Writing in the last issue of eInsight I talked about global trends in fraud across the financial services sector and the significant growth we have seen in fraud rates across all categories. Since then the growth in fraud has not let up and as you will see below many of the trends I talked about continue.

Fraud cases continue to grow with worse to come

According to KPMG, in the first 6 months of this year, the highest number of fraud cases reached the UK courts than in any other 6 month period for 21 years. And the numbers are set to raise further according to Hitesh Patel, a partner at KPMG. "It will be a number of years before the impact of the recession fully feeds through into fraud statistics," he said.

We have also seen a significant rise in third party fraud including deceased identity theft and fake documents especially passports this year. Sixteen per cent of people in the UK who died in the year after March 2008 have had their identities stolen by fraudsters looking to secure products and services in their name, CIFAS estimate this represents over 80,000 instances of deceased fraud over that period and the numbers are probably even higher.

And the British Bankers Association is concerned that while it is harder now than ever before to fake a UK passport it is still too easy to use a counterfeit passport from abroad to open a bank account, or to get an overdraft or credit card. CIFAS' analysis of fraud trends in Q1 2009 shows a massive 40% rise in the number of individuals being impersonated. As Card Not Present fraud booms, the travel industry has become a relatively new focus for fraudsters. Banks and retailers have tighten up on face-to-face retail transactions with the introduction of chip-and-pin which has forced fraudsters to migrate to industries like travel that sell high-value products over the phone and internet. APACS, a UK finance industry body, estimates that "card not present" frauds against the travel industry rose from £27m in 2007 to £29m last year, making it the third most defrauded sector.

Fraud is not just impacting the financial services sector. The Association of British Insurers estimate that around £5.2m of fraudulent claims go undetected every day, a 24 per cent increase compared with two years ago. And whilst insurance companies are detecting more fraud, the overall impact on the UK consumer is to add £44 a year to cost of insurance premiums.

The corporate world is not immune, UK corporations lost £960m to publicly reported fraud in the half year to June 30, the highest six month total since at least 2003 when BDO Stoy Hayward began tracking corporate fraud and they estimates that as much as 95 per cent of fraud losses are not publicly reported. They also found that reported internal fraud had grown by 14% in 2008 compared to the year before. ACI recently announced in its global card fraud survey that 18 per cent of all consumers questioned have been victims of credit or debit card fraud in the past five years.

Looking at more than 2,400 consumers across eight countries, the survey highlights wide variations in fraud trends around the world. In the US and UK, 27 per cent of respondents had been hit by card fraud in the past five years, compared to only seven per cent in Dubai, eight per cent in Germany and 15 per cent in Australia, China and Singapore. A fifth of the respondents said they are not confident their financial institution can protect them, with this number rising to over a third in China.

Experian's response

So what has Experian been doing to help combat these trends and help reduce the impact of fraud around the world? This year we have been active developing a number of innovative new products as well as increasing the availability of our existing products internationally, launching new fraud data sharing consortium and continuing to build on our reputation as thought leaders with a number of innovative research projects focused on both consumer education and industry awareness.

In Asia Pacific we continue to roll out our core global application fraud solutions Hunter, Universal ID Check and Document ID Check as well as developing country-specific localized components. These solutions are now available across the whole region and we are building strong local and regional operations and consulting capability to support our clients using these products.

In June this year we released a Market Insight Snapshot report in the US as part of a campaign focused on consumer education that analyzes identity fraud occurrence rates across credit score ranges. The study shows a clear connection between consumers with high credit scores and the propensity for identity fraud victimization. Approximately 48 percent of all identity fraud detected was found within the highest credit scoring 20 percent of the sample population, while the top credit scoring 10 percent experienced nearly 30 percent of detected identity fraud. In contrast, the lowest-scoring 20 percent of the sample population experienced only 4 percent of detected identity fraud. Consumers at all levels of the credit spectrum, but particularly those at the top, need to actively protect themselves against becoming a victim of identity fraud, while businesses need to be proactive about protecting their customers and their bottom line from fraud losses.

The UK Victims of Fraud Report released in May which identifies key identity fraud trends by analyzing the experiences of identity fraud victims confirms the US findings. This report goes on to identify socio-demographic and geo-locational trends as well as information on the types of fraud.

Experian were invited to attend this year's All Ireland Fraud Forum, an annual event for organizations in the payments industry in Ireland to meet and discuss issues around fraud. Attendees at this year's event included banks, credit card issuers, trade bodies and the police. The theme of our presentation was 'Data Matching to Prevent Fraud' which highlighted the success of Experian's Hunter solution, deployed in Ireland since 2006 and used by 5 major banks and financial institutions - which has already identified thousands of frauds and saved millions of Euros.

We also outlined the work we had done to build a strong anti-fraud community based on our Hunter User Group and our plans for establishing the Irish Fraud Database which will be a national data matching system for Ireland. The ground rules for the system have been agreed with potential members and Experian are now working closely with our existing clients, prospects and the Data Commissioner to set up the system.

We are seeing regulators across the region urging banks to be more cautious in their lending amid increasing concerns with non-performing loans, bad debt levels and fraud. The amount of fraud attempted against financial institutions has been steadily increasing over the last 10 years.

In the current environment, fraud momentum has gathered pace as organized fraudsters seek new, lucrative opportunities, and increasing numbers of consumers are driven to commit soft-fraud attempting to maintain a lifestyle that is gradually slipping out of reach.

However, with our global footprint, unique data assets and analytics, Experian is uniquely positioned to alert consumers and businesses across the financial services, automotive, telecoms and insurance sectors about the fraud risks they face, as well as highlight the products and services we provide to help them combat the problems.

Author's Profile

Paul Smith is based in Hong Kong and leads Experian's Fraud and Identity Solutions business in Asia Pacific. Paul has worked closely with many of Experian's key financial services, insurance and telecommunications clients across Europe Middle East and Africa, Asia Pacific and Latin America. For the last 2 1/2 years Paul has been instrumental in the international development of Experian Decision Analytics' Fraud and Identity Solutions business. He was responsible for the successful international launch of Experian's application fraud prevention solution Hunter and rollout into 10 countries across the world, as well as the development of Experian's operational infrastructure for delivery, training, consultancy and support of the fraud solutions business globally. In the recent past Paul has worked extensively with clients and partners in India, Pakistan, S. Korea, China, Singapore and Australia.

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