Financial institutions, like their retailer counterparts, are feeling the effects of fraud through higher costs. For every dollar of fraud a financial institution experiences, it costs another $2.92 in associated costs, up 9% from $2.67 in 2017, says LexisNexis Risk Solutions in its 2018 True Cost of Fraud study for the financial-services sector.
Released Wednesday, the report also found that as a percentage of revenue fraud accounts for 1.53% in 2018, up from 0.95% in 2017.
LexisNexis Risk Solutions canvassed 175 executives at retail and commercial banks, credit unions, and related companies to compile the report. In addition to the cost of fraud, the firm calculated the lost value of the transaction plus fees and interest, labor costs for investigations, fines, legal fees, and related expenses.
The mobile channel in particular for mid-size and large financial firms causes concerns, though these worries seem to have eased a bit this year. Just as retailers have to contend with growth in mobile transactions, so too do financial institutions. Seventy-three percent of executives at mid-size to large online-only firms said the evolution of mobile payments and the mobile channel adds significant risk of fraud. In 2017, 86% said so.
Another problematic area is account takeovers. This nefarious fraud type represents 30% of losses for mid-size and large online-only firms that have international transactions. And, like retailers, financial institutions are challenged with obtaining authentic identity verification to ensure the customer is legitimate. Fifty-three percent of mid-size to larger banks say identity verification is a top online fraud challenge.
“Account-takeover fraud tends to occur more prevalently in remote, faceless transactions, so that means that companies that transact more in the online, mobile, and call-center channels are more at risk for account-takeover attacks where fraudsters attempt to assume the identity of actual customers or access an account without permissions of the owner,” Kimberly Sutherland, LexisNexis Risk Solutions senior director of fraud and identity management, says in an email to Digital Transactions News. “Our study shows that this is further exacerbated when financial institutions operate internationally, as the access to data intelligence for decisioning often varies by country or region.”
Banks, credit unions, and other financial-services firms already are subject to a variety of customer-identification requirements, but they are still concerned about balancing that with the customer experience.
“Identifying high-risk behavior associated with fraudulent activity does not need to impact the user experience,” Sutherland says. “It is critically important for financial institutions and other organizations conducting business in the mobile channel, which according to the study results is the most vulnerable channel to fraudulent schemes, to passively identify unsafe device masking and manipulation, the presence of malware, and other behaviors indicative of bot activity or fraud.”