Financial services industry struggling with increasing fraud
Survey shows sector concerned about making security measures too cumbersome
As customers conduct more and more transactions online, the financial services industry has increasingly become the target of fraudsters who try to stay one step ahead of security measures, according to a new report.
In a survey of 465 executives in the financial services and insurance sectors in Canada, the U.S. and India, 96 per cent of respondents said their organization had experienced some sort of fraud in the past two years.
Executives reported sharp annual increases in rate evasion, where applicants or policyholders alter or omit information to obtain a lower premium (62 per cent), fraud using a fabricated identity (66 per cent) and identity theft or new account fraud (64 per cent).
Forrester Research, which completed the study in September, estimates that fraud claims drain 2.39 per cent in reve- nue or billions from financial services firms each year.
Last week, email security firm Vade Research called the Canadian Imperial Bank of Commerce one of the most common targets of phishing attacks that aim to trick people into handing over confidential data. In response, the CIBC called cybersecurity “an evolving space that we monitor closely.”
Almost half the Forrester survey participants said they lack the specialized skills to detect increasingly sophisticated fraud schemes.
“The constant evolution of patterns, tools and evasion methods from fraudsters have resulted in an ongoing vulnerability for these industries,” said Anne-Marie Kelly, executive director of identity management and fraud solutions for credit reporting agency TransUnion Canada, which commissioned the study.
At the same time, a clear majority of the survey’s respondents had little tolerance for fraud detection and customer identity verification that compromises the customer experience.
“Consumers struggle to remember an ever-growing number of user names and passwords and organizations struggle to manage them,” said Kelly.
“The result is a constant tug of war between organizations and consumer needs, which provides criminals with a playground of information to use to perpetrate identity crimes.” She said consumers have come to expect seamless consistency in every interaction with banks and insurers so that companies cannot simply prevent fraud by developing an onerous customer process.
Kelly added that striking a balance between security and customer satisfaction has proven difficult for many Canadian companies.
More than half the survey participants indicated their current identity verification and fraud detection processes are too complex and burdensome – not only for customers, but also for the organization to maintain. Half the financial institu- tions surveyed are not satisfied with the capabilities that they currently have in place.
Less than 25 per cent of the insurers, for example, said they are satisfied with their antifraud systems, citing a lack of automated detection tools and of the employees trained to use them.
The study found that as consumers increasingly interact through digital channels, financial institutions must adopt fraud and identity solutions that identify “good” customers and fast-track them through transactions without hurting their experience.
Security commentator and blogger Alex Haslam said much of the onus for protecting against online fraud lies with consumers. He suggests that individuals start by securing their passwords and avoiding free public Wi-Fi to execute transactions. The Canadian Bankers Association adds on its website that customers should protect their devices against malicious software via updated anti-virus, anti-spyware and internet firewall tools.