New fraud statistics from Javelin Strategy & Research’s Report, 2018 Identity Fraud: Fraud Enters a New Era of Complexity reveal growing consumer sentiment toward financial institutions as identity crimes hit another record-high. This comes despite industry best efforts to mitigate fraud.
In 2017, 16.7 million consumers were victims of identity fraud. This is an 8 percent uptick from the previous year’s record of 15.4 million victims.
These alarming rates were accompanied by $16.8 billion in collective losses — primarily bore by financial institutions.
Despite these back-to-back record-breakers, the industry recently had a few major wins on the fraud front. Many hoped to edge out identity thieves with wide-spread EMV adoption and strengthened data breach notification laws. Yet victimization continues to soar.
Shifting Fraud Trends in 2017
While EMV did successfully mitigate card-present fraud, criminals began shifting their approach to more complex fraud schemes. The latest fraud statistics show growth primarily in account takeover (ATO) and new account fraud (NAF).
Account Takeover Fraud
ATO tripled in 2017, which resulted in $5.1 billion in associated losses. It’s a costly crime that carries an average resolution time of 16 dedicated hours and $290 in out-of-pocket expenses.
Criminals favor ATO due to the wealth of account credentials leaked in major data breaches. Once criminals snatch login credentials, they’ll embark on widespread password testing on popular websites in hopes of scoring a match. Automated bots are often used to speed up the process.
Both financial and secondary accounts, such as mobile or email accounts, are targeted in the attacks. Secondary accounts provide criminals with validity in addition to helping them conceal the crime — as these accounts are often where password change alerts are sent.
New Account Fraud
In 2017, NAF rose an astonishing 70 percent. NAF, often known as identity theft, relies on highly-sensitive personally identifiable information (PII) to facilitate. With the surge in data breaches, this wasn’t hard for criminals to find.
For the first time ever, Social Security numbers were compromised more than credit card numbers in data breaches. This was largely a result of the Equifax data breach, which exposed nearly three in five Americans.
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NAF has historically been one of the most difficult types of fraud to resolve. Victims must often work with creditors, financial institutions and government organizations to clear their good name.
It’s an uphill battle that leaves funds tied up for days, weeks or months — something few families can afford.
Effect of Fraud on Accountholder Loyalty
The barrage of data breaches and the rise in sophisticated fraud schemes has caused consumers to lose trust across-the-board. They hold little faith in the companies that collect and store their personal information and are growing equally restless with their financial institutions’ response to the growing incidents.
In a recent interview with NBC News, Javelin’s Al Pascual elaborated on the growing need for action from financial institutions:
“Consumers play a very central role in protecting their own identities,” Pascual said. “It seems like a lot of them feel pretty helpless and they’ve shifted the perceived responsibility for preventing fraud from themselves to other entities, such as their financial institution.”
In today’s competitive climate, this demand is one that few institutions can afford to leave unanswered.
The Fraud Action Plan: 3 Steps
You’ve seen the latest fraud statistics, but now what?
Banks and credit unions need to take a proactive approach to combatting fraud. This includes paying additional focus on ATO and NAF. Here are three key tactics for fortifying defenses and ultimately retaining accountholders:
- Invest in Verification
With the accessibility of PII, identity-based verification through standard security questions is obsolete. Financial institutions must move beyond standard authentication protocols and develop tailored processes for specific environments. Often these will utilize two-factor and AI-based authentication. - Educate and Empower
Consumers need to be their own best advocates in today’s breach-prone world. Ensure they’re prepared by regularly offering consumer protection tips. Timely educational topics include:● Password safety
● Social media privacy
● Scam awareness
● Account monitoring tips
● Data breach response plans - Monitor the Online Black Market
Become a protector in the eyes of your accountholders while mitigating your own fraud liability through internet monitoring services. These services scan known online black markets for signs an individual’s identity has been compromised. If detected, consumers receive an alert and restoration services are deployed.
These key prevention steps should be used in conjunction with value-added fraud protection offerings. Javelin Strategy & Research cites the need for greater cooperation between financial services and other industries for broader protection against evolving fraud schemes.
