The cost of fraud to financial services increased by 9.3% over 2017, according to research conducted by LexisNexis Risk Solutions. For every $1 stolen by fraudsters, it costs financial services firms $2.92 in fees compared to $2.67 last year. Further, the level of fraud as a percentage of revenue has moved upwards from 0.95% to 1.53% on average.
“One trend we are seeing is because of this push, payment fraud or similar things, is that fintech or other entities that want to use all these new technological tools are reverting to old school or traditional means,” says Julie Myers-Wood CEO, Guidepost Solutions, providers of global security, investigations, compliance and monitoring solutions.
The research provides insight into which points financial service companies should be aware of when they add new transaction and account opening mechanisms, as well as when they expand into online and mobile channels.
The report states that every $1 of fraud costs mid/large digital firms an average of $3.18, which is up from $3.04 in 2017 – and is higher than among non-digital firms ($2.40). This includes the lost transaction face value for which firms are held liable, plus fees/interest, fines, legal fees, labour for investigation, and external costs for expense recovery.
“In the US, title company fraud has been very prevalent and there have been a number of individuals that have lost payments because of very effective push payment fraud activity, says Wood. “For that reason, titled companies now instead of sending information digitally at all, in order to send the wire you have to call someone and speak to them over the phone.
“The major banks won’t accept a wire to a title company unless you validate that you got that information from actually speaking to a physical person, rather than seeing something that was sent to you via email or text,” she say. “It’s very frustrating for these companies who are trying to adapt to these technologies, trying to give great new experiences but because of the criminal activity they are having to revert to things that may be more difficult for the consumer, or may be more expensive to provide.”
According to the research, there are differences between the online and mobile channels in terms of key challenges and fraud costs. When seeking a layered solution approach, the research states that digital financial firms implement solutions for unique channel issues and fraud. There say there is no one-size-fits-all.
Gemma Rogers co-founder of FINTRAIL, a financial crime risk management provider says: “One of the big challenges that we see is the need to keep pace with the landscape of financial crime. The payment service regulator is coming out with additional guidance quite soon around how to tackle the issues where you’ve got criminals being incredibly creative and coming up with text messages, and phone calls that look and sound like a victim’s bank.
“It is of particular concern for the fintech community because they have built their apps and their services around customer experience. And that is what’s absolutely critical to them is giving a great customer experience and changing the landscape of how financial services have provided to consumers.”
“One of the current challenges and particularly for traditional financial institutions or others that are getting into digital payments is adapting tools that were designed for old processes to the micro-currency and micro-transaction environment. I think that has been a challenge that we have definitely seen traditional financial institutions be made by payments provider but their systems are really set to catch larger transactions that could be problematic. How do they make the change?” says Wood.