Tag: fraud

Over the last year and a half, strong trends emerged in how businesses and consumers interact online - specifically when validating identities and preventing fraud. We initially explored these trends at a global level, and now we've explored U.S.-specific insights into online security, the customer experience, and digital activities and operations. Download the North America findings report to learn more about business and consumer fraud and identity trends impacting the way we live, work, and interact. Review your fraud strategy

Lately, I’ve been surprised by the emphasis that some fraud prevention practitioners still place on manual fraud reviews and treatment. With the market’s intense focus on real-time decisions and customer experience, it seems that fraud processing isn’t always keeping up with the trends. I’ve been involved in several lively discussions on this topic. On one side of the argument sit the analytical experts who are incredibly good at distilling mountains of detailed information into the most accurate fraud risk prediction possible. Their work is intended to relieve users from the burden of scrutinizing all of that data. On the other side of the argument sits the human side of the debate. Their position is that only a human being is able to balance the complexity of judging risk with the sensitivity of handling a potential customer. All of this has led me to consider the pros and cons of manual fraud reviews. The Pros of Manual Review When we consider the requirements for review, it certainly seems that there could be a strong case for using a manual process rather than artificial intelligence. Human beings can bring knowledge and experience that is outside of the data that an analytical decision can see. Knowing what type of product or service the customer is asking for and whether or not it’s attractive to criminals leaps to mind. Or perhaps the customer is part of a small community where they’re known to the institution through other types of relationships—like a credit union with a community- or employer-based field of membership. In cases like these, there are valuable insights that come from the reviewer’s knowledge of the world outside of the data that’s available for analytics. The Cons of Manual Review When we look at the cons of manual fraud review, there’s a lot to consider. First, the costs can be high. This goes beyond the dollars paid to people who handle the review to the good customers that are lost because of delays and friction that occurs as part of the review process. In a past webinar, we asked approximately 150 practitioners how often an application flagged for identity discrepancies resulted in that application being abandoned. Half of the audience indicated that more than 50% of those customers were lost. Another 30% didn’t know what the impact was. Those potentially good customers were lost because the manual review process took too long. Additionally, the results are subjective. Two reviewers with different levels of skill and expertise could look at the same information and choose a different course of action or make a different decision. A single reviewer can be inconsistent, too—especially if they’re expected to meet productivity measures. Finally, manual fraud review doesn’t support policy development. In another webinar earlier this year, a fraud prevention practitioner mentioned that her organization’s past reliance on manual review left them unable to review fraud cases and figure out how the criminals were able to succeed. Her organization simply couldn’t recreate the reviewer’s thought process and find the mistake that lead to a fraud loss. To Review or Not to Review? With compelling arguments on both sides, what is the best practice for manually reviewing cases of fraud risk? Hopefully, the following list will help: DO: Get comfortable with what analytics tell you. Analytics divide events into groups that share a measurable level of fraud risk. Use the analytics to define different tiers of risk and assign each tier to a set of next steps. Start simple, breaking the accounts that need scrutiny into high, medium and low risk groups. Perhaps the high risk group includes one instance of fraud out of every five cases. Have a plan for how these will be handled. You might require additional identity documentation that would be hard for a criminal to falsify or some other action. Another group might include one instance in every 20 cases. A less burdensome treatment can be used here – like a one-time-passcode (OTP) sent to a confirmed mobile number. Any cases that remain unverified might then be asked for the same verification you used on the high-risk group. DON’T: Rely on a single analytical score threshold or risk indicator to create one giant pile of work that has to be sorted out manually. This approach usually results in a poor experience for a large number of customers, and a strong possibility that the next steps are not aligned to the level of risk. DO: Reserve manual review for situations where the reviewer can bring some new information or knowledge to the cases they review. DON’T: Use the same underlying data that generated the analytics as the basis of a review. Consider two simplistic cases that use a new address with no past association to the individual. In one case, there are several other people with different surnames that have recently been using the same address. In the other, there are only two, and they share the same surname. In the best possible case, the reviewer recognizes how the other information affects the risk, and they duplicate what the analytics have already done – flagging the first application as suspicious. In other cases, connections will be missed, resulting in a costly mistake. In real situations, automated reviews are able to compare each piece of information to thousands of others, making it more likely that second-guessing the analytics using the same data will be problematic. DO: Focus your most experienced and talented reviewers on creating fraud strategies. The best way to use their time and skill is to create a cycle where risk groups are defined (using analytics), a verification treatment is prescribed and used consistently, and the results are measured. With this approach, the outcome of every case is the result of deliberate action. When fraud occurs, it’s either because the case was miscategorized and received treatment that was too easy to discourage the criminal—or it was categorized correctly and the treatment wasn’t challenging enough. Gaining Value While there is a middle ground where manual review and skill can be a force-multiplier for strong analytics, my sense is that many organizations aren’t getting the best value from their most talented fraud practitioners. To improve this, businesses can start by understanding how analytics can help group customers based on levels of risk—not just one group but a few—where the number of good vs. fraudulent cases are understood. Decide how you want to handle each of those groups and reserve challenging treatments for the riskiest groups while applying easier treatments when the number of good customers per fraud attempt is very high. Set up a consistent waterfall process where customers either successfully verify, cascade to a more challenging treatment, or abandon the process. Focus your manual efforts on monitoring the process you’ve put in place. Start collecting data that shows you how both good and bad cases flow through the process. Know what types of challenges the bad guys are outsmarting so you can route them to challenges that they won’t beat so easily. Most importantly, have a plan and be consistent. Be sure to keep an eye out for a new post where we’ll talk about how this analytical approach can also help you grow your business. Contact us

Earlier this year, we shared our predictions for five fraud threats facing businesses in 2021. Now that we’ve reached the midpoint of the year and economic recovery is underway, we’re taking another look at how these threats can impact businesses and consumers.   Putting a Face to Frankenstein IDs: Synthetic identity fraudsters will attempt to bypass fraud detection methods by using AI to combine facial characteristics from different people to form a new identity. Overexposure: As many as 80% of SSNs may have been exposed on the dark web, creating opportunities for account application fraud. The Heist: Surges in data breaches, advances in automation, expanded online banking services and vulnerabilities exposed from social engineering mistakes have lead to rises in account takeover fraud. Overstimulated: Opportunistic fraudsters may take advantage of ongoing relief payments by using stolen data from consumers. Behind the Times: Businesses with lackluster fraud prevention tools and insufficient online security technology will likely experience more attacks and suffer larger losses.   To learn more about upcoming fraud threats and how to protect your business, download our new infographic and check out Experian’s fraud prevention solutions. Download infographic Request a call

As stimulus-generated fraud wanes, we anticipate a return of more traditional forms of fraud, including account opening fraud. As businesses embrace the digital evolution and look ahead to responsible growth, it’s important to balance the customer experience with the risks associated with account opening fraud. Preventing account opening fraud requires a layered fraud and identity management strategy that allows you to approve good customers while keeping criminals out. With the right tools in place, you can optimize the customer experience while still keeping risk low. Download infographic Review your fraud strategy

Recently, I wrote about how Experian is assisting NASWA (National Association of State Workforce Agencies) with identity verification to help mitigate the spike in fraudulent unemployment insurance claims. Because of this I was not all that surprised when I found a letter in my mailbox from the Texas Workforce Commission with a fraudulent claim using my identity, inspiring me to follow up on this topic with a focus on fraud prevention best practices. Identity theft is on the rise According to Experian data analysis and a recent study on unemployment insurance fraud, at least 25% of new claims are a result of identity theft. This is 50 times higher than what we have traditionally seen in the highest ID theft fraud use case, new credit card applications, which generally amounts to less than 0.5% of new applications. Increasing digitization of the last few years—culminating in the huge leap forward in 2020—has resulted in a massive amount of information available online. Of that information, a reported 1.03 billion records were exposed between 2016 and 2020. There are currently approximately 330 million Americans, so on average more than three records per person have been exposed, creating an environment ripe for identity theft. In fact, a complete identity consisting of name, address, date of birth, and Social Security number (SSN) can be purchased for as little as $8. This stolen data is then often leveraged by both criminal rings who are able to perpetrate fraud on a large scale and smaller scale opportunists – like the ones in Riverside, CA leveraging access to identities of prison inmates. Fraud prevention through layered identity controls In the 20 years that I have been combatting ID theft both in the private and public sectors, I’ve learned that the most effective identity proofing goes beyond traditional identity resolution, validation, and verification. To be successful, you must take advantage of all available data and incorporate it into a layered and risk-based approach that utilizes device details, user behavior, biometrics, and more. Below, I outline three key layers to design an effective process for ID proofing new unemployment insurance claims. Layer 1: Resolve and Validate Identities Traditional identity data consists of the same basic information—name, address, date of birth, telephone number, and SSN—which is now readily available to fraudsters. These have been the foundation for ID proofing in the past and are still critical to resolving the identity in question. The key is to also include additional identity elements like email address and phone number to gain a more holistic view of the applicant. Layer 2: Assess Fraud Risk Determining an identity belongs to a real-life subject is not sufficient to mitigate the risk of ID theft associated with a new unemployment insurance claim. You must go beyond identity validation to assess the risk associated with their claim. Risk assessment risk falls into two categories – identity and digital risk. Identity Risk When assessing a claim, it’s important to check the identity for: Velocity: How often have you (or other states) seen the information being presented with this application? Has the information been associated with multiple identities? Recency of change: How long has the identity been associated with the contact information (phone, email, address, etc.)? Red flags: Has the subject been a recent victim of ID theft, or are they reported as deceased? Synthetic Identity: Are there signs that the identity itself is fictitious or manipulated and does not belong to a real-life person? Digital Risk Similar to the identity risk layer above, the device itself and how the subject interacts with the device are significantly important in identifying the likelihood a new claim is fraudulent. Device risk can be assessed by utilizing geolocation and checking for inconsistent settings or high-risk browsers, while behavioral risk might check for mouse movement, typing speed, or screen pressure. Layer 3: Verify Highest Risk Subjects The final stage in this process is to require additional verification for the highest risk claims, which helps to balance the experience of your valid subjects while minimizing the impact of fraud. Additional steps might include: Document verification: Scanning a government-issued ID (driver’s license, passport, or similar), which includes assessing for document security features and biometric comparison to the applicant. One-time passcode (OTP): It is key to deploy this sparingly only to phone numbers that have been associated with the subject for a significant time frame and incorporate checks to determine if it is at high risk (e.g., recently ported or forwarded). Knowledge-based verification (KBV): Leveraging non-public information from a variety of sources. By adding additional, context-based identity elements, it becomes possible to improve the three main objectives of most agencies’ identity proofing process – get good constituents through the first time, protect the agency and citizens from fraud, and deliver a smooth and secure customer experience in online channels. While there’s no quick fix to prevent unemployment insurance fraud, a layered identity strategy can help prevent it. Finding a partner that has a single, holistic solution empowers agencies to defend against unemployment insurance fraud while minimizing friction for the end-user, and preparing for future fraud schemes. To learn more about how you can protect your constituents and your agency from unemployment insurance fraud request a call today. Contact us

In today’s digital-first environment, fraud threats are growing in sophistication and scope. It’s critical for credit unions to not only understand the specific threats presented by life online, but to also be prepared with a solid fraud detection and prevention plan. Below, we’ve outlined a few fraud trends that credit unions should be aware of and prepared to address. 2021 Trends to Watch: Digitization and the Movement to Life Online Trend #1: Digital Acceleration As we look ahead to the rest of 2021 and beyond, we expect to see adoption of digital strategies nearing the top of credit unions’ list of priorities. Members’ expectations for their digital experience have permanently shifted, and many credit unions now have members using online channels who traditionally wouldn’t have. This has led to a change in the types of fraud we see as online activities increased in volume. Trend #2: First-Party Fraud is On the Rise First party fraud is on the rise – 43% of financial executives say that mule activity is up 10% or more compared to attack rates prior to the pandemic, according to Trace Fooshee, Senior Analyst for Aite Group, and we expect to see this number grow. The ability for credit unions to identify and segregate the “good guys” from “bad guys” is getting more difficult to discern and this detail is more important than ever as credit unions work to create frictionless digital experiences by using digital tools and strategies. Trend #3: Continual Uptick in Synthetic Identity Fraud We expect synthetic identity fraud (SID) to continue to rise in 2021 as cybercriminals become more sophisticated in the digital space and as members continue with their new digital habits. Additionally, fraudsters can use SIDs to bring significant damage and loss to credit unions through fraudulent checks, debit cards, person-to-person and automated clearing house (ACH) transactions. More and more, fraudsters are seen opening accounts and remaining very patient – using an account to build and nurture a trusted relationship with the credit union and then remain dormant for two years before ensuing in any sort of abuse. Once the fraudster feels confident that they can bypass authentication processes or avoid a new product vetting, oftentimes, they will take that opportunity to get easy access to all solutions credit unions have available and will abuse them all at once. There are no signs of fraud slowing, so credit unions will need to stay vigilant in their fraud protection and prevention plans. We’ve outlined a few tips for credit unions to help protect member data while reducing risk. The Fight Against Fraud: Four Key Tips Tip #1: Manage Each Fraud Type Appropriately Preventing and detecting fraud requires a multi-level solution. This can involve new methods for authenticating current and prospective members, as well as incorporating synthetic identity services and identity proofing throughout the member lifecycle. For example, credit unions should consider taking extra verification steps during the account opening process as a preventative measure to minimize SID infiltration and associated fraud losses. As credit unions continue down the path of digitization, it’s also important to add in digital signals and behavior-based verification, such as information about the device a consumer is logging in from to heighten defenses against bad actors. Tip #2: Be Resourceful In the wake of the COVID-19 pandemic, many have asked, “How should credit unions approach fraud prevention tactics when in-person contact is limited or unavailable?” In some cases, you might need to be willing to say no to requests or get creative and find other options. Sometimes, it takes leveraging current resources and using what’s readily available to allow for a binary decision tree. For example, if you’re suspicious of a dormant account that you think could be synthetic, call them, and ask yourself these questions: Did they answer? Was the phone still active? Send the account holder an email – did you get a reply? Is this a new member? Is this a new channel for the member? Could they have logged on to do this instead of calling the call center? Tip #3: Empower Members Through Education Members like to know that their credit unions are taking the necessary steps and applying the right measures to keep their data secure. While members might not want every detail, they do want to know that the security measures are there. Require the use of strong passwords, step-up authentication, and empower members with alerts, notifications, and card controls. Additionally, protect members by providing resources like trainings, webinars, and best practices articles, where they can learn about current cyber trends and how to protect their data. Tip #4: Trust Data Many credit unions rely on an employee’s decision to decide when to take action and what action to take. The challenge with this approach comes when the credit union needs to reduce friction for members or tighten controls to prevent fraud, because it’s extremely hard to know exactly what drove prior actions. A better alternative is to rely on scores and specific data. Tweaks to the scores or data points that drive actions allow credit unions to achieve the desired member experience and risk tolerance – just be sure to leverage internal experts help figure out those policies. By determining what conditions drive actions before the actions are taken (instead of doing it one case at a time) the decisions remain transparent and actionable. Looking for more insights around how to best position your credit union to mitigate and prevent fraud? Watch our webinar featuring experts from around the industry and key credit unions in this Fraud Insight Form hosted by CUES. Watch now Contact us

The surge in digital demand over the past year reinforced the deep connection between recognition, fraud prevention and the online customer experience. As businesses transformed their operations to accommodate the rapidly growing volume of digital transactions, consumer expectations for easy, secure interactions increased at an even faster pace. That meant less tolerance for the interruptions caused by security and risk controls. We surveyed more than 9,000 consumers and 2,700 businesses worldwide about this connection for our 2021 Global Identity and Fraud Report. This year’s report dives into: Business priorities for the year ahead Why the digital customer experience remains siloed Consumer preferences that impact the digital customer journey Pandemic-era digital activities that have changed consumer expectations As we move forward into the rest of 2021 it’s crucial that businesses continue to focus on fraud prevention. In order to implement an effective fraud strategy that also makes it easier for customers to engage, businesses need to move away from a one-size-fits-all approach and focus on applying the right level of protection to each and every transaction. Download the report Review your fraud strategy

The sharp uptick in fraud that coincided with the digital evolution made it clear that banks, credit unions, and fintechs need to invest in a strategy that utilizes identity layers to keep their customers and their finances safe. The steady rise in fraud over the last several years spiked—payment fraud rose 70% last year and is expected to increase by 95% in 2021—making it more challenging than ever to address the fraud threat while meeting increasing customer expectations. The rising fraud threat 2020 saw a rapid influx of customers using digital channels and the amount of data flowing into financial systems. There’s been a seismic shift, and we’re not going back. According to a recent study, 80% of consumers now prefer to manage their finances digitally, leaving the door open for fraudsters to take advantage of digital newbies. The increase in online activity corresponded with criminal activity. The rates of synthetic identity, account opening, and account takeover fraud have risen as fraudsters’ tactics have evolved. 80% of fraud losses now come from synthetic identities In 2020 the rate of new account credit card fraud attempts rose 48% Account takeover accounted for 54% of all fraud attacks in 2020 Fraudsters will continue to take advantage of current conditions, moving from stimulus-related fraud back to more traditional forms of financial theft, and financial institutions must adapt in turn with robust identity layers. Resolving the identity threat In our recent white paper, developed in partnership with One World Identity, we explore how businesses can address the fraud threat. It requires a multilayered identity proofing strategy for both onboarding and ongoing authentication. By doing this, financial institutions can gain a holistic view of consumers and their associated risks, decreasing friction while enabling robust fraud protection. To learn more, download our “Improving Fraud by Increasing Identity Layers” white paper. Download white paper

For the last several months, Experian has participated as the only credit bureau in the pilot of the electronic Consent Based Social Security Number (SSN) Verification (eCBSV) service. As we move forward to general rollout and expanded availability later this year, it’s time to review the benefits of eCBSV and how it helps businesses prevent synthetic identity fraud.   Service and program overview The eCBSV service combats synthetic identity fraud by comparing data provided electronically by approved financial institutions against the Social Security Administration’s (SSA) database in real time. This service helps financial institutions verify SSNs more efficiently and enables improved experiences for identifying legitimate or possibly synthetic identities applying for your products.   The verification process begins with consent from the SSN holder – and with eCBSV this consent is provided electronically rather than via a wet signature. Then, the SSN is checked against the SSA database to validate the SSN, name, and date of birth combination are or are not a match. The verification will also indicate if the SSN is listed as deceased with the SSA. Together, these factors can help flag whether or not an identity is synthetic.   By managing this process electronically, it is faster, more secure, and more efficient than before, offering an improved experience for consumers and the financial institutions that service them.   Layering solutions While eCBSV is an excellent step forward in the fight against the rising threat of synthetic identity fraud, a layered fraud mitigation strategy is still necessary. It’s only by layering solutions that financial institutions can accurately identify different types of fraud and provide them with the correct treatment, which is especially important when it comes to rooting out fraud when it’s already embedded in a portfolio.   To learn more about how Experian is helping to combat synthetic identity fraud and how eCBSV can benefit your financial institution, request a call. Request a call

The ongoing COVID-19 pandemic has facilitated an increase in information collection among consumers and organizations, creating a prosperous climate for cybercriminals. As businesses and customers adjust to the “new normal,” hackers are honing in on their targets and finding new, more sophisticated ways to access their sensitive data. As part of our recently launched Q&A perspective series, Michael Bruemmer, Experian’s Vice President of Data Breach Resolution and Consumer Protection, provided insight on emerging fraud schemes related to the COVID-19 vaccines and how increased use of digital home technologies could lead to an upsurge in identity theft and ransomware attacks. Check out what he had to say: Q: How did Experian determine the top data breach trends for 2021? MB: As part of our initiative to help organizations prevent data breaches and protect their information, we release an annual Data Breach Forecast. Prior to the launch of the report, we analyze market and consumer trends. We then come up with a list of potential predictions based off the current climate and opportunities for data breaches that may arise in the coming year. Closer to publication, we pick the top five ‘trends’ and craft our supporting rationale. Q: When it comes to data, what is the most immediate threat to organizations today? MB: Most data breaches that we service have a root cause in employee errors – and working remotely intensifies this issue. Often, it’s through negligence; clicking on a phishing link, reusing a common password for multiple accounts, not using two-factor authentication, etc. Organizations must continue to educate their employees to be more aware of the dangers of an internal breach and the steps they can take to prevent it. Q: How should an organization begin to put together a comprehensive threat and response review? MB: Organizations that excel in cybersecurity often are backed by executives that make comprehensive threats and response reviews a top corporate priority. When the rest of the organization sees higher-ups emphasizing the importance of fraud prevention, it’s easier to invest time and money in threat assessments and data breach preparedness. Q: What fraud schemes should consumers be looking out for? MB: The two top fraud schemes that consumers should be wary of are scams related to the COVID-19 vaccine rollout and home devices being held for ransom. Fraudsters have been leveraging social media to spread harmful false rumors and misinformation about the vaccines, their effectiveness and the distribution process. These mistruths can bring harm to supply chains and delay government response efforts. And while ransomware attacks aren’t new, they are getting smarter and easier with people working, going to school and hosting gatherings entirely on their connected devices. With control over home devices, doors, windows, and security systems, cybercriminals have the potential to hold an entire house hostage in exchange for money or information. For more insight on how to safeguard your organization and consumers from emerging fraud threats, watch our Experian Symposium Series event on-demand and download our 2021 Data Breach Industry Forecast. Watch now Access forecast About Our Expert: Michael Bruemmer, Experian VP of Data Breach Resolution and Consumer Protection, North America Michael manages Experian’s dedicated Data Breach Resolution and Consumer Protection group, which aims to help businesses better prepare for a data breach and mitigate associated consumer risks following breach incidents. With over 25 years in the industry, he has guided organizations of all sizes and sectors through pre-breach response planning and delivery.

Preventing fraud losses requires an understanding of each individual fraud type—including third-party, first-party, synthetic identity, and account takeover fraud—and how they differ from one another. It’s only with a multi-layered fraud strategy that businesses can adequately detect and treat each type of fraud while maintaining the customer experience. When’s the last time you reviewed your existing fraud strategy? Download infographic Review your fraud strategy

Since 2002, lenders have been aware of the importance of Know Your Customer (KYC) and the associated Customer Identification Program (CIP) requirements. As COVID-19 has changed procedures and priorities for businesses and consumers across the board, it’s more important than ever for institutions to ensure their CIP process includes ongoing monitoring of identity risk.   What is CIP?   Standard KYC programs include a Customer Identification Program to verify and validate identities along with due diligence to assess the risks associated with each identity.   CIP defines the process by which a business collects data to establish a reasonable belief that the identity is valid, and that the individual is eligible to participate in our financial system. While this process works in conjunction with other fraud mitigation tactics, they serve different purposes. A good CIP program emphasizes the customer experience, regulatory compliance, cost control, and smart growth. Fraud mitigation focuses on ensuring that an eligible identity is being presented by its true owner, rather than as part of a scheme to acquire goods and services with intent to default on repayment obligations.   Businesses who focus on solely on fraud mitigation rather than complying with KYC and CIP regulations run the risk of potential harm to business reputation, and of course, financial penalties. Fenergo found that as of the end of 2019, global penalties for AML and KYC non-compliance totaled $36 billion.   CIP vs. Fraud Mitigation Many financial institutions equate a CIP program with efforts to mitigate fraud. It’s understandable, as both processes include emphasis on the accuracy of an identity as it’s presented by a consumer. It is assumed that only the true owner of the identity would possess the detailed information necessary to meet CIP requirements and therefore would not likely be committing fraud.   There was a time—prior to large scale thefts of stored information, personal details shared through social media and other behavior changes that made personal information very public—when this would have been true. Unfortunately, those days have passed and even an amateur criminal with limited experience and resources could find current, accurate identity information for sale online, information good enough to pass the CIP test and be considered a legitimate consumer.   The real challenge is that when they go through CIP, many real consumers may inadvertently provide true information that doesn’t meet the verification standard. This is a result of consumer lifestyle changes outpacing the sources of data used to verify the information they’ve provided. It makes sense; in most years roughly 13% of American adults change their address. New homes, job changes and changes in marital status impact a large number of people every day. Adding to the confusion—it’s life’s changes that prompt people to borrow and purchase. The result is that many of the people that are more likely to fail CIP verification are the very people trying to legitimately access financial services.   The result is that CIP verification often isn’t a challenge for those intending to commit fraud, but it can be for genuine consumers.   The challenges of CIP In a recent internal study, Experian reviewed the ability to pass a standard CIP strategy that assessed the accuracy of the name, current address, date of birth and Social Security number provided by a large sample of consumers. We then compared legitimate consumers to those later confirmed to have been identity thieves impersonating a victim. Consistently, the identity thieves were at least as proficient at passing CIP as their true-consumer counterparts.   In a second step, we applied a fraud score that looked for identity theft by assessing the past uses of the identities, their consistency, velocity and many other characteristics unrelated to the accuracy of the data. The difference between CIP verification and a fraud risk assessment was striking. Across the entire range of fraud risk, the percentage of records that passed CIP verification remained the same.   That said, CIP still plays a very important role in risk mitigation. In fact, CIP and fraud prevention are inextricable in financial services. Just as a CIP verified identity can still be fraud, a record that may appear to be low fraud risk may not pass CIP. Since both processes have existed side by side for nearly two decades, each presumes that the other is in place and both are necessary to detect and prevent fraud.   Striking a balance   CIP verification and fraud mitigation strategies are both necessary and important to protecting assets and the broader financial system from fraud. It’s important to leverage a layered approach where both eligibility and risk are assessed, and next steps for verification include resolution of identity discrepancies alongside verification that ensures an identity is not being misused for fraud.   Experian can help you confidently verify customer identities, understand and anticipate customer activities, and implement ongoing monitoring. If you’d like to set up a review of your current strategy or learn more about how we can help you with CIP and fraud mitigation to strengthen your ability to know your customer compliantly, let us know. Contact us

Over the last several weeks, I’ve shared articles about the problems surrounding third-party, first-party and synthetic identity fraud. To wrap up this series, I’d like to talk about account takeover fraud and how digital transformation has impacted it over the last year. What is account takeover fraud? Account takeover fraud is a form of identity theft that involves unauthorized access to a user’s online accounts to enable financial crimes. Criminals can obtain information in a number of ways, including the dark web, spyware and malware, and phishing to allow them to make unauthorized transactions with the user’s account. Fraudsters have made efforts to also gain control of mobile or email accounts so they can intercept one-time passwords or password change instructions to retain control of the account. Once fraudsters have control of one account, they can use it to access other personal information to breach additional accounts and graduate to full-scale identity theft. How does account takeover fraud impact me? Account takeover fraud is damaging to businesses and consumers. It leads to losses and well as resources invested to confirm fraud. The potential losses from account takeover fraud have spiked over the last year, in large part due to the opportunities created by the rapid increase of digital interactions and the influx of users interacting with merchants and financial institutions online for the first time. Aite research shows that 64% of financial institutions are seeing higher rates of ATO fraud attacks now than prior to the pandemic. – Trace Fooshee, Senior Analyst, Aite Group1 Account takeover can also be difficult to detect. Unlike credit card fraud where the true owner might quickly notice suspicious charges, an account takeover attack can go undetected for long periods of time. That’s because the criminal can change login and contact information, ensuring that the real accountholder doesn’t realize they’ve been compromised immediately. Solving the account takeover fraud problem A good account takeover fraud prevention strategy requires two things: frictionless customer experience and robust risk management. It’s clear that customers expect seamless interactions with merchants and lenders. At the same time, businesses need to be able to spot risky or suspicious behavior before a bad transaction occurs. That’s where a layered fraud management solution comes into play. With the right tools—including risk-based identity and device authentication and targeted step-up authentication—businesses can provide a good customer experience and only pull in staff for deeper investigations where necessary. With this strategy in place, businesses can easily recognize good customers and provide a more personalized experience, while at the same time combatting fraud – boosting growth and minimizing losses in the long run. I hope this series has helped provide insights into the different types of fraud and why each of them requires different treatment. To learn more about the risks of account takeover and how a layered fraud management solution can help protect your business and your customers, feel free to contact us. 1Key Trends Driving Fraud Transformation in 2021 and Beyond, Aite Group, December 2020

It’s obvious that 2020 was a year of unprecedented change and created brand new opportunities for fraud. In 2021, fraudsters will continue to iterate on new and old methods of attack, requiring businesses to remain flexible and proactive to prevent losses. We created the 2021 Future of Fraud Forecast to help businesses anticipate new types of fraud and prepare and protect consumers on the road ahead. Here are the trends we expect to see over the coming year: Putting a Face to Frankenstein IDs: Synthetic identity fraud will start to rely on “Frankenstein faces” for biometric verification. “Too Good to Be True” COVID Solutions: The promise of at-home test kits, vaccines and treatments will be used as means for sophisticated phishing and social engineering schemes. Stimulus Fraud Activity, Round Two: Fraudsters will take advantage of additional stimulus funding by using stolen data to intercept payments. Say ‘Hello’ to Constant Automated Attacks: Once the stimulus fraud attacks run their course, hackers will increasingly turn to automated methods. Survival of the Fittest for Small Businesses: In 2021, businesses with lackluster fraud prevention tools will suffer large financial losses. To learn more about how to protect your business and customers, download the Future of Fraud Forecast and check out Experian’s fraud prevention solutions. Future of Fraud Forecast Request a call

Recently, I shared articles about the problems surrounding third-party and first-party fraud. Now I’d like to explore a hybrid type – synthetic identity fraud – and how it can be the hardest type of fraud to detect. What is synthetic identity fraud? Synthetic identity fraud occurs when a criminal creates a new identity by mixing real and fictitious information. This may include blending real names, addresses, and Social Security numbers with fabricated information to create a single identity.   Once created, fraudsters will use their synthetic identities to apply for credit. They employ a well-researched process to accumulate access to credit. These criminals often know which lenders have more liberal identity verification policies that will forgive data discrepancies and extend credit to people who appear to be new or emerging consumers. With each account that they add, the synthetic identity builds more credibility.   Eventually, the synthetic identity will “bust out,” or max out all available credit before disappearing. Because there is no single person whose identity was stolen or misused there’s no one to track down when this happens, leaving businesses to deal with the fall out.   More confounding for the lenders involved is that each of them sees the same scam through a different lens. For some, these were longer-term reliable customers who went bad. For others, the same borrower was brand new and never made a payment. Synthetic identities don't appear consistently as a new account problem or a portfolio problem or correlate to thick- or thin-filed identities, further complicating the issue.   How does synthetic identity fraud impact me?   As mentioned, when synthetic identities bust out, businesses are stuck footing the bill.   Annual SIF (synthetic identity fraud) charge-offs in the United States alone could be as high as $11 billion. – Steven D’Alfonso, research director, IDC Financial Insights1   Unlike first- and third-party fraud, which deal with true identities and can be tracked back to a single person (or the criminal impersonating them), synthetic identities aren’t linked to an individual. This means that the tools used to identify those types of fraud won’t work on synthetics because there’s no victim to contact (as with third-party fraud), or real customer to contact in order to collect or pursue other remedies.   Solving the synthetic identity fraud problem   Preventing and detecting synthetic identities requires a multi-level solution that includes robust checkpoints throughout the customer lifecycle.   During the application process, lenders must look beyond the credit report. By looking past the individual identity and analyzing its connections and relationships to other individuals and characteristics, lenders can better detect anomalies to pinpoint false identities.   Consistent portfolio review is also necessary. This is best done using a risk management system that continuously monitors for all types of fraudulent activities across multiple use cases and channels. A layered approach can help prevent and detect fraud while still optimizing the customer experience.   With the right tools, data, and analytics, fraud prevention can teach you more about your customers, improving your relationships with them and creating opportunities for growth while minimizing fraud losses.   To wrap up this series, I’ll explore account takeover fraud and how the correct strategy can help you manage all four types of fraud while still optimizing the customer experience. To learn more about the impact of synthetic identities, download our “Preventing Synthetic Identity Fraud” white paper and call us to learn more about innovative solutions you can use to detect and prevent fraud.   Contact us Download whitepaper   1Synthetic Identity Fraud Update: Effects of COVID-19 and a Potential Cure from Experian, IDC Financial Insights, July 2020