Finding Fraud Feng Shui: The Balance Between Prevention & Consumer Friction

Although card fraud and account takeovers remain widespread, and phishing schemes and mobile scams have surged, finding a balance between fraud prevention and customer friction appears among the biggest organizational challenges.

The 6th Annual Fraud Report from Atlanta-based fraud prevention firm IDology revealed the effects of fraud across multiple industries including financial services, healthcare, insurance and e-commerce.

Among the industries surveyed, banking experienced the largest increase, with 71% experiencing more fraud than the previous year, followed by the fintech (60%), healthcare (57%), and insurance (56%) industries.

Banking also led for largest year-over-year growth in every channel. They reported above-average increases in online (81%), mobile (72%), and contact center fraud (52%). Other industries also saw increases in digital channels, including insurance (65% online, 64% mobile) fintech (56% online, 69% mobile), and lending (64% online, 56% mobile).

The report discovered the biggest challenge was balancing fraud prevention and customer friction, a jump of 65% to 66% among respondents. businesses are struggling to consolidate two prevailing but conflicting mindsets: keeping fraud out by making verification harder and bringing in more customers by making it easier.

On one side, data breaches have caused fraud (and their associated costs) to increase; on the other, today’s competitive business environment makes frictionless acquisition the highest priority.

John Dancu, CEO of IDology, said, “In our modern connected world, it’s no surprise that fraud is on the rise and becoming more sophisticated. Winning businesses will be the ones that take a strategic approach to identity verification with the realization that they can offer frictionless customer convenience and effective fraud deterrence to ultimately cultivate customer trust.”

Also disclosed are fraudsters doubling down on and optimizing proven techniques that are still effective and hard to detect. Across industries, businesses feel particularly unequipped to handle synthetic identity fraud, mobile fraud and account takeovers.

Credit, debit, and prepaid card fraud continues as the most prevalent fraud across industries (67%), affecting everybody from banks and lenders to healthcare organizations. Although 2017 saw a dip in card fraud (down 8% from 2016), it has gone back up by 3% this year. Account takeovers also continued to be an extensive issue, and although they did not increase this year, its been steadily rising since 2014.

Digital channels continue as the hardest hit by fraud. With plenty of breached data to use, faceless online interactions are the easiest and most profitable for criminals, crime rings, and nation states. Sixty-seven percent of companies saw fraud increase in online channels, and 63% saw an increase in mobile channels. Only 38% saw an increase in contact center fraud, although 53% reported fraud in that channel stayed the same.

Mobile fraud increased 117% over the previous year. The number of businesses that feel their industry is least prepared to detect and prevent mobile device attacks increased 167% compared to a year ago. Businesses reported a 63% increase in mobile fraud. All types, including porting, spoofing, hacking and fraudulent change events, are on the rise. Caller ID spoofing increased by 74%, porting by 69% and SMS interception by 50% compared to 2017.

Phishing, linked to 93% of last year’s security breaches and has steadily risen each year, increased in prevalence by 66%. While this is not a new fraud technique, it continues to be an effective one; 93% of security breaches last year connect back to phishing.

Once thought of as a compliance checkbox measure, 85% of businesses now consider identity verification a strategic differentiator due to rising, more sophisticated forms of fraud, competitive pressures and consumer expectations for fast, easy digital onboarding.

Although verification of identity remained steady at 51%, the prepaid (86%), insurance (82%), and banking (80%) industries felt most strongly that identity verification has become more complex.

IDology noted companies are realizing they need to move toward more robust and comprehensive multi-layered identity verification solutions that examine a full spectrum of identity attributes. They see the utilization of mobile device attributes for verification, artificial intelligence, machine learning and mobile document capture as the most relevant new trends in identity verification.