It’s been a pivotal year for identity-based fraud. As the COVID-19 pandemic created both a global healthcare and economic crisis, the environment was ripe for sophisticated fraud rings to capitalize. The speed in which fraudsters shifted focus in response to changing circumstances was stunning and proved what we’ve known all along: Criminal fraud rings have vast amounts of identity data that can be deployed at will.
In 2020, some long-held ideas about who’s most at risk of identity theft and resulting fraud were debunked. While senior citizens continue to be vulnerable to Social Security fraud, those at greater risk and who experience the most identity-based fraud are the younger, digital native generations.
As the year comes to a close, we look toward 2021 as the time to reexamine fraud protection frameworks and implement more sophisticated tools to combat identity-based fraud across the customer lifecycle.
Global Pandemic Timeline
|Pre-Pandemic||Phase 1||Phase 2|
|Jan. 21 - First US COVID-19 case reported||March 13 - US declares a national emergency||June 30 - US unemployment rate: 11.2%|
|Jan. 30 - WHO declares a Global Health Emergency||March 27 - CARES Act signed by Congress||May 20 - All U.S. states reopen at various levels|
|March 11 - WHO declares COVID-19 a Global Pandemic||April 15 - Paycheck Protection Program enacted||May 21 - 38.9 million unemployment insurance claims in 9 weeks|
|March 31 - US unemployment rate: 4.5%||April 28 - Suspected global fraudulent transactions increase to 5%||July 25 - Suspected global fraudulent transactions decrease 9%|
|April 30 - US unemployment rate: 14.7%|
Early on, fraudsters targeted businesses serving consumers in lockdown
Overall, suspected fraudulent digital transactions rose 5% when comparing Pre-pandemic and Phase 1 periods. TransUnion identified more than 100 million suspected fraudulent transactions from March 11–April 28.
As the economy started to open, fraudsters shifted focus to consumers
In Phase 2, the economy began to recover, and the percent of suspected fraudulent digital transactions against businesses worldwide actually decreased 9%. The abovementioned industries (that initially incurred the most digital fraud) were among the least targeted in Phase 2.
Alternately, COVID-19-related digital fraud schemes affecting consumers increased 10% from Phase 1 to Phase 2. Thirty-two percent of consumers worldwide report being targeted by digital fraud related to COVID-19, with Gen Z (age 18–25) being the most targeted at 36%. Phishing was the number one reported digital scam impacting 27% of consumers.
New fraud opportunity: Economic recovery stimulus and unemployment insurance
The economic relief programs designed to support individuals and businesses following widespread stay-at-home orders created a target-rich environment for fraudsters. Unemployment reached 14.2% in April and more than 38 million Americans filed for unemployment insurance by mid-May, leaving many state unemployment insurance departments unprepared for the onslaught of digital claims — and fraud rings were ready.
States were hit with an unprecedented number of fraudulent unemployment insurance claims, while 7% of consumers cited being a victim of unemployment benefits fraud. No government agency was safe as fraud related to stimulus checks and tax filings jumped as well.
Lessons learned in 2020: Rapid digital transformation highlights need for better identity verification
A common theme runs throughout 2020: Identity theft poses one of the greatest threats to organizations and individuals. In the midst of COVID-19, everything from customer transaction volumes to engagement channels to fraud threats changed quickly and continue to do so. This is reflected in a number of scenarios:
- Accelerated move to digital channels
Almost overnight, customers rapidly switched from in-person to online channels. While this posed huge operational challenges for many organizations, the uptick in identity-related fraud proved the next best opportunity for fraudsters to exploit vulnerabilities.
- Increasing call center volumes
While many industries have seen spikes, banks reported increased call volumes in the 40% range, and rising hold times are likely driving abandonment rates over 10% (well past target rates of 2%–5%), according to Aite Group. With attack methods like social engineering being used to perpetuate account takeover, call center agents are dealing with more fraud than usual.
- Growth in home deliveries
COVID-19 stay-at-home orders escalated ecommerce. According to the U.S. Department of Commerce, US online retail sales increased 31.8% in Q2 2020 and 44.5% over the same quarter in 2019. This shift to digital shopping has caused an increase in shipping fraud — 391% in 2019 alone — according to TransUnion 2020 Ecommerce report.
Looking forward: Priorities for 2021
As we put 2020 behind us, it’s important to apply lessons learned to protect our organizations while improving an increasingly digital customer experience. That means making identity proofing, authentication and fraud prevention a top priority, and championing these steps:
- React — Close holes in account management and transactional processes by bolstering identity verification and authentication — consider Knowledge-Based Verification and Multifactor Authentication.
- Adapt — Lock down application and new account processes with high assurance identity proofing — consider Device Risk and Document Verification
- Transform — Strengthen your ability to detect and assess risky behavior with predictive analytics and machine learning — consider Machine Learning Device Models and Synthetic Identity Fraud Models.