM). It can also

be a temporary single-use passcodes that are issued when using a new digital platform to gain

access to an account.

Figure 1. Multifactor Authentication, by HP Store, 2018, https://store.hp.com/us/en/tech-

takes/3-ways-to-create-more-secure-passwordsTechnology

Some financial institutions have turned to technology to assist in both preventing fraud

and detecting fraud. Automated fraud detection systems are used to detect high-risk activity

14
which signals bank personnel to review the account(s). This detection is done in real-time which

makes it easier to verify transactions with clients. This gives the client a better experience

because it reduces the amount of good transactions that are declined (Columbus, 2019).

Automated fraud detection systems monitor patterns about spending amounts, geography, and

vendors to combat potential fraud liability. For example, a client may experience declined credit

card purchases while traveling abroad because the financial institution recognizes the purchase as

something out-of-the-norm. The financial institution may call the client to verify if the purchase

is legitimate. This gives the bank the opportunity to verify questionable transactions with the

client within enough time to have them declined if they are fraudulent.

Security. Security is another method that banks use to prevent fraud. Banks accomplish

this through data security and physical security. Encryption is the main process used in data

security (Andress, 2014). Encryption is the process of encoding data so that only those with

authorization can access it. It is used to protect data that may be housed on portable devices that

can be stolen or lost such as laptops and mobile phones. Password protection is a secondary

means of protecting sensitive information communicated electronically. For example,

information exchanged via email will require a password to open. That password is separately

issued through the sender or sending organization.

Physical security entails “protecting data, people (customers and employees), and

equipment” (Andress, 2014). Usernames and passwords are used by employees to access

company owned computers, and limited access is given based on the job everyone performs.

Secure trash and shred bins are locked and placed in protected areas so that employees can

dispose of any documents that may contain confidential employee or customer’s personal

information on it. Access to these bins is generally restricted to disposal vendors. Keycards and

15
identification badges are also used to control access to secure areas. Identification prevents the

public from gaining access to areas designated for just employees, and it also prevents

unauthorized users from having access to places like server rooms. Security guards, cameras, and

security systems are used to protect clients and employees from any physical dangers such as

robberies, assaults, and/or any other type of violent activity.

What are Incentives and why are they used?

Incentives originally had a negative connotation because they were used by authority

figures to wield authority over people who had less power (Grant, 2011). They are a tool that is

used to alter an individual’s behavior. This tool can be used to persuade an individual to achieve

an intended goal that is in compliance with the organization offering the incentive. Similar to a

bribe, incentives offer something pleasing to an individual in exchange for something that is less

desirable. The difference is that bribes are considered illegal and wrong, whereas incentives are

considered legal and acceptable.

“A person is offered something of value to him or her in exchange for doing something

valued by the person making the offer” (Grant, 2011). The person has the right to decline or

accept the offer that is presented to them. Forced acceptance and coercion are not factors in the

exchange. This trade-off offers both parties a chance to receive a good, service, or outcome

deemed beneficial. Incentives appear to be win-win, or mutually beneficial situations for all

parties involved. This type of mutually beneficial situation that banks can utilize is a relationship

where customers are incentivized in preventing fraud while bank assets are protected.

Incentives are categorized into two fundamental classifications; monetary and non-

monetary. From these categorizations, they are further divided into four subclassifications. Those

subclassifications are 1) Remunerative, 2) Moral, 3) Coercive, and 4) Natural. Remunerative

16
incentives are those that offer a physical and/or tangible perk. Moral incentives are based on the

belief that behavior or choice is acceptable and right in the eyes of many. Coercive incentives are

the threat of adverse action for incorrect decisions being made. Lastly, natural incentives are

feelings or goals that people use to help them make certain choices. (Subramanian, 2017). Prior

to implementation, financial institutions would need to evaluate their customers to determine

what type of incentive should be offered or which is most appropriate for the type of business

they desire to conduct.

The goal of an incentive is to entice or persuade people to participate in activities that

they might find less than appealing. They can be used as a source of encouragement or give an

extra push toward a desired behavior. Incentives are commonly used across various areas of life

including schools, homes, and businesses. For instance, a gold star, a special treat or new toy, or

monetary bonuses are some examples of incentives that are offered in the school, home, and

workplace respectively.

Incentives can be verbal acknowledgements and/or recognition. Incentives can be a

reward or honor for a job well done. Incentives are always an addition to the person it is being

offered to. Incentives certainly include money within its realm of possibility but are not limited

to strictly monetary offerings. Theoretically, the most effective incentives match the desire of the

person or group receiving the incentive. Researchers at Northwestern University have

determined that consumers may be more satisfied by non-monetary rewards/incentives as

opposed to monetary rewards, depending on the incentive receiver (L’Atelier BNP Paribas,

2012). It appears that consumers may feel slighted when they can place a dollar amount on the

reward/incentive being offered (L’Atelier BNP Paribas, 2012). In some cases, customers are

17
more appreciative of rewards/incentives when they cannot easily assess the value, and it is

presented as a gift such as a plaque or public adoration (L’Atelier BNP Paribas, 2012).

Businesses often use incentives as a marketing tool to retain customers, obtain customers,

and excite customers about new products. Banks commonly utilize incentives to secure referrals

to bring in new business on the part of the consumer. This could appear in the form of a

monetary deposit into an account or fee waiver when a customer helps to secure new business for

the bank through referrals. The goal of consumer-based incentives is to get the customer to help

the business achieve its goals beyond the scope of the employee’s direct control. The consumer-

based incentive program is an inferred, mutually beneficial relationship between the business and

the client. The client benefits when they receive a desired incentive and the business benefits

when its organizational goals are met. Businesses need consumers to participate in the growth of

the company, so incentives are commonly used as motivation.

What are the Benefits and Risks of offering incentives?

Incentives are a great way to motivate people to change their behavior, for the purpose of

achieving a desired result. For most, the thought alone of receiving a reward is enough to drive

people to act according to the desired behavior. This is proven by research supported by

Incentive Theory. Incentive Theory articulates that external factors and the longing for rewards

are motivating factors for behavioral changes in people (Cherry, 2019). People can be influenced

to better adjust or correct their behavior when appropriate incentives are offered from a person or

organization.

Customers want to feel appreciated and protected while conducting business. They do not

like to be under the impression that they are being taken advantage of (Mack, N.D.). This belief

is especially true for banking clients who are entrusting their life savings and personal

18
information with financial institutions. When banks and investment institutions offer incentives

germane to the customer’s needs and wants, the potential result is the customer believing that the

bank is attentive to their needs. The customer wants to be the focus and priority for the business

they are entering into a relationship with. Appropriate incentives offered to clients can benefit

the long-term relationship between a customer and the financial institution.

Incentives can also prove beneficial by providing a reputational boost for financial

institutions and any other organization that employs them. When customers believe they are

receiving extra perks or getting something for nothing they will share that information with

family, friends, and associates. Posts and reviews will be made on social media that can paint the

company in a positive manner and further build the brand. If the incentive program is beneficial

to the customers, it could excite consumers to spread the word to others, ultimately making the

company look good (Olenski, 2014). A good reputation can retain old clients and bring in new

clients as well.

New clients will create revenue for the financial institution, and keeping older clients

satisfied will maintain the revenue stream they already have. Customizing an incentive to meet

the needs of the client can boost sales for a company (Olenski, 2014). An incentive program to

promote fraud prevention can potentially get clients to use more of the bank’s other products.

Preventing fraud also protects the bank’s assets, which also maximizes revenue for the bank.

Being empowered and rewarded for protecting themselves can strengthen the relationship the

customer has with their bank. This allows for trust to be built and further encouraging the

customer to take advantage of other products being offered.

While incentives may offer some benefits, they create risks and issues as well. The goal

of offering incentives to bank customers as a method of fraud prevention is to get them to be

19
more diligent about protecting their information. The problem is that using incentives is only a

temporary fix. If the incentive is discontinued the customers will go back to their previous

behavior (Kohn, 1993). Fatigue from incentives can also become problematic if the advertised

incentive does not meet expectations. With this considered, clients will only closely monitor

their accounts and their behavior if the incentive is being offered, or meeting their perceived

expectations. If the incentive is stopped the clients would revert to depending solely on the bank

to protect them.

Bank clients should want to take extra care of protecting their accounts and personal

information because it benefits them more than the banking institution. However, the wrong

incentive could produce an adverse effect on the intended behavior. For example, offering

monetary incentives can possibly diminish the actual reason that customers are monitoring and

protecting their information (Kohn, 1993). The appropriate term for this behavior is called the

“crowding-out effect.” This effect occurs when an outside force changes the internal motivation

that a person must act according to (Gallani, 2017).

While incentives can be used to encourage customers to act in desirable behaviors, they

can inversely be used to discourage certain behaviors considered undesirable. Unbecoming

behaviors can be discontinued by offering something appealing to the person exhibiting the

behavior. However, the incentive must be of value to the person to be effective in correcting

unbecoming behaviors. For example, healthcare professionals use incentives in this manner to

get people to stop smoking.

When discussing incentives and rewards, intrinsic and extrinsic motivation needs to be

mentioned. Intrinsic motivation is when a person performs an action because they take pleasure

in the action. Extrinsic motivation is when a person performs an action because an outside factor

20
is affecting that action. (Ryan and Deci, 2000). As it relates to incentives and fraud prevention,

ideally people should be intrinsically motivated to protect their assets and information. However,

extrinsic motivation is needed through incentives because everyone is not motivated to find joy

in protecting themselves from fraud. With this considered, incentives can prove to be

problematic in manipulating intrinsic and extrinsic behaviors.

Incentives can create problems through manipulating behaviors because they can become

the dominative motivating factor in behavior, and adversely diminish intrinsic behaviors (Hidi,

2016). If people are constantly being rewarded for behavior or for completing incentive related

activities, the natural satisfaction people received for doing it begins to dissipate. This creates the

desire to only complete the task to be rewarded which is called “the overjustification effect”

(Hidi, 2016). The overjustification effect is a negative aspect of offering incentives. It is

plausible to think that too many incentives offered for menial tasks could present an environment

where people feel entitled to rewards for completing everything. Hence, the only motivation for

desirable behavior is reward. This is not an ideal scenario. However, if the person does not find

pleasure in doing something necessary or important, the incentive will have to act as extrinsic

motivation. Here negative effects are negated because there is no intrinsic motivation to

consider.

Reward and Punishment

Banks are providing consumers with educational material on fraud prevention via a

plethora of communication methods. Sometimes that information is not used or understood and

the customer becomes a victim of fraud, their punishment is usually to suffer a loss in assets,

information, privacy, time, and resources. Many studies have been conducted to evaluate the

effect of rewards and punishment on behavior. This section will highlight how rewards are used

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as a tool to motivate individuals, in comparison to how punishment is used to deter or stop

unbecoming behavior.

The human brain processes rewards and punishment differently in response to how

behaviors are viewed. The brain is positively receptive to rewards and encouragement than it is

to negativity (Sharot, 2017). In fact, individuals will choose to believe that negative information

does not pertain to them while welcoming positive information. Negative criticisms could even

be considered fair and true; however, the psyche will willingly dismiss the negative information

in some cases, in an effort to process only what is considered positive and rewarding (Sharot,

2017). This could explain how people receive and process the educational fraud information

provided by their financial institutions. They may fall prey to scams because they do not believe

that the prevention methods provided to them by the bank relate to them. Customers may also

feel as though they should not take any responsibility for fraudulent activity that has affected

them, as if it portrays them in a negative light.

Financial institutions need their clients to be proactive in protecting their information

from scammer and fraudulent activity. This need can be achieved through incentives because the

brain has established that in order to receive the mental reward, the person must make the proper

adjustment (Sharot, 2017). The rewards received are two-fold; there is the tangible reward from

receiving the incentive, and the intangible positive reward that the brain processes. The positive

mental aspects of behavioral adjustments, as it relates to rewards, are completely different in

comparison to how the brain responds to punishment. The fear of punishment can be paralyzing

causing a person to do nothing, and this is a hindrance in fraud prevention. Protecting personal

information requires action and it appears that the use of incentives and/or rewards can promote

that.

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 Rewarding an individual for completing a task is called positive reinforcement and it

creates a pleasant consequence for an exhibited action. In contrast, negative reinforcement gives

the opposite effect. It diminishes the behavior because it offers an unpleasant response (McLeod,

2007). In the banking sector, negative reinforcement would be the client suffering a financial

loss. Since negative reinforcement may not always stop the behavior, positive reinforcement may

be a better alternative for financial institutions. Rewarding clients for not having fraud

perpetrated on their account may be more effective opposed to punishing clients for allowing

repeated from to happen against their personal accounts.

Like discussed earlier in the motivation section, there are two different types of rewards:

extrinsic and intrinsic. Extrinsic rewards are financial benefits that promote certain behaviors.

Intrinsic rewards are non-monetary offerings used to elicit a behavior. (Wei and Yazdanifard,

2014). Financial institutions currently use extrinsic rewards when they offer incentives to clients

for referring family and friends. They use intrinsic rewards by offering verbal thanks and

appreciation to the customers for their business. Currently, intrinsic and extrinsic rewards are not

used by financial institutions for fraud prevention, but given the cost of fraud losses with respect

to how consumers can help alleviate the problem, it may be a program worth researching.

How do People Learn?

If banks are going to educate customers on fraud prevention it needs to be done in a

manner that reaches the masses. This could be accomplished by maximizing reach through

multiple communication channels. However, maximizing communication does not guarantee

effectiveness in information retention. Every customer does not learn in the same fashion, so

financial institutions should make provisions and consider learning styles when they are offering

educational material. There are numerous tools and ways to teach people and no one method is

23
superior to the other (Bransford, 2000). Communicating effectively through multiple channels,

with respect to the learning styles, could maximize how fraud related information is disseminated

to clients, and how that information is retained for asset protection. Below is a visual of the

different learning techniques.

Figure 2. Knowledge of How People Learn. From How People Learn: Brain, Mind,
Experience, and School by J. Bransford, 2000.
Lecture Based Training. Lecture based training is a learning technique that has a

teacher or any other individual verbally explaining and instructing a class or group of people on a

subject. This style works best for audible learners (Fleming, 2018). In a lecture, the

teacher/presenter has authority over the information being presented because they are only ones

in the setting with a thorough knowledge of the subject (Kelly, 2019). Banks could offer lecture-

based fraud prevention classes in their branches or record one and post it on their websites for

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their auditory learning clients. This information could also be communicated through tellers or

private bankers as clients are completing tasks while physically in the branch or office.

The downside of lectures is that it is up to the audience to take notes and determine which

points are important. Another issue is that there may not be much time for questions and lectures

are one-sided in that the instructor is presenting the information without much interaction from

their audience (Kelly, 2019). In an example with the teller or private banker, casual lecture

would be problematic if a branch is busy or a waitlist/line has formed. Additionally, this method

of learning/teaching may not be stimulating or interesting to some people so it may not draw in a

big crowd if it is offered by the bank.

Technology Based Learning. Technology based training uses electronic learning

materials to teach its audience. The materials can be accessed on, “the Internet, intranets, satellite

broadcasts, audio and video tape, video and audio conferencing, Internet conferencing, chat

rooms, e-bulletin boards, webcasts, computer-based instruction, and CD-ROM” (Koller, Harvey,

and Magnotta, M., N.D.). Financial institutions are already using parts of technology-based

training to educate their customers. They are offering videos and reading materials on the

organization’s websites. This material can usually be found under the fraud awareness tab that

will also include phone numbers and links to other websites that the clients can use if they

become victims of fraud.

People have constant access to the internet using laptops, mobile phones, and other

personal devices that offers them wireless access. This allows them to learn any pertinent

information at their convenience and pace. A great example of technology-based learning would

be colleges offering online classes for students to obtain degrees. Advantages of using

technology-based learning is that it is easy to access, can be updated faster to offer the latest

25
version of the information being provided, can be tailored for its audience, and allows the user to

learn and review the material at their own pace (Koller, Harvey, and Magnotta, N.D.).

Technology can maximize reach through social media and applications (apps) with ease and

convenience. Videos, alerts, and fraud information can be communicated easiest through this

means.

The problem with technology-based learning is that some people are not technologically

savvy, and this method can alienate them. One group that this might have a negative effect on is

the elderly. Groups that are impoverished and those who live in areas with limited access to

technology are disadvantaged as well. Consider how most technological advances in

communication and social media have rapidly evolved within the last 15 years. Learning

technology is a task for some. With this considered, some people would have to learn how some

elements of technology advancements work before considering technology as an effective means

of learning.

Another issue is that due to the lack of personal contact people using this method may not

put as much effort into learning and/or using the material because they feel their activity is not

being monitored (Koller, Harvey, and Magnotta, N.D.). An example of this would be when

organizations offer their employees computer-based training and instead of reading through the

material they navigate directly to the test at the end of the training. The use of technology is

powerful. However there is no guarantee that everyone can access it nor retain what is

communicated through it.

Skills Based Learning. Everyone possesses skills that they are innately born with that

can be expounded upon to learn new information that is being taught. Skill based learning

leverages the knowledge that the person has previously obtained to build a knowledge base in a

26
specific area (ICDAdmin, 2018). With respect to learning, banks can take the knowledge that

their customers already have and use it to further their knowledge on fraud prevention. Those

skills could be put to action by challenging the clients to protect their personal data and account

information. The purpose of learning is to be able to put the new information to use and skills-

based learning does just that.

The biggest drawback to teaching fraud prevention via skill-based learning is identifying

the skills that people possess. Banks would be disadvantaged in utilizing this method without the

prior use of a poll or survey. While an appropriate strategy to garner this information is plausible,

it also appears tedious to extend the bank's resources to research an area with such an

unpredictable landscape.

Inquiry Based Learning. Inquiry-based learning is centered around the student/person

learning something new and actively participating in the process (Pedaste et al., 2015). The

individual comes up with theories and concepts about what they are learning. They are

formulating questions and doing the work to answer those questions as part of the learning

process. It is a method that is used by scientists and offers the person a new set of skills to use.

The participants of inquiry-based learning get the opportunity to investigate, access, and analyze

the information they are learning about it. This learning style best for retention of information

because a process was used throughout multiple stages of learning with intentionality. This style

is best for kinesthetic or “hands on” learners.

The biggest problem for this learning style is the time needed for customers to devote to

learning in this fashion. Time is valuable to consumers, and devoting time to learning about

fraud may not appear enticing. In addition to the time needed on the part of the consumer, the

financial institution would need to provide the environment and for the learning to take place.

27
With this considered, the amount of resources needed to implement consumer-based fraud

training would not prove beneficial. While this learning method may potentially yield the best

results, plausibility appears unlikely.

Conclusion. Fraud prevention is a methodology for protecting assets that may require a

maximized partnership between financial institutions and consumers to achieve desired effects.

Banks attempting to combat fraud strictly through their respective investigators and fraud

departments is a fair approach, but the banks could benefit from additional involvement from

their customers. The clients, while protected by the bank’s investigators, could benefit from

learning directly from their bank and take added measures in protecting their own assets. Both

parties would find it advantageous to create a mutually beneficial relationship that maximized

satisfaction for the bank’s financial standing and the consumer’s involvement. That process

could be developed through the proper implementation of a consumer-based incentive plan.

After considering the research presented, the benefits to implementing a consumer-based

incentive plan would be justified in money saved versus money spent and lost. It makes sense to

allocate resources to an incentive plan because the benefits would outweigh the costs. There are

fraud schemes and phishing scams that can be avoided altogether if the clients were made more

aware of the threats and were more diligent about protecting their information and accounts.

Incentives have been proven to help encourage a change in behavior to achieve a desired result.

Since banks desire to further include clients in the fraud prevention process, banks should

implement an incentive program for clients to encourage their involvement in preventing fraud.

The details of what an incentive plan could look like may vary according to the resources

available to the financial institution as well as the needs of the consumer. Any effective incentive

plan needs to keep the customer’s needs in mind because offering the incorrect type of plan

28
would result in discouragement and lack of participation. The bank’s clients need to believe that

they are properly being rewarded for their time and effort. Even though a client’s protected assets

should be enough of a reward, that alone has not been enough to motivate more people to take

more ownership in fraud prevention. Another extrinsic motivator is needed; that motivator can be

found through implementing the right incentive plan.

The correct incentive plan must also be accompanied with the correct means of

communicating the information needed for the plan to work. Special attention must be given to

the method in which consumers gather information and retain information. Banks will need to

evaluate both and begin to combine learning styles and communication methods to maximize

reach and retention. The information given to consumers about fraud prevention is just as

important as the incentive plan used with it. If banks decide to offer their clients an incentive

plan to combat fraud, they would be offering an customer experience unlike any other while

offering themselves added protection against future fraud.

29
 Discussion of Findings

Fraud prevention is the method taken to stop fraud from occurring. For financial

institutions this means monitoring clients’ accounts and transactions, employing well trained and

knowledgeable staff, and having up-to-date detection systems. One major component that cannot

be forgotten is client education. Educating clients on how to protect themselves against scams

and safeguarding their information is an effective way to prevent fraud. Some of the current

approaches banks offer prevention information to their clients are discussed to determine if the

methods used are effective.

Current Methods Being Used by Financial Institutions

The effectiveness of the education of banking clients cannot be evaluated until research is

conducted on the approaches currently taken by banks. This section of the paper will attempt to

complete that task by analyzing multiple financial institution websites to identify the methods

they use to educate their customers on fraud prevention. Financial institutions are using their

business web pages to promote fraud awareness. There are entire pages dedicated to informing

clients about scams and protecting their information. The clients are provided with additional

resources including phone numbers and websites to report fraudulent activity or get answers to

questions about suspicious activity they may come across.

JP Morgan Chase has a section on their page describing how clients can protect

themselves. The page advises clients to check their accounts for fraudulent activity and directs

them on whom to contact if activity is found. It informs clients to review their credit reports and

provides the phone numbers to the credit bureaus.

On their security page Chase offers several tabs under the titles: How We Protect You,

How to Protect Yourself, How to Spot Suspicious Emails, How to Report Fraud, System

30
Requirements, Identity Theft Kit, and Vulnerability Disclosure. The Identity Theft Kit is a

twenty-two-page pamphlet that the client downloads. It defines Identity Theft as well as other

terms that are related to the subject. It explains how to prevent identity theft and what to do if it

occurs. It also explains how clients should file disputes.

First Midwest Bank offers its clients prevention information on a Fraud Security and

Awareness page. They break down the page into three sections: Consumer, Commercial, and

Wealth. Under each of these headings are multiple PDF’s titled by fraud type. Once opened each

PDF explains to clients how they can protect themselves against that fraud. Each PDF is about

one to two pages long and is very descriptive. Outside of the PDF’s First Midwest Bank also

offers fraud videos. The first video is of an interview of the bank’s Head of Treasury

Management with Guardstreet.

F&M Community Bank takes a different approach by offering its clients downloadable

brochures on Identity Theft and protection services through a third party. The protection service

used is called ID Theft Smart and will cost the client $4.95 per month. The website lists the

personal information that scammers target as social security numbers, credit card numbers,

driver’s license numbers, card PINs, and website user ID’s and passwords. Even though it differs

in the approach that it takes this bank is not as detailed with the information they provide as the

other two previously mentioned.

Financial institutions have also taken to social media sites such as Twitter to post about

fraud prevention. These sites allow banks to potentially communicate with more people outside

of their client base. The Twitter post will typically contain informative tips and/or

recommendations on fraud awareness and prevention. The post will also offer a way to link the

31
social media users/followers to the financial institution’s website. Once there they will be able to

access the bank’s fraud page to gain more knowledge. An example of a post is provided below.

Figure 3. Are You Exposing Yourself, Harris County FCU, 2019,

https://twitter.com/HarrisCountyFCU/status/1180090222673059840?s=19

Facebook is another social media outlet that is used by financial institutions. Social media

allows banks the ability to interact with their clients in real-time outside of a physical banking

center. Bank personnel can write posts and receive feedback from clients, nonclients, and other

businesses. It gives banks a huge platform to educate people which usually consists of videos and

written literature.

Banks are currently offering their clients a plethora of information on how to protect their

data but there is no follow up to see if the client understands what they have read or watched.

There is an abundance of material and no way to measure if it is being used. Fraud prevention

32
for financial institutions appears to focus on getting the information to the client but does not go

further unless the client initiates it. Teaching is about more than providing data to a person. It is

also about making sure the person comprehends what is being told to them and ensuring that they

know how to put it to use.

Incentives Being Used by Other Industries

The healthcare industry has been using incentives to get people to schedule and/or attend

appointments, change eating habits, and exercise. The incentives are creating changes in people’s

health and wellness by encouraging them to change their behavior. Aetna Healthy Rewards

offers gift cards to incent clients for taking preventative measures like annual exams and

screenings. Other insurance companies such as Cigna and Blue Cross Blue Shield offer Wellness

Programs as an incentive. These programs give discounted premium prices and gym

memberships. The goal is to reward people for healthy choices such as losing weight, eating

healthy, and quitting smoking,

Car insurance companies are using incentives and rewards to entice their customers to

drive safely. Allstate issues points to customers for safe driving and these points can be

redeemed for merchandise. They also offer a Safe Driving Bonus which issues checks every six

months to those customers who are not involved in any accidents. Drive Smart and Save is a tool

used by State Farm Insurance. A mobile app is used to track the customer’s driving and

depending on the activity they can receive discounts on their insurance payments. The app tracks

speed, braking, accelerating, and other driving related activities.

Grocery stores offer reward cards that allow members the ability to buy one item and get

one free or receive discounted prices on select items. Jewel Osco (part of the Albertson’s, Inc.

grocery company) has a program called Just for You that enables customers to earn points from

33
the purchases they make. Those points can be used for discounts on groceries and gas. Walmart

previously allowed customers to scan their receipts and receive a rebate of the difference if they

found a lower price for an item at a different store. Customers could use the refunds immediately

or save them and allow them to accrue for later use.

Credit card companies offer multiple incentives: points; cash back; and consumer

protection. Some credit card companies are giving cash back to customers for purchases made

using the credit card. This entices the person to use the card more. Shanika Chapman discusses

how some credit card companies purchase protection. This allows customers to possibly receive

a refund from the card company for products they purchased that they are not satisfied with.

Customers can also receive discounts to merchants based on the rewards program they sign up

for with their credit card company.

Restaurants are taking advantage of the rewards and incentives to obtain new customers

and retain the business of their old customers. Restaurants encourage customers to sign up for

their reward programs to receive perks that only members have access to. This can include free

meals or desserts on birthdays and discounts on meals. Starbucks has a very elaborate rewards

program which keeps their customers coming back. At Starbucks, customers can collect stars

from the purchases they make, and they can even accrue bonus stars. There are days when a

customer can receive double the number of stars. The program allows members to receive

exclusive offers and get free food and drinks. It is a system set up to keep the client frequenting

the merchant by making them feel special and appreciated by the company.

Use of Incentives

Research has determined that there are advantages and disadvantages to incentives. They

can generate business and inform clients of new products and services both of which have a

34
positive effect on the business. However, incentives also have the power to create new problems

for the businesses using them. While the bank may consider using them to get clients to become

more proactive it could also create some unwanted behaviors. The clients may only safeguard

their information if they are benefitting financially for doing so. There is the risk that incentives

will only motivate people while they are being offered. Once they cease the desired behavior will

come to a halt.

Another risk of using incentives occurs if clients are not forthcoming about fraud, for the

sake of preserving their incentive. It is possible to consider that if clients are the victims of fraud,

they may not report it for fear of not getting the incentive. This could be harmful if it is a fraud

incident that the bank does not catch. Consumers are already underreporting fraud incidents due

to embarrassment so adding another reason for them to not disclose is not good for the client or

the bank. On a larger scale, this behavior is detrimental to the bank’s financial standing because

unreported fraud schemes could cause an exorbitant amount of unnecessary losses. This scenario

presents a domino effect of losses. First, the customer and bank suffer losses with respect to their

assets. Secondly, the bank loses out on the value of the incentive. Any incentive can feasibly

work for an organization when the return on the investment is greater than the actual incentive

investment. In this case, the return from the incentive investment is devalued because the bank

still suffered a loss from fraud, and the bank will still lose on the value of paying out the

incentive that the bank is attempting to protect. Thirdly, the bank will continue to suffer losses

until someone reports the fraud scheme and corrective action can be put into place to address the

fraud.

35
Cost to the financial institution to implement incentives

Depending on the size of the financial institution and the type of incentive program

chosen the cost could range anywhere from thousands to millions of dollars. The marketing team

or department would need to determine what type of incentive or reward program the company

would like to use. Those individuals will receive their normal payroll package and there may be

overtime for any extra research conducted outside of regular work hours. Marketing will also

have to determine which customers they want to offer the incentive to and for how long.

The length of the incentive offered plays a major role in the cost. The longer the program

runs the more money the bank spends. The banks will have to pay for the rewards that are being

offered to the customers which can consist of gift cards, funds deposited to the client’s account,

or higher interest rates on savings accounts. A budget will also be needed for marketing to

promote the incentive program. This could be radio and television advertisement, flyers, posters,

and/or pamphlets.

Banks could flag the accounts in the system that are participating in the reward program.

This would determine if the account is free from fraud for the allotted amount of time so a

decision can be made to issue a reward for meeting the program criteria. The accounts would

also need to be monitored to ensure that fraudulent activity is not taking place in relation to the

incentive program. There will always be the potential of fraud in the incentive program and this

may lead to the bank having to spend money to prevent it or stop it.

Cost to financial institutions if changes are not made

If financial institutions decide to not make any changes to the way in which they educate

their clients on fraud prevention they would not incur any additional costs. They would only

spend money on the upkeep and updates to the information they are already providing. However,

36
there is a possibility that financial institutions would need to spend money even if they do not

make changes to the way they educate their clients. Extra funding may need to be spent on fraud

detection methods if the clients are not putting the material to use. Fraud detection systems may

need to be installed or upgraded and more staff may need to be hired.

The use of incentives would be an additional cost that some banks may or may not be

willing to accrue. Since there is no guarantee that the use of incentives will prevent fraud and

save the bank money the most cost-effective method would be to do nothing. Instead of using

funds to create an incentive program, existing funds expenditures could be used to enhance the

way clients are being educated.

Financial institutions typically budget for losses. They forecast for expected losses for the

year or quarter. If the fraud department stays within that prediction the bank would not suffer any

unexpected losses and if the department stopped more fraudulent activity than anticipated the

bank would save money. This would allow them to continue to operate in the same manner

without making changes in their client education methods.

37
 Recommendations and Conclusion

How banks educate their clients

The only way to truly determine how financial institutions educate their clients on fraud

prevention is to examine the individual banks. From the research that was conducted for this

paper it has been determined that the education of bank clients is not being monitored or

measured. There were no studies conducted or articles written on the effectiveness of the current

methods that are being used.

Since education is the primary way for clients to protect themselves against fraud, studies

need to be conducted on what is the best method to use. The ways that are being offered by

financial institutions currently are effective but only for those that make the effort to look for the

information online or are connected to their banks via social media. More options should be

offered to clients of financial institutions since they are the primary resources in combatting

fraud.

Banks should consider using face-to-face tactics such as informational sessions/classes

held at their branches. They could also investigate having someone from their fraud department

visit senior homes and apartment complexes to talk to the residents about protecting themselves.

This would give the clients the opportunity to ask questions about anything they are unclear on

or unsure about. These sessions could also be held on college campuses, at high schools, and

other places where large groups of people meet.

A great idea for financial institutions would be to have a fraud liaison. This could be a

single person or a department of individuals that focus solely on fraud education. They can

ensure that the branch personnel are equipped with the knowledge they need to answer client

38
questions and be a resource when fraud occurs on their accounts. They can also find new and

improved ways to bring prevention information and techniques to the clients.

A major part of educating clients on fraud prevention is making sure that information is

reaching the client. Just making reading materials and videos available online is not enough.

Dedicating an individual or individuals to find ways to reach clients online and in person can be

very beneficial for the financial institutions and their clients. Clients should not speak with a

fraud representative only when there is fraudulent activity on their account.

While providing educational reading material helps those that learn in that manner other

methods need to be used to reach more clients. Some of the fraud prevention learning should be

interactive so that clients get a chance to determine if they comprehend what they are reading.

One way to do this could be to offer clients computer-based training in the same way this

training is provided for bank employees. The classes can be offered to clients to take at their

leisure and an incentive could be attached for those that take advantage of the online courses.

Incentives and Fraud Prevention

Incentives are a good tool to encourage people to behave in a particular manner.

However, there are negative aspects to incentives as well. Further research will need to be

conducted to determine if using incentives to get people to protect themselves and their personal

information against fraud is beneficial to banks and their clients. This can be done by having a

financial institution incorporate incentives on a trial basis and document how they are received

by the clients and if they create any unwelcomed behavior.

If banks offer computer-based training clients can receive gift cards or points for taking

and passing the training class. They could also be used to entice clients to attend any workshops

or classroom training that the banks could start offering to teach fraud prevention lessons.

39
Incentives/rewards could be offered to all those that attend the session and stay until the end.

This would get people in the door and allow them to ask questions and gain clarity on areas that

they are not clear on. Banks could use this time to determine just how much their clients know

about fraud prevention and the steps they need to take to protect their personal information and

accounts.

Once the clients have been given the tools, they need to protect themselves against fraud,

incentives can be used to encourage them to use what they have learned. Financial institutions

could offer incentives to all those individuals that maintain fraud free accounts for a certain time

frame. It could be six months, eight months, or even a year. The goal would be to get clients to

monitor where they are using their debit cards, safeguard their checks, update and protect their

username, passwords, and PINs, and monitor their credit reports to ensure that their social

security number is not being used by anyone else.

By offering an incentive to customers for protecting their information and accounts,

banks could potentially see a decline in the number of fraud cases they are working. Bank

customers would become a first line of defense against fraudulent activity for the bank. In an

effort to keep their accounts fraud free clients may ask bank representatives questions before

applying for an online loan with an unknown company. They may call the bank to verify if they

should deposit the check that they randomly received in the mail or if they should send money to

the significant other that they met online.

These incentives could also be offered to business clients. They could be used in a way

that gets the clients to double check and authenticate emails and wire instructions. Instead of

offering gift cards or cash, businesses could receive a free service or a percentage off a product

that they pay for.

40
 “Clients want to know they can trust their financial institutions to be dependable and to

put their interest first” (Groenfeldt, T., 2017). This builds healthy relationships between the

clients and the financial institutions. Banks offering multiple ways to educate clients on fraud

prevention and offering incentives to get them to use the information can be a great way to

strengthen existing relationships and initiate new ones. It can also help to promote a positive

reputation for the financial institution that chooses to incorporate the clients into their fraud

prevention techniques. Clients get to feel that their bank cares about them and their business and

the banks get to add another layer of protection to their prevention and detection methods.

Criminals are using the latest technology and their counterparts to scam innocent victims

out of billions. If banks are going to stand up against them, they will need to use every available

resource that they have and their biggest one is the client. But before they can use them, they

must ensure that they are properly educated on fraud prevention. While finding new ways to

educate clients and offering incentives may cost the bank money it will save them and their

clients’ money in the long run. This strategy has the potential to create new revenue by bringing

in new clients or by offering existing client’s new products.

Conclusion

Fraud will never stop and fraud losses to financial institutions will never be completely

diminished. However, it can affect fewer people and some if not most of the losses can be

mitigated. The problem is that banks cannot rely solely on their fraud departments to do all the

work. What is needed is a collaborative effort between the fraud department, the clients, and

other bank personnel. All these groups need to be included in fraud prevention because they will

all be affected when there is fraudulent activity. You are only as strong as your weakest link, so

banks need to ensure that they empower everyone in the chain.

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 Clients should not believe that it is solely up to financial institutions to protect them and

their assets. They need to become a part of the solution instead of being a part of the problem.

Financial institutions offer training and educational courses to their employees to ensure that

they know how to do their jobs and protect the sensitive information that they encounter daily.

They should want to do the same thing with their clients to create an extra layer of protection. If

clients can defend themselves against scams it allows financial institutions to focus on other

areas.

Clients becoming part of the solution would include understanding and believing that

they are being scammed. There are instances when banks inform clients that they are being

scammed and the client does not believe them. Banks will inform he client that the funds transfer

is fraudulent but the clients will insist that it is processed because they believe the transfer and

the person they have been dealing with is valid (KPMG, 2019). This behavior and belief on

behalf of the client can lead to them suffering a financial loss.

Client education is important and what financial institutions are currently offering is

effective, but it is not enough. More methods can be used to reach and educate a larger number

of clients. Incentives can help financial institutions educate more people and prevent fraud, but

banks need to determine the best way to use the incentives so that they do not become a problem.

Expanding on the methods used to educate clients and incorporating client incentives into fraud

prevention methods could be just what banks need to mitigate their fraud losses because

according to the KPMG survey, “Over half of their respondents said fraud recoveries were less

than 25 percent of fraud losses” (KPMG, 2019).

Banks can suffer more than financial losses. If a client is scammed and suffers a financial

loss it is up to bank personnel to interact and work with that client. This can be time consuming

42
and emotionally draining for that employee (KPMG, 2019) because they have to deal with a

client that is possibly upset and frustrated. Bank employees are having to deal with the clients

once they find out they have been scammed and their money is gone, or they have to inform the

clients that the money is gone. This can turn into a very emotional and tense interaction between

the employee and the client.

This makes client education and incentives beneficial to the bank and the client. It has the

potential to save both parties money and time. It also can have a positive impact on the mental

and emotional well being of the bank clients and employees. Clients need a aclear understanding

of what scams are, who can become a victim, and how they effect people. Investing in new and

creative ways to educate them should be able to do that.

43
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