Fighting Fraud in a COVID-Induced Digital Reality

As online platforms become even more popular during COVID-19, fraud is steadily increasing. Here’s what you need to know

The COVID-19 pandemic has had a tremendous impact on how people around the world live, work and socialize. It’s been a catalyst for the most radical and seismic digital shift in history, forcing people to migrate to online platforms and services faster than ever before. From grocery shopping and banking to health care, digital services have become the norm for people who otherwise wouldn’t have given them the time of day, especially those who are less technically proficient.

While businesses and consumers race to adjust to theses tectonic shifts, fraudsters are rapidly working and innovating to capitalize on the crisis. During these unsettling and stressful times in which nothing is normal, we can count on fraud to remain an ever-present threat. In fact, there is a perfect storm brewing that could result in record-setting levels of fraud. Here’s how:

  1. Phishing. People are distracted and, in that state, easy pray for phishing schemes. In just one week in April, Google saw more than 18 million daily malware and phishing emails related to COVID-19 scams. The scams include fraudsters who impersonate government organizations to trick recipients into downloading malware or pretend to have information related to stimulus payments. Other phishing scams target remote workers, pretending to be their employer and asking the recipient to provide information to receive payroll.
  2. Financial Aid. According to the FTC, more than 18,000 Americans have fallen for COVID-19 scams, resulting in $13.4 million in losses. The U.S. government has sent vast amounts of financial aid to businesses and individuals. Some of those funds were dispersed electronically and others were delivered as paper checks. While the majority of funds reached their intended recipients, now is the time to expect criminals from around the globe to focus on defrauding as many Americans and businesses as possible.
  3. Taxes. Tax season is longer and thus, more dangerous. While the government’s decision to extend the 2019 tax year filing deadline gave taxpayers more time to submit their taxes, it also gave criminals more time to perfect their approach to tax-related fraud. To make matters worse, federal resources are directed at the coronavirus crisis and thus, their ability to detect, prevent and investigate instances of fraud may suffer.
  4. CCPA. California Consumer Privacy Act (CCPA) enforcement began. Aside from steep penalties and a consumer’s right to sue, CCPA creates new avenues for criminals to collect and compromise personally identifiable information (PII).
  5. The Economy. Economic contraction leads to more fraud. According to a recent IDology poll of fraud professionals, increases in unemployment levels and the corresponding recession will drive the most fraud. The presence of fewer employees will reduce the effectiveness of companies and their ability to detect and prevent fraud. Employees under financial pressure may be more open to rationalizing the bad behavior needed to engage in fraud.

To help explain such behavior, Dr. Donald Cressey, a criminologist, created the Fraud Triangle, which describes three conditions commonly found when workplace fraud occurs: pressure, opportunity and rationalization.

When employees experience pressure, some take advantage of opportunities to enrich themselves and then engage in rationalization to justify their actions. Moreover, economically pressured consumers may be more likely to commit first-party fraud in which they make purchases or apply for loans with no intention of paying them back and instead, falsely claim they were granted without authorization. A depressed economic environment also makes it easier for criminals to recruit consumers as “money mules” who knowingly or unknowingly participate in money laundering schemes that are sometimes positioned as work-at-home jobs.

To prepare for this increase in fraud and successfully onboard new customer segments as they move to online services, businesses need tools in place to quickly and seamlessly verify identities and monitor high-risk cohorts and profiles that fraudsters frequently utilize. For example, we’ve witnessed data shifts providing evidence that criminals are capitalizing on the rapid move to online services driven by COVID-19. One of the most troubling findings is the sharp uptick in fraud committed against senior citizens—we observed a 209% increase in data suggesting that fraudsters are increasingly utilizing senior citizen identities to commit online fraud.

Seniors are already highly susceptible to online fraud, mobile fraud and account takeovers. According to the latest IDology-administered online survey, taken from February through March of this year, 55% of senior citizens do not have or do not know if they have virus protection on their mobile devices. Survey data also found that there is a strong misconception among elderly consumers about the security of their personal information, with 81% of seniors not knowing or believing that their PI (such as Social Security numbers and bank account information) is available for criminals to purchase off the dark web.

With all of these factors, identity verification systems are certainly being stress tested. Proven and hardened systems with transparent results that deliver identity intelligence back to companies are at a premium. Systems that can perform a “virtual handshake” to welcome new online customers can help calm anxious individuals and create trust-based relationships that build loyalty.

Fighting Fraud and Achieving Balance

IDology research shows that striking a balance between fraud prevention and customer friction is reported among businesses as the single biggest challenge to fighting fraud. Getting this right is extremely important, especially in the current crisis.

Identity verification is more critical than ever. Now is the time to create a defense that will balance the increase in fraud with the pressure to loosen onboarding criteria, particularly for those who have thin credit files or are less savvy and depending on online services for the first time.

Success requires identity verification that analyzes multiple layers of attributes, including mobile carrier network data, and offers dynamic “step-up” escalation methods when needed. Businesses also need identity verification that pulls together consortium data and provides fraud insights across companies and industries. The times we’re facing today aren’t easy, but validating identities with these behind-the-scenes methods and applying friction only when needed will lead to faster onboarding and less fraud.

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Christina Luttrell

Christina Luttrell is the chief operating officer for IDology, a GBG company and leader in multi-layered identity verification and fraud prevention. In her 10 years at IDology, Luttrell has significantly advanced the company’s technology, forged close relationships with IDology customers and driven the development of technology innovations that help organizations stay ahead of constantly shifting fraud tactics without impacting the customer experience. Luttrell has been recognized as one of the Top 100 influencers in identity by One World Identity.

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