Identity fraud reported by U.S. consumers dropped 3 percent in 2014, according to Javelin Strategy & Research's just-released report, 2015 Identity Fraud: Protecting Vulnerable Populations. The report, now in its 11th year, is based on a survey of 5,000 U.S. consumers conducted last October.
But while this decrease may sound promising at first glance - it's the first decline in ID fraud reported among American consumers since 2010 - a decline of 3 percent is disappointing, says Al Pascual, director of fraud and security at Javelin. Given all of the breach-prevention and security technology investments U.S. businesses have made in the past year, including improvements in authentication, the year-over-year decrease should have been much greater, he contends in an interview with Information Security Media Group.
Identity fraud results from the theft and compromise of personally identifiable information, Pascual says. While ID fraud usually refers to fraud perpetrated for financial gain, such as the takeover of a bank account or compromise of a credit card, it also can include medical fraud and new-account fraud, among other types of fraud, he says.
ID Fraud Will Increase in 2015
Pascual predicts that ID fraud reported among U.S. consumers, especially involving new account fraud, will sharply increase this year, and banking institutions, in particular, should be bracing for a backlash.
"Any time we see a decline in the total number of victims, the total amount of fraud losses, we like to think of that as a huge positive," Pascual says. "But I definitely want everyone to temper their perception a bit. You have to consider the extraordinary response in the past year to things like data breaches."
Pascual points to the Target breach as an example. He cites an American Banker Association report that says issuers replaced up 95 percent of debit and credit cards affected by the breach.
"That's an immensely extraordinary response," he says. "We've never seen that before. So we're replacing cards hand over fist, tightening controls like nobody's business. And consumers are being provided things like identity protection for every breach that occurs."
With all of these steps being taken to protect consumers and accounts, the decline in ID fraud victims should have far exceeded 3 percent last year, Pascual says. "We could have done better than that."
Going forward, the type of fraud that will be the most prevalent is existing card fraud, such as counterfeit and lost-or-stolen card fraud, and new account fraud, Pascual says.
"New account fraud, which hit a record low last year, could trend up significantly," in the wake of EMV implementation for payment card transactions, he says. "We saw that in the U.K. after they rolled out EMV. We're going to see that here, so financial institutions need to be prepared to do a better job of vetting new customers, because that's where criminals are going to be going over the next few years."
During this interview, Pascual also discusses:
- Why healthcare-related data breaches will become more prevalent;
- The increasing role customer education plays in financial fraud prevention; and
- How information sharing will help organizations detect ID fraud and new account fraud sooner.
Pascual leads Javelin's security, risk and fraud practice. He began his career with HSBC during the height of the mortgage boom. While working in HSBC's borrower verification department, Pascual performed enhanced due diligence investigations of high-risk loans. He later joined Goldman Sachs' fixed income, currency and commodities division, serving on its mortgage fraud investigations team. He also worked at Fidelity National Information Services, now FIS Global, overseeing data driven investigations of organized payment fraud groups in the United States. Pascual is a member of the Association of Certified Fraud Examiners and the International Association of Financial Crimes Investigators.