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Despite an overall slowdown in financial crime in 2023, credit unions had a tough year when it comes to fraud losses, according to a new report from an identity risk solutions company.
The 2024 State of Fraud Benchmark Report, released Thursday by the New York, N.Y.-based Alloy, revealed 79% of credit union and community bank decision-makers surveyed experienced more than $500,000 in direct fraud losses in 2023 – higher than any other segment included in the survey. That compared to 65% of mid-market banks, 63% of enterprise fintechs, 62% of enterprise banks, 57% of online/pure play lending banks, 32% of both regional banks and mid-market fintechs, and 28% of strategic fintechs whose decision-makers reported fraud losses of $500,000 or more last year.
Of note, only 9% of the survey's participants were from credit unions or community banks. Conducted from Oct. 29-Nov. 17, the survey included 250 U.S.-based and 200 U.K.-based decision-makers working in the financial sectors listed above.
Overall, the report found that while 98% of respondents were hit with fraud in 2023, the frequency of fraud attempts occurred at a slower rate than the previous year. And while respondents said they faced fewer financial setbacks as a result of fraud in 2023, they also recovered fewer of those losses compared to 2022.
What's more, the report said authorized push-payment fraud, in which a fraudster posing as a legitimate company coerces their victim to send them a payment, was the most common type of fraud in the U.S. and U.K. combined last year. In the U.S. alone, bust-out fraud – which involves a bad actor maxing out a stolen credit card and bailing on the bill – topped the list of fraud types in 2023 among all respondents.
"Fraud losses particularly hurt smaller businesses like credit unions/community banks and mid-market fintechs, which underscores the importance of managing fraud in tightening macroeconomic conditions," according to the report.
When it comes to fraud prevention measures, credit unions and community banks were more likely to focus on ongoing optimizations to their existing fraud models (71%), compared to 68% of enterprise banks, 65% of mid-market fintechs, 59% of both strategic and enterprise fintechs, 56% of mid-market banks, 51% of online/pure play lending banks and 49% of regional banks.
Looking ahead to 2024, credit unions and community banks were more likely than any other sector to make identity risk solution investments, with 88% stating they plan to invest in this type of technology in the next 12 months.
And when asked to name the leading cause of attempted fraud at their organization, the largest portion of respondents among all sectors in the U.S. and U.K. (20%), said "increasingly sophisticated fraud tactics."
"As FIs and fintechs enter 2024, the increasing sophistication of fraud attacks is their foremost concern," the report stated. "This underscores the importance of shifting from transaction-centric to identity-centric fraud prevention models that increase the focus on identifying fraud at onboarding. It is crucial for institutions to remember that there is always a person behind the fraudulent actions, and when they can identify the person, they can stop fraud at a much faster rate."
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Natasha Chilingerian
Natasha Chilingerian has been immersed in the credit union industry for over a decade. She first joined CU Times in 2011 as a freelance writer, and following a two-year hiatus from 2013-2015, during which time she served as a communications specialist for Xceed Financial Credit Union (now Kinecta Federal Credit Union), she re-joined the CU Times team full-time as managing editor. She was promoted to executive editor in 2019. In the earlier days of her career, Chilingerian focused on news and lifestyle journalism, serving as a writer and editor for numerous regional publications in Oregon, Louisiana, South Carolina and the San Francisco Bay Area. In addition, she holds experience in marketing copywriting for companies in the finance and technology space. At CU Times, she covers People and Community news, cybersecurity, fintech partnerships, marketing, workplace culture, leadership, DEI, branch strategies, digital banking and more. She currently works remotely and splits her time between Southern California and Portland, Ore.
