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Acts of fraud cost businesses around the world billions of dollars every year. But, what is the true cost of fraud and how can businesses prevent it? In this guide, we reveal everything you need to know.
Fraud occurs when someone uses deceitful tactics in order to illegally or unethically make a gain at the expense of someone else.
The process involves false representation of facts, whether by withholding information or providing false statements for the specific purpose of gaining something that would not have been provided without the deception.
Both states and the federal government have laws that criminalize fraud. Those who are caught committing an act of fraud may be punished with a fine or jail time.
In the world of finance, fraud can take many different forms. Common types of online fraud include:
Estimates suggest that global losses from payment fraud alone were $32.39 billion in 2020. When all types of fraud are considered, fraud costs the global economy $5 trillion annually.
Although the overall cost of fraud is high (some believe that many organizations are losing around 7% of their annual turnover as a result of fraud), businesses and customers alike are facing a number of other threats and costs, such as:
Estimates suggest that every $1 of fraud costs businesses $4. Year on year, this cost continues to rise.
However, the consequences of fraud aren’t purely financial. For example, if you allow a fraudster to access a customer’s account and use it, then your business will also suffer a great deal of reputational damage.
On top of this, you may also be fined by regulators for not keeping a customer’s data safe. Due to this, it’s vital that your business follows the correct reporting requirements, such as FCA fraud reporting PSD2 in the UK and Federal Trade Commission (FTC) reporting requirements in the US.
Finally, you must consider that other teams in your organization will also come under strain due to fraud. For instance, hacks and security issues must be investigated by your IT team, while your customer support team will likely be overwhelmed by customer requests. Meanwhile, your finance team must fight costly chargebacks on top of doing their usual tasks.
Of course, a client’s main concern when they find that they’ve been a victim of fraud is whether they can get any of their money back through chargebacks. However, customers also face other threats.
For example, if their account has been compromised, then a hacker has also gained access to this customer’s sensitive and private information. Using this information, they can attempt to hack into the customer’s other accounts. Due to this, the customer must attempt to secure each account they own and ensure no others have been compromised. This can be a stressful and time consuming process.
During the pandemic, many financial service providers moved their operations online. Although this increased convenience for customers, it also provided fraudsters with an opportunity to exploit weaknesses in new systems.
This uptick in digital processes has directly led to an increase in fraud. When compared with pre-pandemic rates, the rate of identity fraud cases has increased by 41%.
The ways in which fraudsters are attacking businesses is constantly evolving. From account takeover to synthetic identity fraud, and from replay attacks to advanced biometric fraud, fraudsters continue to reinvent their approach.
In the coming years, it’s widely expected that the level of threat posed by fraudsters will continue to rise. This is because fraudsters will place a greater emphasis on the following schemes and threats:
As the methods employed by criminals become more sophisticated, businesses must take every possible precaution in the fight against fraud. One of the best ways of doing this is to employ the use of technology.
Here at Veriff, we’ve created a number of powerful solutions that can help businesses fight fraud and ensure regulatory compliance. For example, our online identity verification solution can help you verify users and ensure each customer is exactly who they’re claiming to be.
Similarly, our AML and KYC compliance solution can not only verify a customer’s identity, but it can also screen global sanctions and PEP watchlists, and check for adverse information and media. Plus, it can also provide ongoing monitoring for each customer.
Finally, our biometric authentication solution can help your business move beyond passwords and one-time passcodes. In doing so, it can help you secure customer accounts. Identities can be verified in as little as one second and the solution is 99.9% accurate. Verifying returning customers is easy and 99% of customers are authenticated on their first try.
Verifying a customer’s identity before you allow them to access their account or place an order is the best way of preventing fraud. However, on top of this, there are other best practices that you should look to follow.
For example, rather than using passwords and one-time passcodes for security purposes, you should instead employ advanced biometric security solutions alongside advanced techniques such as background video recording. This way, you can enhance security without compromising the customer experience.
On top of this, you should also consider how mobile ID checks could help you both authenticate your customer and identify potential future risks. Plus, you should also ensure that your fraud prevention, cyber security, and compliance teams work collaboratively to build your fraud prevention program. This will ensure your processes suit all needs and requirements.
Similarly, you should be open and honest with your customers about the security methods you employ and how their data is used and stored (and why). Finally, you should also encourage customers to keep their data secure. In doing so, you should inform them about best practice methods for keeping sensitive data safe, and why it’s so important that they do so.
The cost of fraud is high for customers and businesses alike. If you’d like to secure your systems and ensure that only verified users can access their accounts, then speak with the digital identity experts at Veriff today.
Simply provide us with some basic information about you and your business and we’ll give you a personalized demo that shows exactly how our solutions can help you prevent fraud.