Fraud Protection

FRAUD PROTECTION: Generate Fee Income while PROTECTING YOUR CUSTOMERS Fraud and ID theft continue to be a major threat to consumers and their financial institutions across the U.S. While some types of fraud have declined, others con- tinue to appear and grow. Fraud has ill effects for everyone involved, but a strong fraud program can protect your financial institution and your customers while generating additional fee income. THE GROWTH OF IDENTITY THEFT & FRAUD Identity theft and fraud are a growing problem; 11.6 MILLION in fact, the FBI reports that it's the fastest growing crime the U.S. While consumers and businesses are worried about identity theft and (4.9% of the U.S. population) fraud, they don't really know what to do to stop U.S. adults were victims of fraud in 2011 (13% growth) which it. However, they do expect their financial institution to be a partner in helping to prevent resulted in over $18 billion in and resolve these issues when they happen. losses annually 27% 13% 8% 26% Phone/utilities Employment Other & attempted fraud Government fraud fraud identity theft 14% 9% 3% Credit card Bank fraud Loan fraud fraud 74% 42% of people said they were just as of all U.S. cardholders (debit, credit, worried or more worried about and prepaid) have experienced card fraud in the past five years. identity theft today as they were five years ago SOCIAL MEDIA & MOBILE EFFECTS Social media and mobile phone behaviors are leading to higher incidence rates of fraud as people are sharing far too much information about themselves on public sites. Of the people with social media profiles, 55% 51% 47% 12% shared their birthday shared their email shared their high school name shared their phone number information address (31% shared month, date & year) 9% 9% 4% 3% shared their shared their pet's shared their mother's shared their mother's profile maiden name screen name name All are prime examples of personal information used by some anti-fraud tools to authenticate people. 7% of smartphone 75% of financial executives believe owners are victims mobile poses fraud and security risks, and of fraud (33% higher rate compared than the general public) 88% believe the mobile channel will be the next big point of fraud exposure IMPACT TO THE CONSUMER Even though consumers have protection under Reg E, victims of fraud feel violated and lose trust in their own judgment and their trust in others. The cost to the consumer is substantial both financially as well as in time spent trying to overcome the attacks. The longer fraud goes unresolved, the more expensive and difficult it is to resolve. U.S. consumers have had limited exposure to anti-fraud guidance or tips from their financial institution: 3% Not applicable 13% It takes over Saw on website 12 HOURS to repair the damage 43% with an average out of No information 19% pocket cost of Received email $354 per victim. 22% Received mail Zero-liability policies and dedicated fraud and claims teams at financial institutions and card issuers have expedited the resolution process and reduced the cost absorbed by the consumer. 46% 33% 16% 47% 70% of males and of U.S. consumers used the replacement card less often of victims have trouble getting rid of negative information in of U.S. victims of consumers struggle getting credit or a loan as a result of ID theft 5% change their purchasing behaviors after experiencing a fraud attack of females changed card provider following the attack. their records IMPACT TO FINANCIAL INSTITUTIONS Consumers aren't the only victims when fraud strikes. 96% of all banks incurred a Your bank or credit union incurs financial costs and financial loss from debit card fraud, often receives a share of the blame from the victim. 73% from check fraud y Funds lost: Hidden Costs of Fraud: First party fraud cost banks and credit Reputation unions an estimated $18.5 billion Loss of confidence across the world Examples of fraud affecting banks and credit unions ACH/wire transfer fraud. This is a type of fraud that happens via an instant messaging system. The customer has been signed in through their account so the employee assumes it is valid. In reality, the account was hacked and the transfer was never Red Flags Rule from FCRA. Income tax fraud The Red Flags Rule requires companies to implement a written Identity Theft Prevention Program designed to detect the warning signs of identity theft in their day-to-day operations. When the Treasury issues checks, it expects financial institutions to ensure the check is real before cashing it or they are responsible to cover the check if the IRS determines it is fraudulent. IMPACT: IMPACT: requested by the customer. An individual ordered checks The IRS has no idea of the true IMPACT: from an Fl and then 30 days ordered additional checks to the same address. This did not create any red flags. However, the customer's impact, but as of September 30, 2012, 642,000 incidents of identity theft had been identified by the IRS that impacted them in 2012 alone. There are 20.2 billion ACH payments in 2011 and the EBI has seen a 38 percent increase in wire transfer fraud in 2011 alone. Victims are suing banks for alleged failures to prevent fraud via ACH account was emptied of $80,000 GENERATE FEE INCOME WHILE HELPING CUSTOMERS Everyone is a victim when identity theft and fraud take place. Consumers often don't know where to turn or that there are tools to help them prevent fraud. Financial institutions can create camaraderie with their customers and generate additional fee income by providing fraud products to their customers. Fraud protection is still a small industry at 26 million people are enrolled in credit monitoring, while 14 million are subscribed to a higher level of protection. Research shows that people aren't thinking about this unless its presented to them. $2.4 billion of consumers rely on a third party for 54% fraud protection. of consumers stated that they would seek 47% assistance first from their payment provider if they were a victim of fraud 40% of consumers feel Consumers are slowly adjusting to the new fee-based model at banks but most welcome paying a fee for a safest buying ID Theft protection from their new valued service. financial institution. APPLICATION Fees for extra security should NEVER be mandatory; instead, offer a "security bundle" Do not charge a fee for any security feature you already offer free of charge Do not charge for a security bundle that is typically offered free of charge by others DELUXE, CORP Sources: First Data: http://www.firstdata.com/downloads/thought-leadership/fd_consumeronlineshoppingfears_research.pdf Aite: http://www.aciworldwide.com/-/media/Files/Collateral/ACI_Aite_Global_Consumers_React_to_Rising_Fraud_1012 http://www.aitegroup.com/Reports/ReportDetail.aspx?recorditemlD=994 Javelin: https://www.javelinstrategy.com/brochure/239 NACHA: https://www.nacha.org/node/1130 ABA: http://www.aba.com/Products/Surveys/Pages/2011DepositAccount.aspx GAO: http://www.gao.gov/products/GAO-13-132T ID Analy tics: http://www.nationalnotary.org/bulletin/bulletin_articles/survey_fear_of_identity_theft_widespread_among_u.s._adults.html