The Bright SpotThe good news about fraud is that roughly two million fewer U.S. consumers were impacted by it in 2018 than in 2017. However, higher-impact fraud activity accounted for a larger share of fraud experienced by 14.4 million U.S. consumers and financial institutions. Reduction in card fraud represents the bright spot and main driver of the decline in the numbers of consumers affected by fraud in 2018. Although the transition to EMV has significantly reduced card fraud, it remains high compared with the time before multiple, prominent breaches opened the gates to a cheap supply of exploitable card data. As expected, card-not-present (CNP) fraud has grown as fraudsters turned to easier channels to exploit. Initiatives to thwart CNP fraud, specifically 3-D Secure 2.0, hold the promise of further reductions in fraud associated with cards this year.
Fraudsters Gravitate to Other Areas of OpportunityLess encouraging is the resurgence of incidences of fraud that are more expensive and more time-consuming to resolve. Fraud on existing non-card accounts, account takeover and new account fraud continue to plague consumers. Mobile phone account takeover has nearly doubled every year of the past four as fraudsters increased their facility for intercepting one-time passwords and alerts. Fraud has more than doubled from 2016 for key loan products – car loans, mortgages, student loans and home equity lines of credit. Loan fraud is often associated with familiar fraud, which now accounts for 15 percent of victims. Victims pay an emotional price and suffer a greater financial burden since the vast majority hesitates to report friends or family members. Gravitation of fraudsters to these other areas of fraud is leaving more consumers footing the bill – 23 percent of victims, or three times the rate in 2016 – mainly for overdraft penalties and late charges, but also for unreimbursed fraudulent transactions.
RemediesFraud-fighting technologies in existence or on the near-term horizon can help mitigate the burden on financial institutions and their customers:
- Consumer card controls
- Improved authentication to prevent mobile phone account takeover
- Better methods for verifying identities to mitigate the increasing fraud around digital account opening such as more document scanning safeguards and digital identity documents (eIDs)
- More use of out-of-band biometric pushes using a communications channel separate from the primary channel used to establish authentication
- 3-D Secure 2.0, which enables data sharing among merchants and financial institutions for authentication
- Federated identity schemes, which enable financial institutions to use third party data to capture a better picture of an applicant’s identity