How Cybersecurity Impacts Customer Loyalty

When it comes to banking, e-commerce and other online activities, fraud is one of consumers’ top concerns. In fact, insights from a recent First Annapolis and ThreatMetrix consumer study showed that more than half of consumers (55 percent) are extremely concerned about the risks of banking and payments-related fraud, with 46 percent indicating their fraud concerns have increased in the past two years. Given this consumer sentiment, cybercrime and other related attacks can have a detrimental impact on consumer sentiment toward banks.

Consumers’ digital-first preference makes cybersecurity important

bank fraudDigital channels have become increasingly important venues for banking and commerce, and digital security is of paramount importance. Gone are the days when consumers have to walk up to a bank teller to complete a financial transaction or browse a brick-and-mortar store for their next purchase. Instead, consumers across banking and commerce are opting for more convenient online and mobile transactions. Approximately 83 percent of consumers have accessed their bank accounts online, while more than half (54 percent) have logged into bank accounts via a mobile app.

With so many consumers tapping into online channels, fraudsters cost e-commerce merchants and financial institutions an estimated $274 billion per year globally. Additionally, most consumers want banks to shoulder the responsibility of keeping their accounts and personal information protected, rather than taking the responsibility into their own hands. Approximately 72 percent of respondents agreed or strongly agree that the bank is responsible for monitoring activity on accounts and preventing fraudulent transactions. Financial services organizations and all businesses operating online must have layered security measures in place to flag and prevent fraudulent transactions—or risk tarnishing their reputations with consumers.

Fraud is impacting brand loyalty and advocacy, especially for younger consumers

Nearly two in five consumers (38 percent) have fallen victim to fraud, and this can cause brand loyalty and activity to take a significant hit, as 62 percent of those surveyed would not recommend a bank to a friend if they experienced fraud on their account. A referral from friends and family is one of the top reasons consumers choose their primary bank, meaning fraud can have a disastrous effect on an institution’s ability to attract new customers.

The data also found younger consumers are less forgiving than older generations when it comes to customer loyalty following a fraud incident. Nearly 1 in 5 fraud victims (18 percent) under 35 reported leaving their bank at least partly due to fraud or a compromised account.

Relationship loss is leading to loss in revenue and profitability

Each time a banking customer closes their account or switches to a new bank, they take all future revenue, cross-selling potential and referrals with them. And consumers aren’t only leaving because of fraud. As many as 83 percent of consumers have faced step-up authentication friction in the past year, and 30 percent of those have changed banks due to the inconvenience. Between fraud and friction, U.S. banks lose approximately $14.9 billion in relationship value each year.

As financial services institutions, e-commerce merchants and other businesses constantly take proactive steps to improve the customer experience, continued evaluation of their cybersecurity strategy should be a top priority. In creating a secure, frictionless customer experience, not only will businesses keep the customers they have for the long-run, but they will also maintain a positive brand reputation and increase the chances of attracting new business through customer referrals.

Posted on June 21, 2016

Alisdair Faulkner

by Alisdair Faulkner

Chief Product Officer, ThreatMetrix

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