Total combined fraud losses climbed to $56 billion in 2020
While total combined fraud losses climbed to $56 billion in 2020, identity fraud scams accounted for $43 billion of that cost. Traditional identity fraud losses totaled $13 billion, Javelin Strategy & Research reveals.
With traditional fraud, consumers often have no idea how their identities were stolen. With scams, they can often tell, upon reflection, the exact moment when they interacted with a criminal via email, phone, or text.
“The pandemic inspired a major shift in how criminals approach fraud,” said John Buzzard, Lead Analyst, Fraud & Security, with Javelin Strategy & Research. “Identity fraud has evolved and now reflects the lengths criminals will take to directly target consumers in order to steal their personally identifiable information.”
Pandemic changes consumer behavior
The global pandemic has had a dramatic impact on consumer financial behavior. Consumers spent more time at home in 2020, transacted less than in previous years, and relied heavily on streaming services, digital commerce and payments. They also corresponded more via email and text, for both work and personal life.
“Criminals follow current events, and unfortunately the pandemic has provided them a host of new storylines to employ online,” said Kathy Stokes, director of the AARP Fraud Watch Network. “Helping consumers know how to spot the red flags of scams is an important step in stopping fraud before it has a chance to happen.”
The reduction in transaction activity, combined with financial institutions’ more robust antifraud measures, made it harder for criminals to succeed in their usual fraud activities. They opted instead to interact directly with their fraud victims via identity fraud scams.
The scams can sometimes be averted when consumers are more sensitive to misspelled email addresses, suspicious requests for money, or random messages through social media from criminals claiming to represent a financial institution.
Criminals exploit shift to online lending, banking
The pandemic compelled companies to make quick adjustments to their business models, such as transitioning from in-person lending to remote interactions with borrowers. Criminals pounced on new vulnerabilities presented by the explosion in remote loan originations and closings.
As financial institutions found their footing despite the obvious challenges, criminals took advantage of this ramp up period and banks felt the blow. Nearly one-third of identity fraud victims say their financial services providers did not satisfactorily resolve their problems, and 38% of victims closed their accounts because of lack of resolution at the financial institution where their fraud occurred.
“It is clear that financial institutions must continue to proactively and transparently manage fraud as a means to deepen their customer relationships,” said Eric Kraus, VP and GM of fraud, risk and compliance, FIS.
“Through our continuing business relationships with financial institutions, we know firsthand that consumers are looking to their banks to resolve instances of fraud, regardless of how the fraud occurred.”
As consumers relied increasingly on digital payment products during 2020, identity fraud scams kept pace with this shift in behavior. Losses related to digital wallets and peer-to-peer (P2P) accounts spiked. This was particularly notable in the case of economic stimulus payment fraud, unemployment benefits fraud, and identity fraud scams.
“The culture of fraud is clearly shifting. The pandemic has created so many more points of vulnerability for families and businesses,” said Paige Schaffer, CEO of Global Identity & Cyber Protection at Generali Global Assistance.
“Whether it’s payment products meant to enhance convenience, remote operations, additional logins or even simply more time online, there is more opportunity now than ever for compromise.”
Consumers begin to embrace advanced authentication
Growing acceptance of various digital payment channels presents an opportunity to increase consumer awareness of stronger forms of authentication. Fingerprint scanning and facial recognition, for example, are growing in popularity with consumers.
“Identity verification, throughout the consumer’s digital account engagement, is more vital than ever,” said Cindy White, CMO at Mitek. “Consumers are willing to do their part to let go of traditional methods and leverage advancements in AI and new biometric technology such as facial scanning. This is good news for them and for their financial institutions.”
As consumers become increasingly savvy online, safe digital transactions will form the foundation of a productive and secure remote financial ecosystem.
“Businesses benefit from reduced customer friction, lower abandonment rates and fewer chargebacks, while consumers benefit from better fraud prevention and faster payment during checkout.”