LexisNexis Risk Solutions today released the fifth edition of the LexisNexis True Cost of Fraud Study: Financial Services & Lending. The study examines fraud trends for the United States and Canadian financial services and lending sectors and key pain points related to adding new payment mechanisms, transacting through online and mobile channels, and international expansion.
The cost of fraud for U.S. financial services and lending firms has increased between 6.7 per cent and 9.9 per cent compared with before the pandemic. Every dollar of fraud loss now costs U.S. financial services firms four dollars, compared to $3.25 in 2019 and $3.64 in 2020. While the LexisNexis Fraud Multiplier is slightly less for Canadian financial services firms, they have experienced a sharper year-over-year rise of 15.5 per cent. The LexisNexis Fraud Multiplier for U.S. lenders is now $4.16, compared to $3.90 in early 2020 and $4 for Canadian lenders, up 12.4 per cent prior to the pandemic.
Fraud Trends in Financial Services and Lending
Mortgage lenders have been seriously impacted by fraud, with mortgage lending fraud costs now 23.5 per cent higher than just before the pandemic hit in early 2020.
These costs continue to be higher than other segments, the report found. Attacks on larger mortgage lenders have increased in recent years, particularly among those originating loans through online or mobile channels. While slightly down from the early pandemic spike, every dollar of mortgage lending fraud loss costs $4.40.
The mobile channel continues to impact higher fraud costs and volumes, as financial services and lending firms say that criminals have targeted this channel for fraud during the pandemic.
As banks and mortgage lenders have conducted more mobile transactions, they have also begun to attribute more of their fraud costs to it. More than half of respondents representing U.S. banks and credit lenders surveyed indicate a 10 per cent or greater increase in mobile channel fraud this year.
There is also a significant percentage rise across financial services and lending firms for malicious bot transactions. It is difficult to identify such bots and other types of fraudulent transactions involving synthetic identities without support from digital identity and transaction fraud detection solutions.
Identity verification, including digital attributes, is a top challenge. This aligns with identity fraud representing a significant per cent of fraud losses at the point of funds distribution while these losses continue to grow with new account openings.
There are additional challenges that tend to be more pronounced for banks and mortgage lenders at certain points in the journey. For banks, balancing fraud detection with customer friction is a top challenge alongside new account openings and account logins, while identifying malicious bots and the transaction origination are more concerning at funds distribution.
Mortgage lenders tend to rank balancing fraud detection with customer friction, identifying malicious bots and knowing the transaction origination as top challenges across the customer journey. They are also more likely than other respondents to include a lack of tools to detect and prevent cross border fraud, especially with account takeover.
“As parts of society reopen after the pandemic, the foreseeable future is unclear about the new normal. With the accelerated movement to online/mobile transactions and payments, financial services and lending firms must continue to build out and enhance the digital customer experience while protecting against fraud,” said Christopher Schnieper, director of fraud and identity, LexisNexis Risk Solutions.
“Fraud prevention must assess both physical and digital identity attributes as well as the risk of the transaction. It is difficult for even the best trained professional to detect the increasingly sophisticated crime occurring in the remote digital channels without the aid of solutions that detect digital behaviors, anomalies, device risk and synthetic identities. According to the study, the financial services and lending firms doing this – along with fully integrating cybersecurity operations, the digital customer experience and fraud prevention – tend to have a lower cost of fraud and fewer challenges.”
This report is based on responses from more than 500 risk and fraud management executives in August and September 2021 and reveals that fraud costs and attack volumes remain significantly higher compared to before the pandemic. U.S. banks and mortgage lenders are experiencing much of the increase in both areas, as is the mobile channel.