As More Transactions Shift Online During Pandemic, the Financial Services Industry Experiences a Surge in Fraudulent Activity
TransUnion analysis finds a growing percentage of fraudulent transactions across the industry
The COVID-19 pandemic has accelerated the move to digital within the financial services industry, but with it has come an increased propensity for fraudulent activity. A recent TransUnion (NYSE: TRU) analysis found the percentage of risky worldwide transactions in the financial services industry increased by 11% since early March. TransUnion defines risky transactions as those that have been denied or reviewed due to fraud indicators.
The new economic and workforce environment is likely contributing to the growing numbers of potentially fraudulent transactions. Banks and lenders are coping with a large workforce migration to remote working conditions, branches are closed or have limited access, and card-not-present (CNP) activity has increased. Meanwhile financial institutions are quickly moving toward digital channels and have experienced a dramatic 250% increase in digital transactions.
“The COVID-19 pandemic has created unique and unprecedented challenges for the financial services industry, and has presented many institutions with an increased fraud risk,” said Jason Laky, executive vice president of financial services at TransUnion. “As financial institutions increase their digital presence to support consumers, it is imperative they have the right solutions in place to seamlessly establish trust with customers while delivering relevant, friction-right experiences.”
Identity Fraud Top Type in Financial Services
This overall surge in fraud attacks has spanned many types of fraud, however identity fraud was most prevalent for financial services firms (a reported 23% increase in the TransUnion network). Identity fraud can take nuanced forms such as synthetic identity fraud, where fraudsters create fictitious identities by piecing together real identity attributes and fake information with the intent to open fraudulent accounts. It can also include identity theft where fraudsters use stolen consumer identities they obtained from a variety of techniques such as phishing.
Pre pandemic, lenders were ahead of the fraud curve and able to mitigate risk. For example, one lender from an Aite Group study cited an 8% decrease in fraud losses prior to COVID-19. In the current climate the projection is closer to a 10-15% increase – a nearly 20% deviation in fraud losses over the course of a few months. While some lenders have made progress in reducing the incidence of synthetic fraud in new credit card and auto loan originations, it remains a serious issue as there is an estimated $1 billion in outstanding balances to likely synthetic identities across the auto, card and personal loan markets.
“Synthetic fraud continues to be one of the most prominent problems in the financial services industry and one of the most effective ways to reduce this type of fraud is to detect suspicious patterns or attributes during the account opening and verification process,” said Shai Cohen, senior vice president of global fraud and identity solutions at TransUnion. “Lenders can easily incorporate these red flags into their fraud detection models for more comprehensive coverage while better protecting consumers.”
For example TransUnion’s analysis found that identifiable information, such as an email address, can be a powerful predictor of fraud. TransUnion’s flagship global identity verification and fraud prevention solution suite, IDVision® with iovation®, has found that characteristics of an email address such as account longevity and velocity (frequency of transactions) can signify potential fraud. Email accounts that were not recognized by the fraud prevention suite had a significantly higher rate of fraudulent activity with nearly one-third of these new accounts engaging in transaction fraud.
IDVision® with iovation® unites personal and digital data into a precise and accurate data identity. It verifies and authenticates consumers, and enables users to prevent fraud. The solution suite combines consumer credit history data with non-credit data and digital device intelligence, resulting in superior insights that are stewarded with care for consumer privacy, security and compliance.
To learn more about TransUnion’s fraud solutions, please visit https://www.transunion.com/idvision.
Source: TransUnion Press Release