The Perfect Storm - Compliance, Efficiency and Service After the Breach

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Massive card security breaches are starting to be a commonplace occurrence. Target announced 40 million compromised accounts in December – ironically the same day I blogged about my own card theft – and last month revised that number to 70 million. Fellow retailer Nieman Marcus also had a breach of its own; albeit a more modest 1.1 million accounts (both retailers are now answering questions from Congress). The latest revelation came from White Lodging Services, a multi-brand hospitality company, investigating a breach that lasted most of 2013. And while the debate about the impact of technology in payments (e.g. EMV, mobile wallets, hackers) continues to grab headlines, that isn’t the storm in which I am most interested.

As an ex-banking operations guy, including in both the consumer and fraud dispute areas, my first reaction was to wonder how in the world will the banks effectively handle all the volume of claims? December through March is typically the busiest time of the year anyway and now this happens? The operations I’ve seen over the last 18-24 months are still very manual/paper based with a lot of hand-offs and “checkers checking checkers”. For banks, however, the “perfect storm” may be at hand.

I’m not asking you to sympathize with banks, and the normal consumer doesn’t realize – or care – that there are numerous steps that need to happen and questions that must be answered in order to rectify disputes, claims and chargebacks. This is a hot area as evidenced by complaints to the CFPB in 2013. Complaints on billing errors and fraud were #1 and #3 respectively, and 24% of the total for credit cards. I covered some of this when talking to Bank Systems and Technology Reporter Jonathan Camhi on his recent blog. This “storm” is a combination of:

  • Regulatory Compliance. The CFPB and other new governmental agencies globally are paying MUCH more attention to consumer treatment than ever before. Banks face fines and/or losses when not adhering to mandated timelines.
  • Network Complexity. In addition to complying with government regulations, banks must follow a myriad of rules from each payment networks (e.g. Visa, American Express, Pulse). That complexity has made handling these claims largely a back-office function for years due to the requisite training and research required to successfully resolve a dispute and avoid losses for mistakes. 
  • Technology Investments. The back-office is typically the “low man on the totem pole” when it comes to IT. Additionally, budgets were slashed during the financial crisis leaving many banks with incomplete, disconnected and manual claims processing.

Inside the bank, this problem is viewed discretely through several myopic lenses: a compliance issue, an operational efficiency problem, or a customer experience concern. While compliance may be driving investment right now, better business software can provide much more than just a safe port in this complex storm. By taking a holistic approach to fixing these pain points simultaneously, banks can achieve something truly transformational. They can break down knowledge barriers, improve economies of scale/automation, manage timelines and enhance the customer experience.

It’s a bold first step on the long journey. Only a few have embarked and are weathering the storm. Can you really afford to be left behind?