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Fraud Continues to Grow for Financial Services and Lending Firms, Both Before and During the COVID-19 Pandemic, According to LexisNexis Risk Solutions True Cost of Fraud Survey
Wednesday, October 21, 2020
Study Surveyed 500 Risk and Fraud Executives in the United States and Canada
ATLANTA, Oct. 13, 2020 /PRNewswire/ -- LexisNexis® Risk Solutions today released its LexisNexis Risk Solutions 2020 True Cost of Fraud(TM) Study: Financial Services & Lending for the United States and Canadian financial services and lending sectors. The research provides a snapshot of pre and post-COVID-19 lockdown fraud trends and spotlights key pain points for these industries. The study reveals that financial services and lending fraud continues to increase and impact firms, particularly those earning more than $10 million in annual revenues.
The cost of fraud pre-COVID-19 among U.S. financial services and lending firms rose 12.8% over the previous reporting period, which covered the first halves of 2018 and 2019 respectively. For every dollar of fraud lost in the pre-COVID period, U.S. financial services and lending companies incurred an average of $3.78 in costs, up from $3.35 since the last edition of the survey. These losses include the transaction face value for which firms are held liable, plus fees and interest incurred, fines and legal fees, labor and investigation costs and external recovery expenses.
Lenders continue to have somewhat higher costs than financial services firms. Lenders alone see an average of $3.90 in costs for every dollar lost to fraud, up from $3.44, a 13.4% increase. Financial services firms incur an average of $3.64 cost per dollar of fraud loss, up from $3.25. This is the first year that Canadian firms participated in the survey: Canadian financial services and lending companies realize an average of $3.46 in costs for every dollar lost to fraud.
Fraud Trends in Financial Services and Lending
-- The COVID-19 Effect - The COVID-19 pandemic has had a significantly
negative impact on financial services and lending firms. The volume of
successful attacks has risen across segments during COVID-19, most
dramatically among larger institutions, causing a spike in the cost of
fraud. However, the spike may level off or pull back at some point as
firms further implement solutions and approaches to adapt to the COVID
or post-COVID world. Both digital and non-digital firms have felt
the negative impact of the pandemic, particularly banks and credit
lenders that processed Paycheck Payment Program (PPP) applications. The
rise in costs largely results from an increase in internal labor and/or
external support to detect, investigate and recover losses, particularly
for those handling PPP requests.
-- Identity Fraud a Top Factor - Identity-based fraud remains a top
contributor to fraud losses. While the overall percentage of reported
identity-based fraud has remained similar to the previous period, the
amount linked to synthetic identity fraud represents 20% of losses this
year for mid to large-sized firms. Account-based fraud remains the
top identity-related fraud activity, particularly account takeover.
However, the portion attributed to fraudulent new account creation has
increased. This could be a result of increased cell phone account fraud.
-- Balancing Fraud Prevention and Customer Friction - Identity verification
remains a top challenge with online and mobile channel transactions.
Both digital and non-digital firms consider digital identity
verification of email, device and phone number data as a particularly
increasing challenge. Non-digital financial services firms that have
less investment in digital-based risk mitigation solutions uniquely
designed to balance fraud prevention with minimizing customer friction
increasingly view balancing customer friction as a mobile channel
challenge.
"It's troubling to see the cost of fraud for financial services firms increase year over year, even without COVID-19's influence," said Kimberly Sutherland, vice president, fraud and identity management strategy, LexisNexis Risk Solutions. "Fraud is more complex than ever with various risks occurring simultaneously. If financial services and lending firms want to remain proactive in protecting their environment against fraudulent activity, they should constantly evaluate their defensive posture then adjust accordingly.
"The tools to combat fraud need to access multiple aspects of risk associated with consumer account activity and transactions," Sutherland continued. "The combination of physical and digital identity analysis is essential and a multi-layered solution approach has proven to be most effective for fighting fraud across various channels and transaction types. In the end this approach leads to appropriate levels of friction throughout the customer journey."
The report's findings stem from a comprehensive survey of 500 risk and fraud executives in financial services and lending companies, including retail and commercial banks, credit unions, investments, trusts and wealth management, as well as auto lenders, mortgage companies, finance companies, and non-bank credit card and personal loan issuers.
Download the LexisNexis® Risk Solutions 2020 True Cost of Fraud(TM) Study: Financial Services & Lending.
About LexisNexis Risk Solutions
LexisNexis® Risk Solutions harnesses the power of data and advanced analytics to provide insights that help businesses and governmental entities reduce risk and improve decisions to benefit people around the globe. We provide data and technology solutions for a wide range of industries including insurance, financial services, healthcare and government. Headquartered in metro Atlanta, Georgia, we have offices throughout the world and are part of RELX (LSE: REL/NYSE: RELX), a global provider of information-based analytics and decision tools for professional and business customers across industries. For more information, please visit www.risk.lexisnexis.com and www.relx.com.
Media Contact:
Marcy Theobald
678.694.6681
Marcy.Theobald@lexisnexisrisk.com
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SOURCE LexisNexis Risk Solutions
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