Consumers Shoulder Brunt of Fraud Burden

Complex and sophisticated fraud types remain at elevated levels, despite widespread adoption of anti-fraud measures. The recent shift to EMV cards is helping to contain existing card fraud, which showed the steepest decline of any fraud type in 2018. Yet, while existing card fraud losses dropped from $8.1 billion in 2017 to $6.4 billion and the incidence fell from 5.47 percent to 4.40 percent, high-impact fraud types like account takeover and new-account remain alarmingly common, found Javelin Strategy & Research’s 2019 Identity Fraud Study — statistics the firm maintains demonstrate that fraudsters continue to find and compromise new targets.

In 2018, 14.4 million consumers fell victim to fraud. This represents a notable drop from the record-breaking 16.7 million in 2017, but victims in 2018 shouldered a much heavier burden than those in recent years: 3.3 million victims bore some of the liability for fraud, nearly three times as many as in 2016, and victims’ out-of-pocket fraud costs more than doubled in two years to $1.7 billion in 2018.

“While the decrease in card fraud rates is undoubtedly good news for victims, fraudsters have turned their attention to opening and taking over accounts,” said Al Pascual, Javelin’s senior vice president, research director and head of fraud and security. “As financial institutions and other organizations modernize account opening processes, it’s paramount that they incorporate tools like document scanning, behavioral risk assessments and digital identity. This will streamline digital applications while challenging fraudsters.”

The study found that overall fraud incidence and fraud losses declined in 2018, from 6.64 percent to 5.66 percent and from $16.8 billion to $14.7 billion, respectively. The occurrence and losses due to account takeover decreased year-over-year from 1.58 percent to 1.43 percent and from $5.1 billion to $4.0 billion, although levels remained much higher than prior years.

New account fraud losses rose slightly from $3.0 billion to $3.4 billion as fraudsters look beyond classic card fraud. Losses rose for unconventional account targets such as mortgages, student loans and car loans. Similarly, fraudsters heightened their attacks on peripheral financial accounts like loyalty and rewards programs and retirement accounts. These account types, generally considered ‘second tier’ by fraudsters, have been less prominent targets since they are difficult to monetize.

Meanwhile, fraudsters are growing even more adept at overcoming authentication challenges. Takeovers of mobile phone accounts nearly doubled, from 380,000 victims in 2017 to nearly 680,000 in 2018. These takeovers allow fraudsters to intercept alerts and one-time passwords sent by text messages, one of the most prevalent forms of step-up authentication used today.

“Given the agility and tenacity demonstrated by fraudsters in 2018, financial institutions should assume that every account type will be under greater pressure going forward,” said Jim Johnson, executive vice president, FI payments and wealth, FIS. “Adequately defending customers from these new security assaults will require the development and adoption of next-generation fraud mitigation strategies.”

The annual study is a comprehensive analysis of identity fraud trends, independently produced by Javelin. The lead sponsor of this study is FIS, a financial services technology provider. Other sponsors include marquee sponsor Experian, an information services company, and educational partner GIACT, a payment fraud mitigation company. This is the sixteenth consecutive study, with 79,000 consumers surveyed to date since 2003.

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