Global Banking Fraud Index: The Cost of Fraud to Banks & Organizations
by Gergo Varga
With new ways of accessing, buying, and exchanging money online, the threat of fraud to all banks, organizations, and individuals has never been higher.
In addition, shifts in consumer perceptions and habits, as well as organizations themselves, are encouraging a shift to online banking services, which means that in-person facilities are becoming obsolete.
Among other innovations, ITMs have helped mitigate concerns about banks reducing their physical footprint. ITMs are similar to ATMs but with the addition of videoconferencing capabilities, which enable bankers to serve customers at the machine without the need for a full branch in that area.
The shift from physical branches to online banking, however, raises concerns regarding online and mobile fraud. The need for effective fraud prevention solutions is more important than ever.
Banking Closures Across the US
Across the US, there has been a gradual increase in the number of bank closures since 2014.
Back in 2014, there were 1,398 bank closures in the US, whereas in 2021, there were over 1,000 more, with the total number of bank closures in 2021 reaching 2,927.
Note that this number refers to organizations registered as banks closing down – not individual branches.
For 2021, the number of net bank closures for each state can be seen on the map below. Net bank closures mean the total number of bank closures minus the number of bank openings in each state.
Most Net Bank Openings in the US
Montana: 3 Net Bank Openings
Montana had the highest number of new banks open over 2021, with a total of three.
North Dakota & Vermont: 1 Net Bank Opening
Both North Dakota and Vermont had net bank openings of one, making them joint second for the most number of net bank openings.
Montana, North Dakota, and Vermont were the only US territories with positive net bank openings over 2021. Meanwhile, Wyoming was the only state with 0 net openings.
Most Net Bank Closures in the US
California had the highest number of net bank closures over 2021, with 269.
Michigan had 247 total net bank closures in 2021, the second-highest.
New York: 221
In third place for the highest number of net bank closures was New York, with 221.
Fraud Costs to the USA
The number of monthly fraud attacks on banks earning more than $10 million in annual revenue has shown a dangerous increase. In 2020, the average volume of monthly attacks was 1,977.
By 2021, that number had increased to 2,320. That’s over 2,000 fraud attacks on these banks every month, which is about 24,000 every year.
The total cost of fraud has also shown a steady increase over the last three years. The numbers in the following table represent the cost to the US, Canada, and US financial services for every $1 lost to fraud.
These costs represent the transaction face value (for which firms are held liable, the initial $1), fees and interest incurred, fines and legal fees, labor and investigation costs, and external recovery expenses.
Every $1 of fraud costs the US $3.60, Canada $3.02, and US Financial Services $4.00 respectively.
Where Is Fraud Most Common?
In 2020, mobile transaction fraud accounted for 20% of the total cost of fraud to the US. Now it accounts for 29%.
Interestingly, the contribution of in-person fraud to total fraud also saw a dramatic increase, going from 21% to 29%. Online banking fraud accounted for the largest proportion of US fraud in 2021 and 2020.
Monthly fraud attacks on US retail have increased in both volume and success. The number of fraud attacks has grown from 1,384 in 2019 to 1,740 in 2021. 50% of 2021 attacks were successful, compared to 41% in 2019, showing attacks are becoming harder to prevent.
US commerce has also seen an increase in the number of fraud attacks – but significantly reduced successful attacks in 2021 (42%) compared to 2020 (66%).
The Increase in Mobile Fraud
The US had more fraud costs attributed to the mobile channel than in previous years.
The cost of mobile fraud to US retail and commerce has increased dramatically.
For US retail, mobile fraud now accounts for 27% of the total fraud cost, a 19% increase.
For US commerce, mobile fraud has risen even more significantly, going from 8% in 2020 to 39% in 2021, a whopping 34% increase.
It is likely that the pandemic pushed consumers and fraudsters towards digital transactions. Because people already rely so heavily on their smartphones, the surge in mobile fraud has been especially large.
The Most Common Consumer Scams
Consumers face a whole range of scams from fraudsters, and the volume of these scams continues to rise each year. Here are the most common types of fraud in the US.
Cyberattacks: 1,613 attacks in 2021
Cyberattacks include the most common means of fraud, such as phishing, ransomware, and malware. The number of cyberattacks has almost doubled since 2021, rising from 878 cyberattacks in 2020 to 1,613 attacks in 2021.
Human and Systems Errors: 179 attacks in 2021
Human and systems errors occur when fraudsters get opportunistic access to data, such as when cloud security or firewalls aren’t properly configured, when there are errors in correspondence, or when devices or documents are lost.
Physical Attacks: 51 attacks in 2021
While there has been a drop in physical attacks over the past few years, these kinds of attacks are still prevalent and worth watching out for. Generally, these sorts of attacks cover document or device theft and skimming of devices.
Banking Fraud in the United Kingdom
Banking fraud is a problem worldwide, and the UK is no exception.
In 2020, there were 180 fraud cases brought to UK court where more than £100k/$120k was lost. In 2021, that number rose to 298 – a massive 66% increase.
The total number of fraud reports is much higher than that. In total, UK fraud agencies saw almost 900,000 reports of fraud during 2021, with the UK’s national fraud and cybercrime reporting center, Action Fraud, seeing a total of 413,945 reports.
The Most Common Types of Banking Fraud in the UK
Check, Plastic, Card & Bank Account: 336,707 reports
Check, plastic, card, and bank account fraud made up the largest proportion of total reports in 2021 in the UK – a whopping 336,707 cases, equating to 38.45% of all reports.
Online Shopping and Auctions Fraud: 103,254 reports
The second most common fraud was online shopping and auction frauds, which accounted for 11.79% of all fraud cases in the UK over 2021.
Application Fraud (excluding mortgages): 91,593 reports
Application fraud saw over 91,000 reports in 2021 in the UK, and this is excluding mortgage fraud.
The Most Costly Types of Banking Fraud in the UK
Other Financial Investment: £318m/$381 lost to fraud
Financial Investment fraud was the most damaging in the UK in 2021. A whopping £318/$381 million was lost to fraud in the UK through this type of fraud.
Check, Plastic Card and Online Bank Accounts: £184m/$221 lost to fraud
Check, plastic card, and online bank accounts – the most common type of fraud seen in the UK – saw UK citizens, organizations, and banks lose a total of £184/$221 million over 2021.
Share Sales or Boiler Room Fraud: £171m/$205 lost to fraud
Share sales or “boiler room” fraud, also known as call center fraud, cost the UK £171/$205 million in 2021.
How to Avoid Banking Fraud: The Best Fraud Prevention and Detection Features
Here are some best practices for organizations to steer clear of banking or insurance platform fraud.
Control online account openings
Complete digital footprint analysis at onboarding easily blocks customers who attempt to use stolen, synthetic or fake identities.
Removing fake customers and accounts in this way prevents money laundering rings and other fraud at no friction cost for legitimate users.
Secure login authentication
Implementing risk-based authentication (which only triggers 2FA/SMS verification for high-risk logins and lets provably good customers through without friction) helps prevent account takeover without slowing down the customer journey.
This acts to protect your organization from online financial fraud, including phishing attacks, all the while improving the security of your users’ online wallets.
Ensure PSD2 and 3DS 2.0 compliance
This helps ensure accepted transactions are legitimate. SEON’s banking fraud prevention solution monitors payments in real-time, with custom and preset rules designed to enforce and boost Strong Customer Authentication (SCA).
Keep acquiring costs at bay
Automatically flagging merchants with high risk scores, who often let through bad customers and stolen cards – whether intentionally or not – will increase your protection while reducing chargeback requests from consumers.
Data for bank closures was taken from S&P Global. The costs of fraud in the US were taken from LexisNexis and Guidehouse. The most common attack vectors in the US were taken from the Identity Fraud Research Center. UK fraud statistics were taken from KPMG and Action Fraud.
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Gergo Varga is SEON’s Product Evangelist. With more than 10+ years of experience in the Hungarian and international risk management sphere, he has developed an astute knowledge of RiskOps and Open Source Intelligence. He is the author of SEON’s Fraud Prevention for Dummies guide.
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