4 minutes
Auditing your current fraud prevention efforts and using best practices and good tools are good steps to take.
Credit unions have faced no shortage of challenges over the last two years. Between the temporary closure of physical locations, finding ways to connect with members digitally and pivoting services to meet their ever-changing needs, it has been a time of change and growth.
While it seems that we are turning a new page since the onset of COVID-19, there are still challenges ahead. Particularly, the digital transformation driven by the pandemic has brought with it unprecedented levels of fraud. This new digital-first environment has given fraudsters new ways to commit crimes, putting businesses and consumers at risk. It’s important to anticipate new types of fraud and leverage the right tools and technology to combat emerging trends.
Here are five potential fraud threats from Experian’s 2022 Future of Fraud Forecast.
Buy Now, Pay Never
The buy now, pay later space has grown massively recently. In fact, the number of BNPL users in the US has grown by more than 300% a year since 2018, reaching 45 million active users in 2021 who are spending more than $20.8 billion. Without the right identity verification and fraud mitigation tools in place, fraudsters will take advantage of some BNPL companies and consumers in 2022. Experian predicts BNPL lenders will see an uptick in two types of fraud: identity theft and synthetic identity fraud, when a fraudster uses a combination of real and fake information to create an entirely new identity. This could result in significant losses for BNPL lenders.
Cryptocurrency Scams
Digital currencies, such as cryptocurrency, have become more conventional and scammers have caught on quickly. According to the Federal Trade Commission, reports of investment cryptocurrency scams have skyrocketed, with nearly 7,000 people reporting losses totaling more than $80 million from October 2020 to March 2021. Experian predicts that in 2022 fraudsters will set up cryptocurrency accounts to extract, store and funnel stolen funds, such as the billions of stimulus dollars that were swindled by fraudsters.
Ransomware Attacks
In the first six months of 2021, there was $590 million in ransomware-related activity, which exceeds the value of $416 million reported for the entirety of 2020 according to the U.S. Treasury's Financial Crimes Enforcement Network. Experian predicts that ransomware will be a significant fraud threat for companies in 2022 as fraudsters will look to not only ask for a hefty ransom to gain back control, but criminals will also steal data from the hacked company. This will not only result in companies losing sales from the halt caused by the ransom attack, but also will enable fraudsters to gain access and monetize such stolen data as employees’ personal information, HR records and more. This leaves the company’s employees vulnerable to personal fraudulent attacks.
Romance-Related Scams
Because more consumers went on dating apps and social media to look for love during the pandemic, fraudsters saw an opportunity to create intimate, trusted relationships without the immediate need to meet in person. The FBI found that from Jan. 1 to July 31, 2021, its Internet Crime Complaint Center received over 1,800 complaints related to online romance scams, resulting in losses of approximately $133 million. Experian predicts that romance scams will continue to see an uptick as fraudsters take advantage of these relationships to ask for money or a “loan” to cover anything from travel costs to medical expenses.
Digital Elder Abuse
According to Experian’s latest Global Insights Report, there has been a 25% increase in online activity since the start of COVID-19 as many people, including the elderly, went online for everything from groceries to scheduling health care visits. These digital newbies present a new audience for fraudsters to attack. Experian predicts that consumers will be hit hard by fraudsters through social engineering (when a fraudster manipulates a person to divulge confidential or private information) and account takeover fraud (when a fraudster steals a username and password from one site to takeover other accounts). This could result in billions of dollars of losses in 2022.
What Credit Unions Can Do
As fraudsters evolve to be more creative, credit unions must also adapt. The first step is to audit your current fraud prevention methods to make sure they are still protecting your portfolio and your customers. It’s important to ensure that your tools implement a multi-layered approach that can not only identify different types of fraud but leverage advanced data and analytics to stop fraud before it occurs.
Just as importantly, credit unions should implement good fraud prevention processes that use a planned sequence of pass/fail decisions. When risk is detected, an action is taken to further verify the identity. If that fails, additional steps are taken one at a time to increase confidence in the identity or flag it as potentially fraudulent. If a fraud gets through, this approach will help you see how they beat your defenses, and what improvements to make. Not only does this approach protect your credit union, it also gives you more confidence in serving your members. An advanced, layered fraud prevention solution can help you do this.
As fraudsters continue to ramp up their efforts, it is crucial to utilize fraud prevention solutions that evolve with emerging trends in order to stay ahead of attacks before they happen. By implementing a solution that leverages advanced data and analytics, credit unions can protect themselves and their members from losses.
Kathleen Peters is chief innovation officer for the decision analytics business in North America for CUESolutions provider Experian. Peters and her team are continuously looking for new ways to solve customer challenges by defining product strategies, finding new paths to market and setting investment priorities for Experian’s decisioning, analytics and identity capabilities. Working in Silicon Valley for nearly two decades amidst fast-paced innovation, leading-edge technology breakthroughs and business model disruption has influenced her approach to strategy and business thinking at Experian. The last two years, Peters has been named a “Top 100 Influencer in Identity” by One World Identity, an exclusive list that annually recognizes influencers and leaders from across the globe, showcasing a who’s who of people to know in the identity space.
