The lifespan of a fraudster is short, but prolific. After a sharp and unexplained drop in identity thefts in 2010, fraud schemes climbed 12.6 percent in 2011, according to research by Javelin Strategy & Research.
The cost adds up: The mean cost for new-account fraud is $3,197, according to the recent "Javelin Strategy & Research 2012 Identity Fraud Report." In addition, if someone succeeds in opening up an account, it typically only takes about seven days to wreak millions of dollars of damage across a wide network of unsuspecting customers, Javelin reports. Yet it typically takes institutions an average of 151 days to detect a fraud occurrence. This means that by the time account holders realize they've been cleaned out and their banks are calling their customers about irregular account activity, or when their credit card companies are sending them notification letters, fraudsters have already vanished into thin air. But they'll most assuredly be back.
[Read more about Javelin's 2012 Identity Fraud Report.]
Where is the disconnect? Why is our industry -- on the whole -- so slow to react?
Some lenders simply contend that they have the strongest defense against industry theft at origination, so don't see the need to check again after the accounts are opened. Further, to some degree, a certain amount of fraud is bound to get through because the cost of ferreting out all of it would prove prohibitive.
With so many accounts being hacked in the first seven days of a fraudster's scheme, no financial institution or person is immune -- even with the best systems in place. Fortunately, technology advances in this field have delivered new weapons to flag suspicious consumer data patterns early in an account's history -- a huge milestone. Old tactics are simply insufficient to uncover criminal activity at its current level.
One Fraudster, Geometric Damage
These two graphs assess the fraudster process at Day 0, then again at Day 7. For the latter, note how the volume of fraud can grow geometrically if risk managers are not proactive.
As the charts suggest, we have found that accounts that may have looked good when opened may have turned high-risk because of activity picked up by technology that can hone in on how data is used across numerous transactions. For example, Experian's Precise ID for Customer Management takes advantage of data previously unavailable to identify and prevent current-account fraud during the first 30 days of an account being opened. By shifting strategies and monitoring newly opened accounts, we have found significant lift for fraud captures among our customers due to the use of this technology.
Some Tips to Help Stop or Prevent Fraud
- Be aware that fraudsters bulldoze their way through accounts and disappear within 15 days, yet it takes an average of 151 days to identify fraud.
- Be vigilant to warn your customers about fraudsters and identity thieves.
- Ask your customers to pinpoint questionable behavior, such as new account openings without a birth date, but with the same name and Social Security number.
- Re-check accounts after they have been opened, which can identify suspicious activity allows for a significant lift in fraud captures.
Last year, victims of a data breach were 9.5 times more likely to be a victim of identity fraud. Consumers who were part of a data breach had a fraud incidence rate of 19 percent, while consumers who were not had a breach rate of two percent. Also, with a shocking 67 percent jump in data breach victims in 2011, the increase correlates directly with the rise in identity fraud victims.
This rise in identity crime comes as banks and lenders continue to look for ways to improve their profit margins on their credit holdings. It also underscores the need for more advanced tools to help credit companies, banks and others detect and nab fraud perpetrators, who steal billions of dollars -- both from lenders as well as innocent consumers.
Keir Breitenfeld is Senior Director, Fraud and Identity Solutions, Experian Decision Analytics.