Business Reporter BrandVoice: Fraud and tectonic trends

Mitek is a business reporter client.

Financial services and online markets are facing rapid changes in fraud. Over the past two years, we have witnessed massive increases in fraud in digital and online payments. Synthetic identity fraud is the fastest growing financial crime in the United States. There are also concerns that deep counterfeiting may lead to complete destruction in the entire fraud arena.

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These are signs that the basis for traditional fraud management is cracking. Pressure is growing for a dangerous “fraud earthquake”. And everything greatly increases the accelerated movement of digital channels due to the Covid-19 pandemic.

To navigate shifting mode and avoid potential tectonic shocks to your business, it is important to understand the interrelationship between identity, fraud and trust. In Mitek’s latest white book, Fraud Trends and Tectonics, I write about how corporate fraud affects financial services and online markets more than ever, and the immediate solutions that each industry can implement to implement its foundations.

Earthquakes not only affect the real world. Online fraud causes digital earthquakes to occur more every day. For example, P2P fraud saw a 733 percent increase from 2016 to 2019; Account acquisitions increased by 72 percent from 2018 to 2019, and in 2019 alone there were 5,183 data breaches, with a value of 7.9 billion overt records.

Sometimes, earthquakes can be very small and no one knows they will happen. With digital fraud today, complete financial damage may be greater than what we notice. Some studies indicate that for every dollar that online merchants lose due to fraud, they take three times this amount in chargebacks, merchandise replacement and other related expenses. For financial services, it is estimated that fraud represents more than 20 percent of credit losses, and up to 10 percent of bad debts may actually be disguised as delinquency. Since these estimates are based on studies that are now several years old, it is likely that percentages today are significantly higher … and are built for a larger and more damaging earthquake.

What causes this strong movement in fraud trends? The proliferation of channels, digital accounts, big data violations, and advanced technology like artificial intelligence are all contributing factors. With easy access to abundant consumer data, arithmetic power and tools, scammers enjoy the same degree of choice and can now easily take over or create legitimate accounts. They act like real customers until the moment they achieve great success.

Identity, fraud and trust

Online markets and financial services, including financial technology, have largely used defenses called “point solutions”. Many financial technologies and online markets reduce identity verification when creating an account, accept identities from other digital platforms and services, or perhaps run some background authentication. The effectiveness of these defenses is diminished as the digital identity becomes the key to the main criminals who use to open doors. Here’s how to use identity fraud to enact a new account fraud and account takeover – two of the most noteworthy fraud trends that occur while you read this.

New account fraud

Synthetic identities (fake, forged, stolen or modified identifying information that was compromised from databases or purchased cheaply on the dark web) enabled the rapid rise in new account fraud.

Fraudsters enter new bank accounts, use their time to get the most benefit, then “come out” and disappear. In online markets, artificial identities are used for purchases using stolen payment cards or personal accounts (P2P). Opening accounts for dozens of non-existent individuals, and scammers take advantage of promotional offers for new customers.

To strengthen the foundations against new account fraud, account fraud companies should always consider and evaluate the information provided, develop measures to help applicants bring their true faces forward and adopt new paradigms for today as traditional analytical models are not effective against the threat of a new synthetic identity.

Account hijacking fraud

Research on trend in fraud and tectonic trends shows that account acquisition fraud (ATO) is on the rise. Part of the reason? It is easier for fraudsters to hack into an existing account than to open a new account. The potential rewards may be greater, the payoff is faster – and because the trustworthy relationship may be subject to a minimum of fraud controls – the risks are lower.

Firms should strengthen their foundations against fraud in account taking using physical biometrics wherever possible, expand user profiles for negative checks, investigate machine learning and artificial intelligence to detect unusual behavior and use active methods such as two-factor authentication. Some companies can routinely call for identity verification when an idle account suddenly becomes active, for high-value transactions or when negative analyzes indicate a high risk of fraud.

Financial services and online markets can learn from each other

Financial services and online markets use various tools to try to distinguish between typical behaviors of legitimate and fraudulent clients. But scammers have access to the same technology as the rest of the world, and they use it to get better and better in imitating natural behavior. Both financial services and online markets have strengths, but at the same time, they can both better defend their business and platforms, brand reputation and financial stability if they learn from each other’s experiences and best practices.

For example, let’s take a look at what banks, financial technology and markets can teach each other about fighting digital fraud. Conventional banks have strong fraud teams with well-established procedures for investigating suspicious transactions, communicating with clients and handling chargebacks. In financial technology, fraud management can be placed under the security of the platform or assigned to the group responsible for customer experience. For better control, financial technology can break focused fraud teams, while maintaining communication and collaboration between all of these jobs. Conventional banks usually have separate operations for business lines and functions such as account creation and customer management that have created isolated systems and data that hinder seeing fraud and defenses. It can rise above silos with new technologies that access data and collect it from multiple internal and external sources. On the other hand, the first digital institutions such as the Internet and financial technology markets have set up their operations to support smooth customer journeys across an expanded set of products and business lines. This gives them a good insight into the various fraud attempts and complex multi-step plans.

Strengthen your foundation before the next earthquake

Digital transformation speeds up and changes the way we pay our bills, manage our finances, shopping, work, and play. Likewise, the growth in interlocking crimes of identity theft and fraud, which threatens the fundamental confidence consumers need in digital platforms and services that have become the fabric of our lives.

You can’t expect an earthquake, but you can prepare for it. To avoid this potential disturbance of the digital transformation and the benefits it brings, companies have begun to adopt a unified approach to identity verification and fraud management. Point solutions expand into comprehensive defenses across customer journeys.

Financial services and online markets, at the forefront of digital transformation, are major goals of intensifying fraud. Both contain key parts of evolving solutions to address the growing threat – and the rest can learn from each other.

Click here for the best graph of fraud and tectonic trends. You’ll find more details on how companies in the internet and financial technology markets fight fraud today, but the important practices they can learn from each other.

Or visit Miteksystems.com for more information.

This article originally appeared on Business Reporter.

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