Staying a Step Ahead: How Businesses Can Combat Rising Fraud Risks
The online world is more convenient and connected than ever before. As both businesses and consumers embrace digital interactions, fraudsters are becoming more sophisticated. In fact, based on the most recent reports, Americans lost more than $10 billion to fraud in 2023, marking a 14% increase over 2022, and the highest dollar amount ever reported.
This new reality underscores how important it is for lenders to invest in cutting-edge fraud detection technologies and adopt a multi-layered approach to security.
Prevalence of fraud leads to higher expectations for security and identification from consumers
Experian’s 2024 U.S. Identity and Fraud Report found that half of consumers say they’re somewhat or very concerned about conducting activities online. When it comes to their top online security concerns, people are especially worried about identity theft (84%) and stolen credit card information (80%). This is an over 20% jump from the previous year.
These concerns are reflected in consumers’ expectations for security. According to the report, 82% of people expect businesses to react to their fraud concerns. Furthermore, while consumers want the convenience and accessibility of digital transactions, they don’t want to compromise on safety. They understand the connection between identity verification and a positive customer experience with 63% saying it’s extremely or very important for companies to be able to recognize them online. Additionally, 81% of consumers say they’re more trusting of businesses that can accomplish easy and accurate identification.
With financial services companies ranked as one of the most trusted by consumers, lenders are well positioned to address customer concerns by implementing innovative fraud and identity solutions, and also to reassure consumers, leading to more transparency and trust being built over time.
Generative AI and other advanced technologies are a priority for businesses
The report found that generative AI (Gen AI), deepfakes, and cybercrime threats are putting growing pressure on businesses. Companies report cybercrime as the top operational stressor (45%), followed by Gen AI and deep fakes (41%), P2P payment scams (40%), identity theft (39%), and transaction fraud (38%).
Gen AI has grown into a household name over the course of the last few years. While there is ample evidence that Gen AI can be a transformative resource for both businesses and consumers, companies recognize that it also comes with risks.
The report found that 70% of businesses expect AI fraud to be the second greatest challenge for their business. For top tier businesses, Gen AI fraud is their top stress point. Companies are beginning to recognize the need to address Gen AI fraud, but they are feeling unsure about the best way to do so. Confidence in being able to address generative AI fraud is low, ranked as the second lowest, coming in at 11th on the list of 12.
Meanwhile, more advanced fraud detection capabilities, such as behavioral analytics, are piquing the interest of consumers and businesses alike. Multi-factor authentication (48%) and the use of passwords (45%) are still the most commonly deployed fraud prevention methods. For consumers, the use of physical analytics (71%), PIN codes sent to a mobile device (70%), and behavioral analytics (66%) evoke the highest sense of security for people, with security questions (63%) and passwords (58%) rounding out the top five.
Steps lenders can take to address fraud
Fraud is constantly evolving, so businesses need to take proactive steps to mitigate risk. To do so, companies should consider:
- Working with industry partners to identify opportunities for innovative solutions: Businesses need to ensure they have the right strategies in place to combat fraud today and in the future. Lenders should work with a trusted partner to put together a strategy that enables a multilayered approach to fraud prevention. This can help identify and mitigate various fraud types without hindering the customer experience.
- Leveraging advanced identity verification techniques: The rise in Gen AI has introduced advanced fraud types including AI-enabled bot attacks. Bots can perform high volumes of fraud rapidly, making advanced technology essential for combating it. Lenders should invest in technology like machine learning and behavioral analytics that allow them to monitor and analyze real-time digital behavior in order to detect patterns and address fraud instantly while performing accurate and repeatable identity verification that doesn’t impact customers.
- Investing in employee and customer education and support: Financial institutions should prioritize educating their employees on fraud schemes so they can aid in recognizing fraud. They should also consider investing in educational tools and resources for their customers so they can reduce the risk of falling victim to sophisticated fraud. This added vigilance can help further build trust and transparency between lenders and the consumers they serve.
As the digital landscape continues to expand, the 2024 Experian Identity & Fraud Report underscores the urgency of adapting to the ever-changing fraud landscape. Businesses have a crucial role to play in safeguarding their customers’ identities and financial assets. By adopting a proactive, tech-driven approach, lenders can maintain their customers’ trust and protect themselves and their communities from the next wave of fraud.
About Author:
Kathleen Peters leads innovation and strategy for Experian’s Fraud, Innovation & Commercialization business in North America. Kathleen and her team are continuously looking for new ways to solve customer challenges by defining product strategies, new paths to market and investment priorities for Experian’s fraud and identity portfolio, analytics, and decisioning software.
For nearly two decades, she has lived in the heart of Silicon Valley in California, working for a variety of companies including early-stage technology startups. Living in this epicenter of fast-paced innovation, leading-edge technology and business model disruption influences Kathleen’s own approach to strategy and business thinking at Experian.