The 2018 Global Fraud And Identity Report
The 2018 Global Fraud and Identity ReportExploring the links between customer recognition, convenience,trust and fraud risk
IntroductionBeing recognised is a simple thing that goes a longway. Recognition takes many forms – whether it’sacknowledgement for an achievement or being welcomed ina room as a familiar face. It feels good to be recognised.But there’s more to recognition than feeling good. Nowmore than ever there’s a commercial value associated withit. In an increasingly digital world, we are trying to recreatein-person recognition across industries and channels tofuel growth and opportunities. In doing this we need tocarefully balance customer security and convenience withfraud and friction. Being able to verify someone shouldn’tdisrupt the way they interact with a business. Experian believes that any business that can better identify itscustomers can more easily spot fraud.Just how well-equipped are businesses at recognising theircustomers’ identities online? What type of investments arethey making in customer recognition and to what degreeare they able to accurately identify customers and managefraud risk? Our 2018 Global Fraud and Identity Report,based on input from more than 5,500 consumers and 500businesses* worldwide, looks at this topic to understandwhat consumers think of security protocols today andgauges how confident businesses are in their ability toaccurately identify their customers.* Businesses in one of the following sectors: retail banking and credit card, digital only and click-n-mortar retailer, airline industry,consumer technology and electronics, telecommunications worldwide (Australia, Brazil, China, France, India, Singapore, South Africa,Spain, Turkey, the United Kingdom and the United States).Page 2
Executive SummaryWith most consumers owning smartphone and mobiledevices (91 percent), followed closely by laptop computers(83 percent), the digital marketplace is here now (Figure1). Certainly, technology is supporting the large volume ofonline interactions between businesses and consumers. Butthe real currency of digital commerce is trust.Device ownership91%SmartphoneLaptopTablet62%PCAs businesses undergo digital transformations in their frontand back office operations, they recognise the importanceof trust and the need for technology to enable it.When it comes to online engagement, three-quarters (75percent) of businesses are interested in more advancedsecurity measures and authentication processes thathave little or no impact on the customer. At the same timebusinesses understand that their customers take comfort inthe security measures they already have in place for digitaltransactions.83%65%Online activities among consumers reflect widespreadembrace of digital commerce as a way to purchase goodsand services (90 percent) and conduct personal banking(88 percent) (Figure 2).21%Smartwatch13%SmarthomeDevice75% of businesses want advancedauthentication and security measuresthat have little or no impact on the digitalFigure 1customer experience.Top activities on devices90%Online Shopping88%Personal BankingPlay Video Games51%Apply For Drivers' License51%Get Quotes/Buy Insurance49%Apply For Credit Cards/Loans48%File TaxesBuilding trust through technology without disruptionis increasingly the goal, but also the responsibility ofbusinesses with online channels. While there are genuinebarriers to achieving that goal, it is now more critical thanever to business outcomes.45%Figure 2 Page 3
Consumers expect businesses to protect themThe enthusiastic embrace by consumers of the digitalmarketplace is predicated on trust. Four out of fiveconsumers trust that businesses are making the protectionof their personal information a top priority (Figure 3).63% of businesses have experienced the same ormore fraud losses in the past 12 months27%Slightly more33%The same amountSlightly less4 out of 5 consumerstrust that protectingpersonal data is a toppriority (banking)Figure 3In contrast, almost three-quarters of businesses (72percent) cite fraud as a growing concern over the past 12months (Figure 4) and nearly two-thirds (63 percent) reportthe same or higher levels of fraudulent losses over thatsame period (Figure 5).Business executives share a growing concernabout fraud over the past 12 months30%Figure 563%Nonetheless, consumers are feeling reassured. Theycite visual signs of security and barriers they encounterwhen accessing their online accounts as indicators thata transaction is more secure. In fact, the lack of visiblesecurity was the number one reason customers abandoneda transaction (Figure 6).Lack of visible security was the #1 reasoncustomers abandoned a transaction27% abandoned a transaction due to a lack ofvisible security.Other reasons transactions wereabandoned include:53%45%Significantly more27%47%Slightly morePage 4 Mandatory account creation for aone-time purchase Unclear reasons the site did notrecognise meQ: In the past 12 months, how has your concern about the risk offraud changed, as it relates to your business?Figure 4 Too much information required fornew account setupFigure 6AbandonedDid not abandon
Nearly two-thirds (66 percent) of consumers surveyedappreciate security protocols when transacting onlinebecause it makes them feel protected (Figure 7). In someways, consumers tolerate the nuisance of common barriersto accessing their accounts (e.g., forgetting their passwordor having to re-enter other security controls like CAPTCHAor PIN code) concluding that higher friction meansbetter security.66% of consumers said, "I like all the securityprotocols when I interact online because it makes mefeel protected."IndiaS. %Q: Please indicate how strongly you either agree or disagree [witheach of the following statements] on the scale provided - disagreestrongly, disagree, neither agree nor disagree, agree, strongly agree.Figure 7Consumer tolerance for friction for the sake of securityvaries across the 11 countries surveyed. For example,consumers in India and South Africa are more tolerant ofsecurity protocols because it makes them feel protected.On the other hand, consumers in Turkey are less tolerant.Tolerance also varies by age. One-third of consumerssurveyed said they would do more transactions online ifthere weren't so many security hurdles to overcome.42% of millennials said they would conduct moreonline transactions if there weren’t so many securityhurdles to overcome.versusAmong these consumers, 42 percent were millennialscompared to only 30 percent of those 35 and older. In otherwords, younger consumers are less tolerant of securityhurdles and are more inclined to engage online if there wasless friction.So for businesses, there is a delicate balance to achieve.They need to deliver an online experience that instillsconfidence, with security protocols that make customersfeel safe and protected. And, they need to allow for easyand convenient access.Given the differences in tolerance for friction acrossdifferent markets and age groups, a global one-size-fitsall solution is difficult to achieve. It is also a moving target,as consumers’ tolerance for friction could lessen overtime. Not to mention the expectations for a frictionlessexperience among future generations of digital customersused to an online digital experience that imposes few, if any,visible security protocols.As security protocols transition to more data-driven,artificial-intelligence powered systems operating behindthe scenes, businesses will need to gain and maintainthe customer's trust without the familiar perception ofsecurity. Solutions that combine device information withother data points such as biometrics could help businessesin the future better recognise their customers rather thanchallenging them.“We’re starting to look at what arethe other ways biometrics couldbe used. There is a world out therethat is quickly evolving.”Strategist, retail banking, United States30% among those 35 and older Page 5
Yet businesses seems increasingly daunted by the taskBusinesses are aware of the prevalence of fraud in themarketplace, and the degree to which fraudulent activityhas an impact on their business. In fact, Sixty-five percentof businesses are detecting the same or more fraudulentactivity (Figure 8). Why has fraud become so pervasive andwhy have businesses struggled to keep up?Cybercriminals are forever advancing the sophisticationof their methods. Fraud is now moving between channels— such as web, call center, mobile, etc. — and newschemes, such as synthetic fraud (where criminals combinereal and fake information to create a totally new identity),are constantly evolving.The great irony is that the weapon against online fraud isalso the source of its vulnerability. The existing accountsetup process requires consumers to provide extensivepersonal information, answers to secret questions andpasswords. Data breaches have exposed this informationto fraudsters. Once stolen, this information can be used tofacilitate fraudulent activity, giving personal informationgenuine value in illicit markets. As the potential windfallfrom digital fraud grows, so does the cybercriminal’smotivation to stay ahead of the latest detection strategiesand technologies.Most businesses are experiencing the same ormore fraud losses5%16%Slightly more37%The same amountSlightly less“Our systems are not good – partlybecause we're taking three differentsets of systems and combining theminto one.” CMO, online/brick and mortar retailer,United States65%Q: In the past 12 months has your business detected more, less or thesame fraudulent activity?Figure 8Page 6 Significantly less28%
Business executives aren't very confident about their abilityto protect their organisation and their customers from fraud(Figure 9). They admit that any existing measures were theproduct of reactive rather than proactive initiatives. Legacytechnology challenges (integrating new and old solutions)also present barriers.54% of businesses are only "somewhat confident,"in their ability to detect fraudulent activity compared toonly 40% who are very confidentAs businesses make strides in introducing innovative waysfor customers to open accounts and/or transact online, theyare still faced with challenges to overcome.Traditional solutions relied on behaviour patterns thathelped businesses detect fraud. New solutions mean newonline behaviour patterns, and the old benchmarks used indetecting anomalous activity that might signal fraud are nolonger reliable. Consequently, as businesses innovate thedigital experience, they feel increasingly vulnerable and notvery confident in their ability to spot fraud (Figure 9).54%Somewhatconfident40%VeryconfidentFigure 9 Page 7
Perfect fraud prevention cannot come at the expense of happy customersNot surprisingly, pragmatic business executives focus onwhat they can control. In a climate where businesess aren'tvery confident in their ability to address the ever-movingtarget of fraud detection, they choose instead to focuson happy customers as simply a cost of doing business.In other words, many businesses prioritise convenienceover security and have come to terms with acceptablelevels of losses.Businesses use a variety of fraud detectionand prevention methods, but still rely on passwordsas the top form of authentication.52%Passwords50%Account set-up measuresCredit Card security measures49%Security questions49%Payment processor measures48%PIN codes45%Multi-factor authentication44%Document verification40%One-time passcodes36%Knowledge-based authentication35%Figure 10Page 8 As such, there is uncertainty about how much to invest inadvanced fraud detection and authentication solutions outof concern for disrupting the customer experience.Businesses are forever grappling with the tension betweenmanaging fraud and maintaining a positive customerexperience. In most cases, the latter wins out, as evidencedby their willingness to accept higher fraud losses fromauthentication protocols that they concede might bedeficient, but do not disrupt the user experience.Whether it’s opening a new account, logging into an existingaccount or making a transaction, more than 50 percentof businesses say they still rely on passwords as theirtop form of authentication (Figure 10). Passwords win outamong business leaders as their top form of authenticationmainly because they are well-understood and customershave grown accustomed to them.That said, while passwords, security questions and onetime passcodes are all among the top authenticationmethods used by businesses today (Figure 10), leadersconcede that they are not as secure as other options.They cite lack of resources and budgetary constraints asbarriers to adopting these more advanced authenticationmethods. Ironically, given their focus on the customerexperience, it is precisely these advanced methods thatwill likely enhance that very experience and simultaneouslyreduce exposure to fraud. So why aren’t businessesusing them?
Businesses might need to lead customers to better solutions while keeping themhappy at the same timeSome businesses say that their slow adoption of moreadvanced authentication methods reflects their focus onthe customer experience. That their customers favor morefamiliar, time-tested methods like passwords. Ironically,those methods just might be compromising the experiencethey are advocating for by introducing an unintendednuisance and security risk. One-quarter of consumershave forgotten a username or password within the pastsix months.Time-tested methods — like passwords — may domore harm than good for the customer experience25%of consumers have forgotten ausername or password withinthe past 6 monthsMore than a third (37%) change their passwordless than once a year, with only 19%actually changing their passwordat the recommended timeTop three barriers encountered whenbanking onlineForgotten username or passwordLocked out for mistyping apassword too many timesSecret or personal questions priorto access being granted.More than a third (37 percent) change their password lessthan once a year, with only 19 percent actually changingtheir password at the recommended time. Further, thetop three barriers encountered when banking online areforgetting a username or password, being been lockedout for mistyping a password too many times, or having toanswer secret or personal questions prior to access beinggranted (Figure 11).It’s not as if businesses are resigning themselves to fraud.Quite the contrary, their approach to fraud preventionerrs on the side of suspicion and detection (71 percent)versus permission and trust (29 percent) (Figure 12). Theyare clearly sensitive to the costs associated with fraudin dollar terms. Over 67 percent say that a "fraudulenttransaction not declined" is costlier to the business than a"legitimate transaction that is declined" perhaps not takinginto account the cost of a negative experience (Figure 13).However, 69 percent are also concerned with the number ofincorrectly declined customer transactions (Figure 14) fromoverzealous fraud detection. That concern likely stems fromthe possibility of lost revenue, lost potential new customersand a compromised experience for existing customers.“Our service desks are getting tons ofcalls, most to do with password changesor help because users forgot theirpassword. If we can do more on the selfservice end, it would be tremendous, areduction in the call volume.” CIO, onlineretailer, United StatesFigure 11 Page 9
Business executives are looking at the costs and benefitswhen considering more advanced authentication methods.Ultimately, they agree. The ability to more preciselyidentify the customer (versus detecting the fraud) will driverevenue. However, they are concerned that costs associatedwith more modern fraud detection would offset any gainsfrom the incremental transactions.Thus, a conscious choice to prioritise the customerexperience explains why business executives stick withexisting, and sometimes inadequate, solutions.When considering their authentication methods, businessesalso recognise the need to bring the customer along. Mostbusiness leaders we spoke to agreed that consumerswould need some sort of incentive to change or adoptnew measures (such as biometrics), unless otherwise ledon a mass scale by brands like Apple, Google, Amazonor Facebook to a new customer experience feature thatdramatically improves their own experience.The majority of companies plan to be competitive in frauddetection and mitigation, while only 35 percent plan to bea leader (Figure 15). Among those businesses identified as"slow to follow," banks seem slightly more comfortable thanretailers in introducing advanced authentication methods.While still taking a conservative approach to introducingthese more advanced methods, banks are particularlykeen to improve the clunky, high-friction digital onboardingexperience most customers feel when opening a newaccount on their mobile device.When it comes to the impact on revenue, businesses look at the impact of both detection andpermission-based security measures71%Security measures err on theside of detection (suspicion)29%Security measures err on theside of permission (trust)Q: What is your best guess as to the impact your security measures are having for preventing fraud? Security measures that err on the sideof detection (suspicion) and probably declining more transactions than warranted based on incorrect assessments of these transactions asfraudulent when in fact they are legitimate? Or, security measures that err on the side of permission (trust) and are probably approving moretransactions than warranted based on incorrect assessments of these transactions as legitimate when in fact they are fraudulent?Figure 12Page 10
Businesses err on the side of suspicion anddetection versus permission and trustBusinesses are concerned with the numberof incorrectly declined customer transactions67%31%A fradulent transactionthat is not detected33%69%A legitimate transactionthat is falsely declinedQ: Which is more costly to your business?Figure 13YesNoQ: Is the legitimate number of transactions that are incorrectlydeclined a concern to your business?Figure 14Most companies will be competitive in fraud detection and mitigation, not a leader53%We will be competitive in fraud detection and mitigationWe intend to be a leader in fraud detection and mitigationWe will "wait and see" and keepan eye on new technologies andapproaches to fraud detection andmitigationWe will defer to ourbusiness partnersand rely on them tobe at the forefront5%35%7%Q: Going forward, which of the following statementsbest describes your business' approach to frauddetection and mitigation?Figure 15 Page 11
Businesses are conservative when it comes to trying new solutionsEighty-four percent of businesses said that the burden offraud risk mitigation would be reduced if they were certainabout the identity of a customer (Figure 19). The goodnews is that businesses across functions want to be moreproactive and implement a more progressive approachto fraud risk management that balances detection withthe customer experience. Who can help align these goalsto ultimately benefit the consumer? Businesses lean onIT when making decisions for investing in both fraud riskmanagement and customer experience solutions (Figure16). Considering all of the teams directly and indirectlyinvolved, IT serves a critical role in bringing multiplesolutions together. However, these teams require time andresources to integrate new solutions. If under-resourced,these teams can become a hindrance to the timely adoptionof more modern and advanced approaches to fraud riskmanagement.Business executives have expressed concern of theircustomers perceiving that they have fallen behind inproviding comprehensive protection. Seventy-five percentexpressed
protocols when I interact online because it makes me feel protected." India S. Africa Australia U.S France U.K 76% 74% 70% 69% 67% 66% Spain Singapore Brazil China Turkey Overall 64% 63% 63% 62% 56% 66% Q: Please indicate how strongly you either agree or disagree [with each of the following statements] on the scale provided - disagree
May 02, 2018 · D. Program Evaluation ͟The organization has provided a description of the framework for how each program will be evaluated. The framework should include all the elements below: ͟The evaluation methods are cost-effective for the organization ͟Quantitative and qualitative data is being collected (at Basics tier, data collection must have begun)
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Types of economic crime/fraud experienced Customer fraud was introduced as a category for the first time in our 2018 survey. It refers to fraud committed by the end-user and comprises economic crimes such as mortgage fraud, credit card fraud, claims fraud, cheque fraud, ID fraud and similar fraud types. Source: PwC analysis 2
Types of economic crime/fraud experienced Customer fraud was introduced as a category for the first time in our 2018 survey. It refers to fraud committed by the end-user and comprises economic crimes such as mortgage fraud, credit card fraud, claims fraud, cheque fraud, ID fraud and similar fraud types. Source: PwC analysis 2
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