A new report from global data and analytics company LexisNexis Risk Solutions has highlighted how far behind Australian financial institutions are lagging in response to the rise of fraud.
Surveying 418 risk and fraud executives in the Asia-Pacific region, the report results show that the cost of fraud for Australia’s financial, retail, and e-commerce institutions is exceptionally high.
Calculating the total loss per fraudulent transaction that a firm occurs based on the U.S. dollar amount, the cost per transaction in Australia is $3.51, above average compared to the rest of the APAC regional market price of $3.40.
The report identified four major factors contributing to the high costs of fraud for financial institutions:
Internal and external staffing costs
As financial businesses are largely account-based and must repay fraud losses to customers’ accounts, Australian financial institutions spend $3.78 on average per transaction due to the higher staffing costs associated with investigating, detection, and recovery.
Long-term effects of COVID-19
Due to recurring lockdowns in response to the ongoing spread of COVID-19 in Australia, many financial institutions experienced a significant increase in digital transactions and payments in favour of in-person transactions, making them more susceptible to fraud.
The challenge of online identity verification
The rise of contactless payment methods with mobile and digital wallets continues to present a challenge for financial and e-commerce businesses due to the difficulty of proving identities to be correct.
Because of the non-physical nature of these transactions, the prevalence of false identity usage continues to rise with no signs of slowing down.
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Below-average fraud detection practices
Many organisations are still utilising passive identity identification systems instead of more integrated cybersecurity fraud solutions, leaving them more vulnerable to digital fraud.
LexisNexis Risk Solutions’ director of fraud and identity, Cameron Church, believes that the best thing financial institutions can do to combat the high costs of fraud is to employ top-of-the-line security technologies to detect sophisticated threats.
“As fraudsters become more sophisticated and their methods more complex, businesses need a robust fraud and security technology platform that helps them adapt to a changing environment, offering strong fraud management while maintaining a low-friction customer experience. A successful fraud detection and prevention approach involves an integration of technology, cybersecurity and digital experience programs to address unique risks from different transaction channels and payment methods,” Mr. Church shared.
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“High fraud costs impact e-commerce merchants, retailers and financial institutions as they increase each year – even without the influence of COVID-19. With sophisticated threats on the rise, taking a multi-layered solution approach has proven to be the most effective way to fight fraud across various channels and transaction types, as well as performing a more complete assessment that combines physical and digital identity data analysis.”
“Using different solutions to support fraud detection at various points throughout the customer journey will strengthen a firm’s overall defence.”
Australian financial institutions aren’t the only ones suffering from fraud, with the Australian Institute of Criminology’s new report “Estimating the cost of pure cybercrime to Australian individuals” discovering detailed information on how cybercrime is affecting all Australians.
It’s estimated that cyber-enabled identity theft costs more than $3 billion per year, and in many situations, the funds are never recovered.
The report also found that more than a third of the sample in the study had been a victim of pure cybercrime at some point in the past, while 14% had been victimised within the previous 12 months.
The message for financial institutions and the general public is clear: pure cybercrime is a highly profitable criminal activity, and significant economic losses to Australians will continue if further action isn’t taken.
Words by Rimas Veselis
- Financial institutions bear higher costs for fraud — study
- Cost of Fraud in Asia-Pacific Markets is High According to LexisNexis Risk Solutions Study
- Estimating the cost of pure cybercrime to Australian individuals
- Australians losing billions of dollars to cyber crime: Report