Annual LexisNexis Risk Solutions Report Finds Fraud Costs up to 22.4% from Pre-Pandemic Levels Across U.S. and Canadian Financial Services Firms

The True Cost of Fraud: Financial Services and Lending Finds Buy Now Pay Later, Increased Bots and Mobile Channel Fraud are Key Concerns for Financial Services and Lending Firms

ATLANTA, Nov. 16, 2022 /PRNewswire/ -- LexisNexis® Risk Solutions today released the findings of its 2022 LexisNexis® True Cost of Fraud™ Study: Financial Services and Lending. This sixth edition of the report examines current fraud trends for more than 500 United States and Canadian financial services and lending companies and highlights key pain points related to the addition of new payment mechanisms, online and mobile channel transactions and international expansion. The survey was conducted between May and July 2022.

U.S. and Canadian financial services firms' fraud costs continue to rise. Every $1 lost to fraud now costs U.S. financial services firms $4.23 compared to $3.64 in 2020, a 16.2% increase. The cost for Canadian financial services firms rose 19.6%, from $3.16 in 2020 to $3.78 in 2022.

The costs for credit and mortgage lending firms remain above pre-pandemic levels, although they are trending downward after substantial increases observed at the start of the pandemic. According to U.S. loan companies, each $1 in fraud losses costs $4.08. Canadian lending firms find that each $1 in fraud losses actually costs $3.74.

Key Findings of the True Cost of Fraud Study: Financial Services and Lending

• Attacks and Costs: Fraud costs and attack volumes for financial services firms remain significantly higher compared to before the pandemic. Costs continued to rise above early 2020 levels, with banks reporting the highest figure of $4.36 for every $1 of fraud loss. Mortgage firms also had a comparably higher cost of $4.20 for every $1 lost to fraud.
• Trends to Watch: Fraudsters targeting mobile channels, increased bot attacks, various scams and the rapid adoption of buy now, pay later (BNPL) are causing concern for financial services and lending firms. Mobile channels now generate a sizeable level of transaction volume and fraud costs. Banks and credit lenders are beginning to accept BNPL as a digital payment method, which respondents indicated represents one-third of the overall average transaction volume.
• Scams Impacting Customer Journey Risks: Scams are contributing to increased fraud costs, particularly creating more risk at the new account creation stage of the consumer journey. Scams impact fraud detection across consumer touchpoints by heightening challenges associated with digital identity verification, distinguishing bots from legitimate customers and balancing fraud detection with customer friction. Those dealing with multiple types of scams had a higher cost of fraud based on more labor/investigation efforts.
• Identity-Related Fraud: Lack of identity verification is a top challenge that contributes to fraud across the customer journey. With new account creation still trending upward, U.S. banks that deal with multiple types of scams attributed more identity-related fraud to new account creation. Canadian lending firms and U.S. mortgage lenders saw the biggest increase in identity-related fraud across account creation, with a 9% rise and 11% rise respectively since 2020.

"It's clear that fraud has become more complex with various risks occurring simultaneously," said Chris Schnieper, senior director of fraud and identity strategy, LexisNexis Risk Solutions. "To minimize fraud, organizations can no longer rely on manual processes or point solutions to reduce fraud, manual reviews and costs. Firms using a multi-layered solutions approach that integrates identity verification and authentication within digital consumer experience can lower their cost and volume of successful fraud. This approach improves identity verification and fraud detection effectiveness and lowers friction for trusted consumers."

Methodology

The report's findings stem from a survey of financial services and lending companies. The 426 U.S. and 76 Canadian respondents consisted of risk and fraud management executives in retail and commercial banks, credit unions, trusts and wealth management along with auto lenders, mortgage companies, finance companies and non-bank credit card and personal loan issuers.

The LexisNexis Fraud Multiplier™ 

The cost of fraud is more than the actual dollar value of a fraudulent transaction. It includes additional costs related to labor/investigation, fees incurred during the applications/underwriting/processing stages, legal fees and external recovery expenses. The LexisNexis Fraud Multiplier determines the actual cost of fraud based on calculating these additional costs. 

Download a copy of the LexisNexis® True Cost of Fraud™ Study: Financial Services and Lending Report.

About LexisNexis Risk Solutions 
LexisNexis® Risk Solutions harnesses the power of data and advanced analytics to provide insights that help businesses and governmental entities reduce risk and improve decisions to benefit people around the globe. We provide data and technology solutions for a wide range of industries including insurance, financial services, healthcare and government. Headquartered in metro Atlanta, Georgia, we have offices throughout the world and are part of RELX (LSE: REL/NYSE: RELX), a global provider of information-based analytics and decision tools for professional and business customers. For more information, please visit www.risk.lexisnexis.com and www.relx.com.

Media Contact:
Marcy Theobald
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SOURCE LexisNexis Risk Solutions