LexisNexis® Risk Solutions today released the 2021 edition of the LexisNexis® True Cost of Fraud™ Study: Financial Services & Lending, the 5th edition of the report. The study examines fraud trends for the United States and Canadian financial services and lending sectors and key pain points related to adding new payment mechanisms, transacting through online and mobile channels and international expansion. This edition is based on responses from more than 500 risk and fraud management executives in August and September 2021and reveals that fraud costs and attack volumes remain significantly higher compared to before the pandemic. U.S. banks and mortgage lenders are experiencing much of the increase in both areas, as is the mobile channel.

The cost of fraud for U.S. financial services and lending firms has increased between 6.7% and 9.9% compared with before the pandemic. Every $1 of fraud loss now costs U.S. financial services firms $4.00, compared to $3.25in 2019 and $3.64 in 2020. While the LexisNexis Fraud Multiplier™ is slightly less for Canadian financial services firms, they have experienced a sharper year-over-year rise of 15.5%. The LexisNexis Fraud Multiplier for U.S. lenders is now $4.16, compared to $3.90 in early 2020 and $4.00 for Canadian lenders, up 12.4% prior to the pandemic.

Fraud Trends in Financial Services and Lending

1. Mortgage Lending Attracts Fraudsters – Mortgage lenders have been seriously impacted by fraud, with mortgage lending fraud costs now 23.5% higher than just before the pandemic hit in early 2020.
   
   These costs continue to be higher than other segments. Attacks on larger mortgage lenders have increased in recent years, particularly among those originating loans through online/mobile channels. While slightly down from the early pandemic spike, every $1 of mortgage lending fraud loss costs $4.40.
   
   
2. Targeting the Mobile Channel – The mobile channel continues to impact higher fraud costs and volumes, as financial services and lending firms say that criminals have targeted this channel for fraud during the pandemic.
   
   As banks and mortgage lenders have conducted more transactions through the mobile channel, these firms have also begun to attribute more of their fraud costs to it. More than half of respondents representing U.S. banks and credit lenders surveyed indicate a 10% or greater increase in mobile channel fraud this year.
   
   There is also a significant percentage rise across financial services and lending firms for malicious bot transactions. It is difficult to identify such bots and other types of fraudulent transactions involving synthetic identities without support from digital identity and transaction fraud detection solutions.
   
   
3. Fraud Across the Customer Journey – Identity verification, including digital attributes, is a top challenge across the customer journey. This aligns with identity fraud representing a significant percent of fraud losses at the point of funds distribution while these losses continue to grow with new account openings.
   
   There are additional challenges that tend to be more pronounced for banks and mortgage lenders at certain points in the journey.

• For banks, balancing fraud detection with customer friction is a top challenge alongside new account openings and account logins, while identifying malicious bots and the transaction origination are more concerning at funds distribution.
• Mortgage lenders tend to rank balancing fraud detection with customer friction, identifying malicious bots and knowing the transaction origination as top challenges across the customer journey. They are also more likely than other respondents to include a lack of tools to detect and prevent cross border fraud, especially with account takeover.

"The foreseeable future is unclear about the new normal. With the accelerated movement to online/mobile transactions and payments, financial services and lending firms must continue to build out and enhance the digital customer experience while protecting against fraud," said Christopher Schnieper, director of fraud and identity, LexisNexis Risk Solutions.

"Fraud prevention must assess both physical and digital identity attributes as well as the risk of the transaction. It is difficult for even the best trained professional to detect the increasingly sophisticated crime occurring in the remote digital channels without the aid of solutions that detect digital behaviors, anomalies, device risk and synthetic identities," Schnieper continued. "According to the study, the financial services and lending firms doing this – along with fully integrating cybersecurity operations, the digital customer experience and fraud prevention – tend to have a lower cost of fraud and fewer challenges."