It will come as no surprise to anyone working in the banking industry that fraudsters are getting smarter, moving faster and acting bolder every day.
But to understand just how much fraud has escalated over the past 12 months, Alloy polled more than 250 compliance, fraud and risk decision-makers at U.S. financial institutions ranging from start-up fintech companies to enterprise banks to uncover how much fraud they are actually seeing, the impact fraud has on organizations and how banks and fintech companies are fighting back against fraudsters. Here are the five biggest takeaways from Alloy’s inaugural “State of Fraud Benchmark Report:”
1. 91% of respondents said fraud increased year-over-year since 2021.
Over the past few years, the industry saw an enormous increase in pandemic relief programs experiencing fraud, which unfortunately demonstrated how easy it can be for fraudsters to exploit these programs. There continues to be an ongoing threat of fraud by organized groups that are well-funded with a clear agenda to defraud both people and organizations. In 2022, the industry saw data breaches, an increase in stolen mail with checks and sophisticated approaches to victimize clients through email, phone and text. Based on what financial institutions experienced in 2022, the attack rates are not showing any signs of slowing down.
2. First-party fraud is perceived as the most prevalent type of attack.
Certainly, this phenom could be influenced by the current state of the economy, but it can also reflect how organizations are classifying their fraud cases. If a fraudster opens a new account with a stolen identity and then commits fraud, the financial institution may not be aware this is a stolen identity and classify the case as first-party when it is actually second or third-party fraud.
3. 99% of respondents made changes to their policies and controls for fraud prevention in light of the evolving fraud landscape.
Financial institutions recognized policies that may have worked historically might not be sufficient to respond appropriately to the current fraud landscape. In order to continue mitigating and closing the gap on fraud, executives at banks and other organizations will need to evolve their policies and controls with the ecosystem and require a cadence of ongoing review.
4. 71% of respondents have increased their spending on fraud prevention year-over-year.
This response is a direct reflection of the increase in fraud year-over-year. Financial institution executives recognize the need to continue investing in fraud prevention. Investments should include layering multiple levels of defense while also keeping abreast of where the fraud is shifting, so financial institutions can make the appropriate adjustments.
5. 59% of companies are looking into, or are already using, an identity decisioning platform (IDP).
Not only are companies revisiting their policies and controls related to identity decisioning, they are also increasingly investing in a dedicated platform for it. An IDP can provide a holistic view into an identity for both fraud and know your customer compliance while ensuring the financial institution meets compliance requirements. Implementing an IDP also provides an opportunity for banks reevaluate their current solutions and workflow in production to determine if it is still a best-in-class solution for them. Firms can then establish a plan that increases their efficiency through automated decisions and leveraging a multi-pronged approach for multiple layers of defense.
Fraud rates continue to remain elevated in the financial services space; in response, organizations are appropriately investing in technology and tools to help them move at the pace of fraud so that they can prevent fraud as they grow without taking on additional risk.