Financial institutions (FIs) are in a never-ending struggle with criminal hackers over identity fraud — and unfortunately, right now many FIs are on the losing end.

New report: Application fraud is a serious threat to financial institutions

Financial institutions (FIs) are in a never-ending struggle with criminal hackers over identity fraud — and unfortunately, right now many FIs are on the losing end.

According to Aite Group research, nearly half of U.S. consumers experienced identity theft from 2019 to 2020. Additionally, 37% of consumers also experienced application fraud — a method of identity fraud that involves bad actors using consumer information to create a new account for fraudulent activity.

Application fraud can be a devastating experience for attack victims. Many are hit with high payments for loans or credit cards they didn’t even apply for and are unsure how to handle the situation. And customers are not the only ones on the losing end — FIs risk serious consequences such as brand damage and loss of customers out of frustration.

‘Identity is broken’

A new Impact Report from Aite Group reveals that application fraud is an even bigger problem than we thought. The research, which includes insights from NuData Security, shows that the COVID-19 pandemic and social unrest from the past year significantly accelerated application fraud.

One fraud executive interviewed for this report summarized the problem with application fraud in one phrase: “Identity is broken.” No matter how far security capabilities advance and how motivated security pros are to stop fraudsters, the problem is complex and application fraud still runs rampant as bad actors evolve and innovate their attack methods to steal consumers’ identities.

Another difficulty surrounding application fraud is how it’s defined. FIs and the security teams within their organizations often have different definitions for each type of fraud or payment default. For example, a synthetic identity application fraud attack may be wrongly declared as an unpaid line of credit customer delinquency, skewing the institution’s evaluation around the fraud type they are subjected to.

The lack of definitions complicates how application fraud is measured. Improper definitions lead to unreliable metrics, making it difficult for FIs to know how large of a problem application fraud is within their systems. And without an accurate understanding of application fraud attacks, FIs won’t truly know if their security efforts are making an impact.

The bottom line: The current methods used by FIs to authenticate customer identities are no longer cutting it. Without implementing new technology solutions, bad actors will only continue to leverage stolen customer information with ever more sophisticated schemes for application fraud.

Dive deep into application fraud by downloading the Impact Report

Aite Group’s Impact Report “Application Fraud: Strategies for a Leg Up in the Identity Fraud Arms Race,” tackles the issues of application fraud definition and measurement head-on, providing practical information to bolster your security approach.

In this report, you’ll learn about the latest insights on application fraud, including:

-> Detailed analysis of the three most common types of application fraud events.
-> The sheer scope of application fraud and the imminent threat it poses for FIs worldwide.
-> How behavioral biometrics technology and a multi-layered security approach can be viable application fraud controls.
-> Mule, demand deposit account (DDA), and synthetic identity fraud trends.
-> The 2021 growth trajectory of application fraud.

The Impact Report contains findings from a survey of 18 U.S. FI executives and 47 fraud executives from 30 different financial services firms who took part in Aite Group’s 2020 Financial Crime Forum. Aite Group used these learnings from the executive groups to identify industry trends in application fraud and determine the condition of the market.