For every dollar of fraud, financial services companies incur $2.67 in costs, which includes chargebacks, fees, interest, and labour, according to the LexisNexis Fraud Multiplier.
Based on a survey of 185 risk and fraud executives in financial services companies, including retail and commercial banks, credit unions, investments, trusts and wealth management, LexisNexis Risk Solutions says its study evaluates how to navigate the growing risks of fraud, while strengthening customer trust and loyalty.
Digital channels increase the cost of fraud for financial services companies, if they are not managed effectively. Mid-to-large digital financial services companies, which earn a minimum of $10 million in annual revenues, half of which is through online and/or mobile channels, pay $3.04 for every dollar of fraud. This is compared to mid-to-large non-digital financial services companies with less than 50 percent of revenue from online or mobile channels, which pay $2.35 for every dollar of fraud. Fraud costs as a percentage of revenues is also higher among mid-to-large digital financial services companies.
Paul Bjerke, vice president, fraud and identity management strategy, LexisNexis Risk Solutions, says: “As digital channels become more prevalent, particularly with consumer demand for mobile banking, fraud is a significant drain on financial services companies’ revenues — more than just the value of the fraud itself. These companies need to track and combat fraud effectively to reduce the cost on their business and protect their customers in the new digital age.”
The study found that identity fraud, including synthetic identity fraud, is a significant issue, particularly in larger banks with more than $50 million in revenue. 62 percent of fraud losses for these banks are due to identity fraud. Furthermore, three-fourths of mid-large digital firms indicate identity verification as a top online challenge; they are also more likely than other financial services companies to cite device verification and excessive manual reviews as a challenge. Financial services firms that track fraud costs by both channel and payment method experience lower fraud costs: $2.49 per dollar of fraud, versus $3.04 per dollar of fraud. Large digital firms are most likely to track fraud costs by both channel and payment method, while mid-sized firms with revenues of $10 million to $50 million still lag behind. And financial services firms which layer fraud prevention solutions to counteract both identity and transaction fraud experience fewer false-positives, manual reviews and a lower overall cost of fraud.
Kimberly Sutherland, senior director, fraud and identity management strategy, LexisNexis Risk Solutions, says: “As the risk of identity and transaction fraud grows, particularly among digital channels, financial services companies must implement a multi-layered approach to fraud prevention. This approach helps accelerate the good transactions, and reduces the costs associated with manual reviews, successful fraud attempts and generates fewer false-positives.”
Comment
Brett Beranek, Director of Security Strategy, Nuance Communications, commented that it’s essential that businesses improve their authentication methods to ensure that criminals cannot access customers’ accounts using information bought of the dark web. “Biometric authentication methods can ensure that only the customer is able to access their account and reduce fraudulent activity. For example, using intelligent biometric authentication, a top five UK bank saw a 59 per cent decrease in account takeover within 30 days. This is not only crucial to reduce the consumer impact of fraud, of whom a Nuance survey found that 80 per cent reported being emotionally scarred from a fraud incident, this will be key to reducing the cost of fraud organisation. A top five UK bank caught £4m of fraud attempts in just under a year after introducing biometrics, and reducing customers’ exposure helps support client retentions, as a quarter of consumers told us that they stopped doing business with an organisation following a fraud occurrence – with many still stopping even if they believed the company handled the case well.”
