By Roy Urrico
Finopotamus aims to highlight white papers, surveys, analyses and reports that provide a glimpse as to what is taking place and/or impacting credit unions and other organizations in the financial services industry.
There is good news and bad news in TransUnion’s latest quarterly fraud analysis. The rate of suspected global digital fraud attempts in the insurance industry experienced the greatest rise on a year-over-year basis. However, financial services was among many industries that saw large declines in fraud attempts during that period.
The insurance industry saw an 159% increase in suspected global digital fraud attempts between the second quarters of 2021 and the second quarter of 2022. This follows a 134% increase between the first quarter of 2021 and the first quarter of 2022. Despite this rise in insurance industry fraudulent activity, TransUnion observed the rate of suspected digital fraud attempts across industries globally declined by approximately 14% between the second quarter of 2021 and the second quarter of 2022.
For its quarterly analysis, Chicago-based information and insights company TransUnion monitored digital fraud attempts reported by businesses in varied industries. The conclusions are based on intelligence from billions of transactions and more than 40,000 websites and apps contained in its flagship identity proofing, risk-based authentication and fraud analytics solution suite, TransUnion TruValidate.
Overall, the suspected digital fraud rate across all industries decreased nearly 19% year over year from the second quarter 2021 to the second quarter 2022 in the U.S. TransUnion observed the largest declines from U.S.-based transactions in gaming (-65%) and gambling (-49%). Retail (-32%) and financial services (-28%) also saw declines. TransUnion considers credit unions and retail banks part of financial services.
However, the insurance increase was much smaller nationally than globally, rising 22% when comparing the second quarters of 2021 and 2022. Logistics fraud increased 15% in the U.S. when comparing those same periods.
First-party application fraud was the top insurance-focused fraud. This type of fraud involves fraudulent applications containing intentionally inaccurate or manipulated information provided by the policyholder with the intention of receiving certification, lower rates or better terms for a policy/contract.
“We have observed interesting trends in the first half of 2022 with suspected fraudulent activity in the insurance industry continuing to be elevated during the first six months of the year,” said Shai Cohen, senior vice president of global fraud solutions, at TransUnion. “In recent years, we have seen fraudsters shift their industry focus each quarter. At this time, we believe the insurance industry is seeing more ‘soft fraud’ because some consumers may be representing their policies incorrectly in an effort to save money, especially in a high inflation environment that places more pressure on their wallets.”
Shifts in U.S. Fraud Mostly Resemble Global Trends
While insurance and logistics were the only industries to see increases, the types of fraud were much different. Whereas insurance focused on application fraud, shipping fraud dominated logistics. This is a type of fraud where a buyer spoofs a shipping address or a seller receives payment for goods or services, but never ships to a buyer.
Digital fraud continues to be a constant in the lives of many U.S. consumers. TransUnion’s latest Consumer Pulse study found that nearly four in 10 (38%) American adults reported experiencing digital fraud attempts. And 11% fell victim to fraud such as phishing, identity theft or other types of fraud.
“For industries experiencing stabilization of fraud instances, the focus has been identifying more of the good transactions and customers to allow them to pass with less friction,” said Sean Donnelly, senior vice president and go-to-market global fraud solutions, at TransUnion.
Donnelly also emphasized, “Strong fraud and authentication practices decrease false positives and focus fraud-fighting resources on the minority of interactions that warrant scrutiny. By reducing the pool of manual reviews and customer interrogations, organizations can dramatically reduce costs, increase revenue, and improve the overall customer experience.”
Stabilizing Fraudulent Transactions
Donnelly told Finopotamus one of the things that TransUnion is seeing is a stabilization in some of the market segments outside of logistics or insurance. “That's a good thing because that allows the fraud fighters to really shut down some of the bad actors that are out there.”
Donnelly also expressed how for financial institutions, such as credit unions, detecting fraud is clearing the path to creating a more frictionless consumer environment and experience. “The banks and credit unions market segments are decreasing false positives and focusing more on the good traffic,” Donnelly emphasized. “Each organization has a different level of mitigation or appetite for risk. Some folks may double down on every transaction that is going through, some may say, okay, ‘we can risk a little bit more and let more transactions through,’ rather than stopping all of them or stopping a higher majority of them, which makes the consumer a lot happier. Americans do not like the friction when they are transacting online.”
International consumers are not as concerned as much as Americans when it comes to transaction friction, pointed out Donnelly. “So having somebody examine that transaction more often is okay in the international community. But in the U.S., what we like to do is send as many of these transactions through as possible, as long as the risk is something that they can deal with.”
TransUnion Introducing TruValidate Platform
Donnelly explained TransUnion TruValidate, its flagship identity proofing, risk-based authentication and fraud analytics solution suite focuses on identity proofing, device identification, and risk-based authentication, as well as applying analytics to data. Donnelly noted, “One of the key differentiators for TransUnion: the amount of data that we see. The analytics can apply to that data to make that data actionable. That is really where we get our information.”
Donnelly said when it comes to analyzing fraud, the financial service industry is maturing. “The financial services industry might be a little bit behind some of the other segments, but overall, I see the number of digital fraud attempts decreasing because we are getting better at manipulated data, whether it is (using) machine learning, artificial intelligence or human intelligence. We are taking a look at these massive pools of data and making that data actionable. That is a big part of why we are seeing a downturn. Now the fraudsters will probably turn it around to try something different. It is a constant game of cat and mouse.”
When it comes to credit unions, Donnelly indicated, “One of the things that we are trying to focus on are some broader technology solution providers. These are companies that would embed our technology in their overall solution that they sell to small banks and credit unions to help stop fraud.”
TransUnion is currently developing a new TruValidate platform that would go beyond its TruValidate suite, Donnelly explained. “A platform of fraud solutions that will identify fraud, identity theft and account takeover and synthetic fraud. We are seeing that (need) in financial services, both in credit unions and larger retail banks.” He said the sheer data that TruValidate could review as a platform to make it actionable is “impressive.”
Donnelly added, the new totally cloud-based platform will ingest different data sources and make it much easier for TransUnion to involve its point solutions. “And provide a much broader platform experience to our customers.”