The 2020 Identity Fraud Report reveals financial institutions’ methods to identify and respond to fraud are no match for criminals’ high-tech schemes to hijack consumer accounts.
Fraud losses grew 15% in 2019 to $16.9 billion even as instances of fraud fell from 14.4 million in 2018 to 13 million in 2019, which resulted in consumers facing $3.5 million in out-of-pocket costs last year as criminals shifted their focus from card fraud to opening and taking over accounts.
“These findings should be a wake-up call for financial institutions, the payments industry, businesses and consumers across America,” said Krista Tedder, Head of Fraud with Javelin Strategy & Research.
“The data is proof of what we’ve long known — the full weight of identity fraud lies not only in counterfeit credit cards and magnetic stripes but in full account takeover and new account fraud. Now it’s time to elevate our understanding of what security, detection and resolution really mean.”
The study found account takeovers — identity theft where a criminal gains unauthorised access to an online account belonging to somebody else — are trending at the highest loss rate, up a staggering 72% over prior year. This is due in large part to technological advancements that have made it easier for criminals to manipulate and socially engineer information, while making it harder to detect account takeovers without additional security infrastructure. And criminals work quickly — 40% of all fraudulent activity associated with an account takeover occurs within a day.
The type of identity fraud has drastically changed from counterfeiting credit cards to the high-impact identity fraud of checking and savings account takeover. At a time when consumers are feeling financial stress from the global health and economic crisis, account takeover fraud and scams will increase. It is too early to predict how much higher the fraud rates will go; however, criminals become more active during times of economic hardships.
Account takeover fraud is one of the hardest types of fraud to identify because of the multichannel account access and the desire to reduce friction in the consumer experience. New technology is available to help mitigate risk and improve the consumer experience, yet often it goes unused or is unavailable to consumers. What is clear is that criminals are adapting to new technology faster than consumers will adopt technology to reduce their risk.
“We’ve learned that scammers are very shrewd and adept at capitalising on current events and new platforms, including peer-to-peer payment apps,” said Kathy Stokes, AARP Director of Fraud Prevention Programs. “Using these payment apps for anything other than sending money to someone you know presents significant fraud risk for both consumers and financial institutions.“
“Every day, millions of consumers exchange their personal information for convenience,” continues Jason Park, Chief Growth Officer, Allstate Identity Protection. “When you download an app, open an online account, or enter your email address, your digital footprint grows. The more data you share, the more likely it is that a criminal can access your personal information and use it for fraudulent purposes. That’s why it’s so important to know who has your data and whether it’s been exposed.”
The study also found that peer-to-peer payments (P2P) fraud is skyrocketing. Financial institutions have found that P2P systems, which allow one person to send payments to another person, have seen a 733% increase in fraud between 2016 and 2019.
Pushing consumers from static passwords to safer authentication methods ranks among the study’s expert recommendations for financial service providers, merchants and other technology companies. The data suggest that consumers are open to making this change but lack the motivation.
The latest findings point to the need for a marked shift in how financial service providers, merchants and technology companies fight the ever-evolving battle against fraud.
Because criminals are adapting to new technologies faster than consumers will adopt technology to reduce their risk, the financial services industry bears the burden of driving the changes, such as increasing usage of two-factor and biometric authentication and promoting tokenized digital wallets in order to reduce the crippling impact of fraud on the public.
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