LexisNexis® Risk Solutions released its 2019 True Cost of Fraud study for the US financial services and lending sectors. The study revealed that fraud continues to rise, with fraudsters targeting a broader set of firms than ever before.

For every dollar of fraud loss, financial services companies now incur $3.25 in costs (losses related to the transaction face value for which firms are held liable, plus fees and interest incurred, fines and legal fees, labor and investigation costs and external recovery expenses), up from $2.92 in 2018. This represents an 11.3% year-over-year increase. Lenders see $3.44 in costs for every dollar of fraud loss, up from $3.05 in 2018, a 12.8% increase. Banks and credit lenders, in particular, were found to have the highest costs of fraud, with both percentages jumping double digits since last year – 17% and 16%, respectively.

A number of trends were found to contribute to increased fraud risk for financial services and lending institutions. These are driven, in part, by a stronger focus from these institutions on optimizing the customer experience with faster and lower friction transactions, especially from digital banks and lenders (those that receive 50% or more of transactions through the online and/or mobile channel).

  • Expansion of Mobile – There has been a significant increase in the use of mobile channels since 2018, with 73% of financial services (a 66% increase) and 71% of lending firms (an 8% increase) now offering this option to customers. This growth stems primarily from small financial services firms and digital financial services and lending firms now transacting through the mobile channel.
  • More Cross-Border Transactions – International transaction volume has risen among both mid/large-sized digital banks and all digital lenders. However, mortgage lenders have reported a significant drop in foreign transactions, which coincides with a decline in global growth and housing inventory.
  • The Rise of Botnets – A majority of banks reported double-digit year-over-year growth in botnet activity, which appears to at least be related to banks with international business reporting more transactions. Nearly half (47%) of mortgage lenders reported an average increase of 16% in botnet activity since last year. While surveyed firms appear to be aware of botnet activity, they have not been able to adequately prevent it.

“The trends we have identified represent the challenges surrounding identity verification and authentication while trying to provide smooth customer experience,” said Kimberly Sutherland, vice president, fraud and identity management strategy, LexisNexis Risk Solutions. “However, firms utilizing a multi-layered solution approach could realize up to an approximate 30% decrease in their cost of fraud, which is significant. And with digital identity intelligence and behavioral biometrics layered in, firms can expect to lower the true cost of fraud even further.”