PODCAST: How well do you really understand fraud?

by PaymentsJournal 0

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PaymentsJournal

Welcome to the PaymentsJournal podcast. I’m your host Ryan Mac. In today’s episode we’re going to be talking about fraud with Intellicheck’s CEO, Bryan Lewis.

Bryan, welcome to the podcast.

Bryan Lewis, CEO of Intellicheck

Thank you very much, Ryan. I’m glad you having me on.

PaymentsJournal

Now, when we’re talking about fraud, can you talk to me about the scope and the life cycle of fraud?

Bryan Lewis, CEO of Intellicheck

Sure. According to research done by Javelin Strategy & Research, they looked at it and said that in 2017 there were about 16.7 million victims of identity fraud. And that was a record number on top of a record number the previous year. They and several of the other research firms out there point out that this is not going to go away because the contributing factors that led to this number have not gone away.

If you think about the Equifax breach, that breach alone put 145 million of our names, Social Security numbers, dates of birth out there for the fraudsters to get. And they [Equifax] even just admitted that in addition to that there were millions of driver’s license numbers, phone numbers, and emails also hacked. So I think that this and the countless other breaches we can talk about are going to fuel even more fraud.

We know that the information is out there, and then what’s the life cycle? In January of this year, Accenture put out a report titled “Fraud Trends and Priority Actions.” In that, they detailed the life cycle they found for fraud. They say that from breach to when that information is used for fraud is between 12 and 18 months. So if you think about when that the Equifax breach was, that means that data will probably become ripe for fraud right about the height of the holiday shopping season. Normally, 12 to 18 months makes sense, but given the sheer volume of the data, I think that this life cycle will be extended. I think the criminals are going to have to look to parse the data out to keep the price of that high. Again, according to Javelin, for the first time Social Security numbers now outpace credit card and debit card numbers as stolen personal information.

Also if you think about it, the first thing that Equifax did was provide everybody with a year’s worth of free monitoring. So people are thinking about fraud, but the criminals are probably smart enough to let some of the attention die down and us to lower our guard. So that fraud will continue.

PaymentsJournal

Thank you for that. I think there were certainly a lot of great points made there. One thing I want to jump to now is, What is the cost of fraud, and can you give me some real numbers behind it?

Bryan Lewis, CEO of Intellicheck

The numbers are truly staggering. That Javelin study put the number in 2017 at $16.8 billion and the fraud rate doubling between 2015 and 2017. They also report that over 1 million children in the U.S. had their identities used to create synthetic identities to the tune of $2.6 billion in 2017. And those numbers only talk about the dollar amount. They don’t talk about the lost hours and the productivity sorting out the issue and correcting the fraud. So I’d say the cost is very large and very much growing.

PaymentsJournal

I’m glad that you brought up synthetic fraud. We’ll get into that in a little bit, but first would you speak to the pervasiveness of the problem in terms of the frequency of fraud?

Bryan Lewis, CEO of Intellicheck

I think the best way to talk about that is what we see with our clients that we have now. We see that 0.8 percent of the time that we’re asked to authenticate an I.D. before a transaction, we find that it’s fraudulent. That might seem like a small number, but when you consider the millions and millions and millions of times we are asked to authenticate an I.D., it adds up very quickly. That 0.8 is actually a very, very large number. Then when you think about what it costs each and every time. We ask our clients, “What does it cost you when somebody comes in and you give credit to somebody you shouldn’t, or you got nailed for a card-not-present transaction?” And our clients tell us it ranges. Our department store clients, tell us it’s typically around $2,100, but for some of our jewelry chain clients, it’s over $7,000 each and every time. So when you consider the number of transactions and then these amounts per transaction, you can easily see how it becomes a $17 billion-a-year problem.

PaymentsJournal

Certainly. So now I’m going to assume the answer to this next question is yes, but I want to get your take on it. Are consumers altering their behavior because of the surge in fraud?

Bryan Lewis, CEO of Intellicheck

Research would say so. In a report put out by Experian earlier this year, they said that 27 percent of customers abandoned a transaction due to a lack of visible security. In addition, they asked U.S. consumers if they agreed with the statement “I like all the security protocols when I interact online because it makes me feel protected,” and 69 percent of U.S. consumers agreed with that statement. The American Institute of CPAs did a survey and found that 69 percent of consumers said they would boycott companies that fail to protect their data and, interestingly enough, 62 percent of the affected consumers said they blame the company rather than the fraudster.

So I think, yes, consumers are aware and they are altering their behavior. The banks and retailers not only have to worry about the actual dollar loss, but the potential business that they’re losing by not appearing to protect the consumer can be great.

PaymentsJournal

Excellent. Thank you for that. And now on to what is probably one of my favorite subjects within fraud: synthetic identity fraud. Synthetic identity fraud is considered the most significant problem in identity fraud today. From your standpoint, what is the scope of the problem and also what’s the fix?

Bryan Lewis, CEO of Intellicheck

Given the amount of data being breached on all of us and then the changes to the way the Social Security Administration now puts out Social Security numbers, the randomization of those numbers, it is massive and it is growing. I like what Julie Conroy of Aité called it–the perfect storm–and I would agree. She said that in 2017, credit card issuers alone were hit with $820 million in fraud, but due to synthetic identity fraud that’s up 41 percent in two years. Auriemma Consulting did a study on bad loans, and they concluded that synthetic identity fraud cost banks $8 billion in 2016. Earlier this year, Accenture also did a report and they said it would cost billions for banks in synthetic identity fraud and they couldn’t even begin to estimate the number of hours it would take to fix the problem.

I think if you combine the data breaches, these losses, and the fact that U.S. Postal Inspector David McGinnis said in April of last year that synthetic identity fraud is becoming one of the fastest-growing consumer fraud schemes, and you really do have that perfect storm.

PaymentsJournal

Before we wrap things up here, one final question: As we take a look at 2018 and beyond, what would you say you’re the most excited about seeing within the payments industry?

Bryan Lewis, CEO of Intellicheck

I think that the attention to fraud and how we protect consumers is now becoming something that I think people didn’t talk about as much in the past. I think that there is a renewed attention on it. I’m glad that we’re part of that conversation because some of that conversation is leading to a whole lot of complicated solutions that in and of themselves bring out more issues and more things we do.

A lot of people are talking about biometrics. We believe in biometrics, we’ve got a great patent portfolio on it, but I think that there’s still some issues with that. A lot of the technology people still wonder about how easy it is to spoof, and then most importantly who’s going to secure that biometric data wherever it’s stored. We think that there is a much simpler solution that could be put in place today, and that is authenticating a government I.D. People are asked to show their government I.D.s all the time. All we need to do is validate it. That’s what we’re happy to be coming to market with because our clients are telling us that it is 99.9 percent effective at weeding out fraudsters. I think probably the really most exciting thing is the fact that we are talking about this growing problem and collaboratively working on solutions.

PaymentsJournal

Well, Bryan, Thank you very much for talking to us today about fraud, and we hope to have you back on the podcast real soon.

Bryan Lewis, CEO of Intellicheck

Thanks. I look forward to it.