The fraud epidemic isn’t going away – let’s act

Recent weeks have seen a slew of bad news about the ongoing scandal of rising payments fraud – especially in the online environment.

According to LexisNexis Risk Solutions and Oxford Economics, UK financial services firms are spending two-thirds of that country’s defence budget, or £34.2 billion, on fraud defences.

PwC report that 52 percent of companies with global annual revenues over $10 billion experienced fraud during the past 24 months, with almost 1 in 5 saying their most disruptive incident cost more than $50 million.

“1 in 5 major firms got hit with fraud costing $50 million last year.”

In recent weeks, new data from SonicWall has helped to further quantify the scale of the problem.

Online fraud attacks against financial institutions more than trebled last year.

Malware (software used to attack bank systems), ransomware and intrusive attacks were all up sharply, with “crypto-jacking” (hijacking user accounts and stealing cryptocurrencies) and attacks targeting inter-app transactions trebling and doubling respectively.

SonicWall say two-thirds of firms are aware of the problems – but that more vulnerabilities are being revealed, year after year.

Options for action

The problem of online fraud has been recognised for years – as has its growing prevalence.

And while the rate of losses remains low, they are growing in line with the digitalisation of the global economy.

In other words, between 17 and 23 percent every year, depending on which estimate you take.

No-one is short of ideas as to what needs to be done, from writing less vulnerable software to better data analytics that help to identify fraud in real time or introducing either private, or “sovereign” digital ID – or government ID schemes.

Whichever option is chosen, it’s time to do something about the scandal of online fraud.

Financial institutions and intermediaries should be aware that consumers shop online for the convenience, choice, speed and lower prices they find.

If these factors are compromised by rising costs designed to cushion banks against fraud – or increasingly complex checkout arrangements – then the prospects for further growth in digital commerce will look increasingly bleak.

The fight against physical card fraud 20 years ago provides an instructive lesson.

Fraud kept growing and was reaching epidemic proportions before industry took action in Europe and introduced chip + PIN to replace signature verification.

Results were dramatic, with a two-thirds reduction in overall fraud events within a few years.

The US, initially put off chip+PIN by the higher costs for banks, eventually relented as fraud migrated to that country.

We now need similar concerted action when it comes to online fraud.

Digital ID looks like a promising avenue – but it must be controlled by consumers and privacy must be protected.

Better real-time data analytics will also help, as will improved transaction security.

Whatever route is chosen, those who want to see a digital future should act now, or see the promise of e-commerce fade quickly as consumers opt for security over convenience, choice and lower prices.

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