Issuing banks and financial institutions lost over $1.6 billion from stolen or synthetic identities used in credit card applications plus an additional $600 million from application fraud on demand deposit accounts (DDAs) last year. These figures were reported by Aite Group, who forecast total application fraud losses to nearly reach $2.8 billion in the United States by 2020.
It is estimated that by 2020 application fraud on new credit card accounts will cause nearly $2.1 billion in fraud losses while application fraud on new DDAs or bank accounts will cost US financial institutions $694 million. These figures were recently published by Aite Group along with other information from a survey of more than 30 financial institutions in a report for identity provider Melissa.
Those suffering application fraud losses tend to cite data breaches as a major cause or the source of the fraudsters ammunition. Nearly 90 percent of financial institutions surveyed either “Mostly Agreed” or “Somewhat Agreed” that data breaches and/or phishing attacks are fueling online fraud.
This survey also found that financial institutions can often be inefficient in identifying applications that require review. The survey asked financial institutions to report the ratio of good applications reviewed to bad ones caught by review. While 59 percent report a 5-to-1 to 10-to-1 ratio, 22 percent of financial institutions reported having 31 or more good applications reviewed for every fraudulent one caught and 19 percent report a ratio between 11- and 16-to-1 of good to fraudulent applications reviewed.
When it comes to screening for application fraud, 48 percent of financial institutions plan to add or replace risk management vendors. Forty-five percent of those surveyed “Mostly Agree” and an additional 26 percent “Somewhat Agree” that their organization needs to “make significant technology investments to catch up with the pace of fraud.”
When asked what factors are the most important when considering the addition of new risk tools, financial institutions surveyed were most likely to consider improving the customer on-boarding experience (88 percent) and detecting cross-channel fraud (64 percent) “Very Important.”
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