With the rise of e-Commerce and prevalence of mobile devices, shopping has reached a new level of ease for consumers. Expectations for fast and easy experiences are higher today than they were just a few years ago, and while the growth of these convenient channels equals higher sales, it also opens the door for fraud.
Most consumers are aware that data breaches and digital fraud are increasing at a rapid rate, and that their personal information is potentially already available on the dark web, yet their tolerance for adding friction to the authentication process for fraud prevention only goes so far: research from IDology’s Consumer Digital Identity Study showed that one in three consumers will abandon creating an account if the process is too cumbersome.
According to new data released in IDology’s Sixth Annual Fraud Report, this is understood by businesses that express concern that fraud prevention steps have the potential to create customer friction. In fact, the IDology report found that striking a balance between fraud prevention and limiting friction in the customer experience is the number one fraud prevention challenge for businesses.
An Inside Look At Fighting Fraud
IDology’s annual report surveys hundreds of executives and analysts in risk, fraud, compliance, product and operations, to capture the impact, incidence rate and perception of fraud on leading companies. Rather than focusing on specific incidents and transactions, the report is based on first-hand feedback from professionals working to fight fraud.
Among the key findings in this year’s report:
Chronic Data Breaches Lead To Increased Fraud Threats: 58% of businesses experienced an overall increase in fraud. With the frequency and depth of data breaches in recent years, a large amount of personal information has become available on the dark web. This abundant access to usernames and passwords, social security numbers, addresses, phone numbers and account information has made it easier and cost-effective for criminals to commit fraud in customer-not-present environments, such as mobile and online. It’s easy to see why 67% of companies reported that fraud increased online and 63% in mobile.
Mobile Fraud Is Booming: The majority of Americans own a mobile phone, so it isn’t surprising that it’s one of the fastest growing threats to businesses and consumers. In fact, the prevalence of mobile fraud increased 117% compared to last year. In addition, IDology’s consumer digital identity study revealed that mobile malware is also a concern among 80% of consumers.
Mobile devices are direct pathways to the type of personal information that fraudsters want to compromise. As mobile fraud continues to rise, businesses must consider the risks presented by mobile malware that can steal personal information and intercept text messages right off a consumer’s smartphone.
While smartphones can serve as an effective means for businesses to offer an immediate and accessible channel for e-Commerce, as well as quickly identify and verify customers, they also represent a prime fraud target. The mobile market is enormous and highly fluid. Each year in the U.S., 30 million phone numbers are recycled, 130 million new smartphones are activated and 80 million mobile users switch providers. Within the last 12 months, 47% of consumers (an estimated 100.6 million mobile phone owners) experienced at least one mobile change event. These frequent change events make establishing and maintaining a digital device identity difficult and complex.
Of the mobile fraud techniques that increased in 2018:
- Porting, which occurs when a criminal takes possession of a customer’s phone number and ties it to their own device, increased 27%
- Intercepting inbound SMS communication, such as two-factor authentication messages, increased 24%
- Device cloning, in which SIM values from a victim are copied by fraudsters, allowing them to impersonate a subscriber and obtain all incoming communication, increased 23%
- Recycling phone numbers, in which deactivated/disconnected numbers get reassigned, increased 20%.
Fraud Prevention Increasingly Challenging, Businesses Less Prepared For Certain Fraud Schemes
Many businesses share that they don’t feel prepared to address certain fraud schemes. When asked which fraud schemes they are least prepared to detect and prevent:
- 32% reported mobile device attacks such as malware and hacking, up from just 12% in 2017
- 32% reported synthetic identity fraud, up from 26% in 2017
- 25% reported account takeover, up from 19% in 2017
They’re also finding identity verification more challenging. When asked how identity verification has changed in the last three years, 75% of companies agree it has become more complicated and complex.
Retailers are looking for new strategies and technologies to improve identity verification and prevent fraud in a way that won’t negatively impact the customer experience. The report shows that the biggest trends in identity verification over the next three to five years will be verifying identities using mobile device attributes, artificial intelligence, machine learning and submitting ID documents via mobile devices.
Finding ways to keep fraud out and make transactions easier for customers is becoming one of the most important elements of fraud prevention. In fact, the vast majority of businesses surveyed, 85%, said identity verification can be a strategic differentiator. The opportunity exists for retailers to leverage advancements in identity verification to build trust, increase efficiency and improve the customer experience.
For more insights on the current threats facing the retail industry, fraud prevention trends and the rising importance of identity verification, you can download IDology’s Sixth Annual Fraud Report here.
Christina Luttrell is the senior vice president of operations including product, client solutions and marketing for IDolgy, a leader in multi-layered identity verification and fraud prevention. In her 10 years at IDology, Luttrell has significantly advanced the company's technology, forged close relationships with IDology customers and driven the development of product innovations that help organizations stay ahead of constantly shifting fraud tactics without impacting the customer experience. Luttrell was recently recognized as one of the Top 100 influencers in identity by One World Identity.