Financial Fraud Crosses Delivery Channels, Expands In Traditional Areas

Fraud experts sometimes compare chasing financial crime to squeezing a balloon -- the air just moves to the other side.

Similarly, as financial services providers have put a squeeze on fraud online, crooks have just moved their game to other channels. Thieves are increasingly seeking less-protected "traditional" channels, like the telephone, to steal information, according to industry researcher Javelin Strategy & Research. This has even given rise to "vishing" or voice phishing, where a criminal poses as a representative from a bank or broker to obtain personal or account information (similar to what online crooks do in email phishing).
Fraudsters add a new wrinkle to these crimes by stealing personal information through one banking channel, like the telephone, and then using it to access accounts on another, such as the Internet. The American Bankers Association found this cross-channel fraud accounted for 40% of all deposit account fraud crimes last year. Jim Van Dyke, Javelin's founder, discussed his firm's fraud research at a web-based seminar Dec. 9 (Windows-only link). "It's a two-crime crime," he said. "They're stealing the data, and then they're using it."

Javelin found the number of fraud victims has been declining steadily since 2003, but the cost per crime rose roughly 25 percent since last year as victims' average out-of-pocket expenses grew from $554 in 2007 to $691 in 2008. And fraud crimes are taking longer to fix: victims need 49 hours on average to resolve a new fraud incident nowadays, compared to an average of 40 hours last year. The likely cause? As financial firms are getting better at fighting fraud, the fraudsters just keep getting more sophisticated in perpetrating it.

As Van Dyke pointed out in his webinar comments, financial firms "are improving mostly in resolution, not detection" of fraud. These trends mean banks need to:

• Pay attention to the telephone as an area of vulnerability, especially as more consumers handle their financial dealings through their cell phone.
• Educate customers about the potential for vishing and other phone-based fraud crimes, and help better equip customers to protect themselves.
• Manage fraud mitigation in a more holistic way, viewing all security investments based on their return on investment.