In the last quarter of 2018, Rippleshot’s State of Card Fraud highlighted account takeover fraud as a rising trend for financial institutions to watch. We predicted it would define one of the major hurdles for FIs. The latest report from Javelin Strategy & Research provides deeper insight into how that problem is evolving.
The 2019 Identity Fraud Study, released this month by Javelin, indicates existing card fraud losses from $6.4 billion from the $8.1 billion seen in 2017. That doesn’t mean the fraudsters are staying quiet. In 2017 alone, account takeover jumped 300 percent. What's contributing to this rise is the ability for cyber criminals to gain access to bank accounts easier than a credit card.
As fraudsters target new account openings and mobile account takeover tactics, these are fraud trends worth paying attention to over the next few years. Account takeover accounted for $4 billion in losses, which was slightly down from the year prior ($5.1 billion), but was up significantly when compared to data in recent years. Overall, fraud incidents and fraud losses hit $14.7 billion in 2018. There's a number of factors contributing to these trends.
In our State of Card Fraud 2018 report we also predicted that mobile phones would become an increasingly vulnerable target and the latest research appears to indicate the same. Javelin’s report indicated that mobile phone account takeovers are on the rise, accounting for 679,000 incidents — up from 2017’s 380,000 incidents.
Javelin’s data shows that new account fraud jumped to $3.4 billion, up from $3 billion. This is where a fraudster opens an account in the victim’s name. The report highlighted the fact that fraudsters are going beyond traditional card fraud and finding less conventional methods to compromise an individual’s credentials. New account fraud targets includes mortgages, student loans, car loans and credit cards.
“While the decrease in card fraud rates is undoubtedly good news for victims, fraudsters have turned their attention to opening and taking over accounts,” said Al Pascual, Javelin Strategy & Research Senior Vice President, Research Director and Head of Fraud & Security. “As financial institutions and other organizations modernize account opening processes, it’s paramount that they incorporate tools like document scanning, behavioral risk assessments and digital identity. This will streamline digital applications while challenging fraudsters.”
While fraudsters continue to capitalize on vulnerabilities that exist across the payments, retail and financial industries, these problems are going to continue to be exacerbated at a rapid pace. The latest figures from Javelin indicate that 14.4 million consumers experience fraud last year, which was a stark drop from 2017’s figures of 16.7 million.
“Given the agility and tenacity demonstrated by fraudsters in 2018, financial institutions should assume that every account type will be under greater pressure going forward,” said Jim Johnson, EVP, FI Payments and Wealth, FIS, in the press release about the report’s findings. “Adequately defending customers from these new security assaults will require the development and adoption of next-generation fraud mitigation strategies.”
While a decrease in fraud reads like a bright spot in the report, what the authors also noted is the shifting burden consumers are feeling as a result of fraudsters changing up their tactics. For example, 3.3 million consumers found themselves liable for fraud, which was three times higher than just two years ago. This is causing out-of-pocket expenses for consumers to more than double in that same time period to $1.7 billion. This can have serious impact on customer churn.
What This Data Means For Financial Institutions
As data breaches and emerging forms of fraud continue to plague the financial ecosystem, the answer is clear: FIs need faster, better fraud detection that can help them proactively combat the spread of compromised card fraud and account takeover. While fraudsters continue to capitalize on vulnerabilities that exist across the payments, retail and financial industries, these problems are going to continue to be exacerbated at a rapid pace.
These stats are not intended to shock, or scare, financial institutions into fearing the unknown that exist with the data breach market. Instead, they are designed to shed light on the reality that all organizations have found themselves in today. FIs are getting smart about fraud, but fraudsters are getting smarter. Faced with these problems that are spreading at mass scale, it's up to FIs to find the right breach detection partnerships to combat the rise of new and emerging fraud trends.