The impact of identity fraud varies for organizations in the financial services industry, based on whether they belong to the banking or FinTech sector, according to Regula.
Specifically, every fourth bank reported experiencing over 100 identity fraud incidents in the past year (26% of organizations), while this number is lower (17%) for the FinTech sector.
When asked to evaluate the cost of the identity fraud they had experienced, the banking sector was found to be the most severely impacted, with a median financial burden of over $310,000. In fact, for 31% of banking organizations, the cost of such incidents was nearly half a million dollars, at $479,000 and more.
On the other hand, the same indicator of the median cost of fraud for FinTech organizations was considerably lower, at around $120,000. This amount was even lower than the median across all surveyed sectors, which included aviation, technology, telecom and financial services, with the organizations reporting a median of expenses of up to $240,000.
The gap may be a reflection of the larger scale and complexity of banks’ operations, their legacy systems, as well as the regulatory and reputational risks they face. On the other hand, FinTech companies may have smaller customer bases and be subject to less regulation. The following survey results provide support for this idea.
Key costs due to identity fraud
The key costs affecting organizations across all sectors due to identity fraud are related to business disruption (44%) and legal expenses (36%). However, the situation is somewhat different for financial organizations.
Specifically, for the banking sector, the second-largest cost resulting from identity fraud is penalties and fines (36%), while for FinTech organizations, it is the loss of current and potential clients (40%).
Combating identity fraud
Last year, the most prevalent form of fraudulent activity experienced by organizations in all surveyed sectors was the use of fake or modified physical documents. Nearly half of FinTech companies (46%) reported being affected, while for banks, such cases were even more frequent: 54% of them reported dealing with document forgery in the past year.
“The rapid digitization of the financial services sector has led to an increase in identity fraud, as fraudsters take advantage of the lack of physical presence required for identification. Although physical ID verification is the most reliable, organizations are increasingly turning away from it due to scalability, cost and user experience issues. To effectively combat identity fraud in the digital age, organizations must implement secure and reliable identity verification processes, leveraging advanced ID verification technologies and expertise in document security features,” says Ihar Kliashchou, CTO at Regula.
It’s no surprise that in this context, 93% of organizations recognize the significance of online identity verification in detecting and preventing fraud. Notably, in the USA, 99% of companies share this view.