And It’s Not Good News For Financial Institutions
ToolCASE has compiled its final report on full-year fraud statistics for 2021, and the facts are startling. Even as the pandemic waned, and many frauds associated with PII theft and COVID relief funds were prosecuted, the growth in almost all financial and transactional frauds continued to harm both individuals and financial institutions.
*Please note, ToolCASE’s preliminary full-year fraud report for this year, 2022, will be released in early 2023, after all the data has been compiled and examined.
Now, before we get into the details, a quick overview shows that on the individual consumer front, nearly one in every four Americans were victims of fraud last year. The financial impact per victim rose by $201 per incident to $1,551; a 15% increase in dollar impact over 2020.
Financial institutions fared worse. The average volume of monthly fraud attacks for FIs earning $10 million or more in annual revenue increased 17.1% to 2,320 attacks per month. The overall costs of these frauds rose as well, increasing by 9.9% to an average of $4.00 in realized expenses for every $1 in fraud.
However, while overall fraud and associated costs for both consumers and financial institutions have grown, new data show there was at least some good news for 2021… Albeit a small silver lining in a growing dark cloud.
Let’s begin with the “good.”
In 2021, there were 389,845 credit card (new account) fraud reports made to the FTC, a 1% decline over 2020. Additionally, we saw a 5% drop in existing card account frauds, totaling 32,204 reports.
The number of people affected by data breaches decreased by 2.2% to 293,927,708. A highly alarming number, but a reduction, nonetheless.
Reports of loan or lease fraud dropped by 3%, with employment or tax-related fraud dropping by 2%.
Additionally, frauds related to government documents or benefits fell by 3%, with phone/utilities fraud falling 11%.
Now, the ugly.
While it was nice to see at least a mild reduction or flattening in some frauds, not all frauds have slowed. In fact, some frauds have grown like wildfire.
Identity theft reports continued to rise throughout the year, with 1,686,121 complaints filed with the Federal Trade Commission. This figure is up from 1,387,615 in 2020: representing a 21.5% increase year-over-year, accounting for nearly 30% of all FTC complaints.
Unfortunately, these identity theft cases resulted in losses of $56 billion, a 79% increase in losses over 2020.
But while 2021 was a bad year for consumers, banks and credit unions bore much of the brunt of total fraud costs.
2021 saw a very sharp rise in bank fraud, growing 39% over the pandemic-stricken and fraud-laden year of 2020. As stated earlier, the overall costs of these frauds increased by 9.9% in 2021, to $4.00 for every $1 in fraud.
A third of all fraud losses were attributed to online banking scams, with 29% attributed to mobile transactions and 21% to in-person frauds.
Bank frauds relating to electronic funds transfers, ACH or debit cards grew by 8%, last year, while existing account fraud increased by 5%.
Of course, many cases of bank fraud are intertwined with identity theft. For example, new accounts opened with stolen PII grew by 64% in 2021, with nearly 84,000 Americans reporting being a victim of this fraud.
Keep in mind, this growth in new account fraud is only what’s been reported to the FTC by consumers. The true figure could be, and likely is, much higher.
The impact of Zelle fraud:
While it is currently difficult to pinpoint the exact amount of fraud that’s prevalent across the Zelle system, and figures remain murky, an estimated $440 million was lost last year through Zelle fraud schemes.
This figure, however, is likely underreported as well, as many victims of Zelle fraud “willingly” transferred funds to criminals, and in many cases, neither the victim nor their institution file a fraud report.
But, as more banks adopt this payments technology, it is highly likely that both the volume of Zelle fraud reports and the dollar losses associated will increase; both from consumers and institutions alike. So be prepared, more fraud is coming.
Clearly, the final tally of fraud in 2021 is shocking, but its growth, especially for banks and credit unions, is NOT slowing down. Not this year and likely not in 2023 either.
Without taking the proper precautions now, the $4 in losses for every $1 in fraud that institutions incur, will grow even higher.
It’s already estimated that fraud costs per dollar may have grown to $4.43 this year and may surpass $5.99 per dollar by 2025.
Unfortunately, these costs may push losses to the point where some institutions may face possible insolvency.
There is, however, a solution.
Real-time fraud detection and prevention systems powered by Ai are not only an incredible cost reduction tool, but have proven to help halt nearly every type of transactional fraud before funds are illicitly transferred.
With more real-time, instant digital banking and payments systems coming online this year and next (Zelle, p2p, FedNow), perhaps the only solution to mounting losses lay in real-time loss prevention.
ToolCASE offers the world’s most advanced transactional fraud system available, anywhere. Our real-time, Ai-powered system has already saved financial institutions hundreds of millions in fraud losses…
And ToolCASE can help do the same for yours, no matter how bad 2023 gets, and no matter how many instant payments platforms you adopt.
Contact us HERE today and request a comprehensive demonstration of our capabilities and see how our world-class real-time fraud detection and prevention system can transform your institutions bottom line.
Or, you can contact us at firstname.lastname@example.org
https://www.fool.com/the-ascent/research/identity-theft-credit-card-fraud-statistics/ – :~:text=Nearly%2084%2C000%20Americans%20reported%20new,account%20fraud%20increased%20by%205%25.
https://bankingjournal.aba.com/2022/01/study-banks-see-rise-in-fraud-attempts-associated-costs-in-2021/ – :~:text=Online%20banking%20accounted%20for%2033,down%20from%2029%25%20in%202020.