The Fallout From ID Fraud And Account Takeovers Includes a Lot More P2P Payment Fraud

Losses from identity fraud grew 13% in 2019 to $16.9 billion even though instances of ID fraud fell nearly 10%, according to the newly released 2020 Identity Fraud Report from Javelin Strategy & Research. The study also found that person-to-person payments fraud increased 733% from 2016 to 2019.

Based on a nationally representative sample of 5,000 consumers surveyed online in October and November, the study estimates 5.1% of consumers fell victim to ID fraud last year, down from 5.7% in 2018. Still, 2019’s total dollar losses grew $2.2 billion from $14.7 billion the year before. Banks and credit unions bore most of the costs, but consumers absorbed $3.5 billion in out-of-pocket costs such as fees, resolution expenses, and related costs which more than doubled year-over-year, Pleasanton, Calif.-based Javelin estimates.

Much of the reason for the higher losses is the shift by fraudsters from a focus on payment card fraud to online account takeovers, or the creation of new accounts with stolen credentials. The study found account takeovers grew 72% in 2019.

“These findings should be a wake-up call for financial institutions, the payments industry, businesses, and consumers across America,” said Krista Tedder, head of fraud at Javelin, in a statement. “The data is proof of what we’ve long known—the full weight of identity fraud lies not only in counterfeit credit cards and magnetic stripes but in full account takeover and new-account fraud. Now it’s time to elevate our understanding of what security, detection and resolution really mean.”

The 17th annual study also noted a dramatic increase on P2P fraud, which is closely linked to the broadening use of P2P services for purchases as well as ID fraud and account takeovers. The 722% increase found between 2016 and 2019 refers to the number of consumers reporting they’ve been impacted by P2P fraud. The increase comes as such P2P services as PayPal’s Venmo, the bank-sponsored Zelle, Square’s Cash App, and Apple Pay Cash grow ever more popular.

“The increase of P2P fraud is associated with the broader usage of how P2P products are used to be more than paying someone back for entertainment expenses,” Tedder tells Digital Transactions News by email. Using P2P apps to shop on marketplaces such as Facebook, Craigslist, and eBay, she says, “increases the risk of being caught up in a fraud scam, sending money to someone who is posing as a seller. The funds are sent but cannot be disputed or recovered. Criminals can be anywhere in the world, in many cases in human ‘pharming’ organizations, which enable one person to communicate with dozens of people simultaneously using multiple applications. It is a low-technology, low-cost way for criminals to get cash fast.”

The second key reason P2P fraud has increased, Tedder adds, is associated with the big increase in account takeovers. “When account takeover occurs, 53% of the time it is a full takeover of the account and P2P payments can be initiated. Because the account is taken over, the criminals bypass existing authentication protocols and can instantly send money that cannot be recovered. Unfortunately account takeover is proving to be too easy. With increased phishing and social engineering, account takeover will continue to rise.”

The increase in account takeovers as well as the doubling of out-of-pocket consumer costs “is indicative of a major problem,” says Tedder. “Unless more technology is implemented and adopted by consumers, account takeover will continue to rise,” she says. “Criminals generally gravitate to ways to steal the most with little effort. Right now they have zeroed in on P2P.”

This year’s lead study sponsors were AARP, Allstate Identity Protection, and processor Fidelity National Information Services Inc.