For every dollar lost in fraud, financial services companies incur $3.25 in costs, according to the 2019 True Cost of Fraud study released by LexisNexis Risk Solutions. This level is up 11.3 percent from the $2.92 in costs recorded in 2018.
Lenders see $3.44 in costs for every dollar of fraud loss, up from $3.05 in 2018, a 12.8 percent rise. Banks and credit lenders, in particular, were found to have the highest costs of fraud with year-over-year increases of 17 percent and 16 percent, respectively.
The study attributed the increasing fraud risk to several trends, including the expansion of mobile banking options at a rise in botnet activity. Fraud risk related to international transaction volume is up among both mid- and large-sized digital banks and all digital lenders, although mortgage lenders have reported a significant drop in foreign transactions.
“The trends we have identified represent the challenges surrounding identity verification and authentication while trying to provide a smooth customer experience,” said Kimberly Sutherland, vice president for fraud and identity management strategy at LexisNexis Risk Solutions. “However, firms utilizing a multi-layered solution approach could realize up to an approximate 30 percent decrease in their cost of fraud, which is significant. And with digital identity intelligence and behavioral biometrics layered in, firms can expect to lower the true cost of fraud even further.”
The report’s findings are based on a survey of 205 risk and fraud executives in financial services and lending companies, including retail and commercial banks, credit unions, investments, trusts and wealth management, as well as auto lenders, mortgage companies, finance companies, and non-bank credit card and personal loan issuers.