ATLANTA — LexisNexis® Risk Solutions, a unit of RELX Group (NYSE: RELX), today released its 2018 True Cost of Fraud℠ study for the FinancialServices sector. The study shows that for every dollar of fraud, financial services companies incur $2.92 in costs, up from $2.67 in 2017, representing a 9.3% year-over-year increase. The lost value of the transaction, plus fees and interest incurred during applications/underwriting/processing stages, labor costs for fraud investigation, fines and legal fees, as well as external recovery expenses are the main costs of fraud for financial institutions according to the study.
Based on a comprehensive survey of 175 risk and fraud executives in financial services companies, including retail and commercial banks, credit unions, investments, trusts and wealth management, the study evaluates how to navigate and mitigate the growing risks of fraud, while highlighting the areas where financial institutions can seek improvement in their fraud prevention protocols.
Fraud costs continue to be higher for mid to large sized digital firms, particularly with international transactions. The study shows that for mid to large digital financial institutions operating internationally, every dollar of fraud results in $3.27 of fraud costs. They also see fraud expenses eat away at 2.41% of their total revenue, compared with fraud expenses equaling 1.83% of the revenue of mid to large digital banks that do not operate internationally. This highlights the risk that the anonymous remote channel adds to financial transactions.
“Continuing the trend of prior years, the cost of fraud continues to rise for global financial institutions,” says Kimberly Sutherland, senior director, fraud and identity management strategy, LexisNexis Risk Solutions. “Particularly in the digital and international transaction spaces, while these firms are working to combat fraud, they are not doing so in the most optimal way. Fraudsters continuously test for the weakest entry point in the financial transaction system and these institutions should apply a multi-layered approach to fraud prevention to combat this growing issue.”
Other key findings from the study include:
“The growth of new digital and mobile channels, and the increased fraud that comes with them, means that financial institutions must find the right approach to deal with this issue. For identity and transaction-related fraud, having a multi-layered risk model in place will lead to lower fraud costs. There is no one-size-fits-all solution to fraud and having a strong detection and prevention system in place decreases the likelihood of customer friction and lost current and future business,” concludes Sutherland.
True Cost of Fraud℠ Study Methodology
This is the second annual comprehensive research study on U.S. financial services fraud conducted by LexisNexis Risk Solutions. The methodology of this study targeted U.S. financial services companies with a comprehensive survey of 175 risk and fraud executives conducted during March and April 2018. Respondents represented all channels, company sizes, and payment methods. The overall margin of sampling error is +/-7.4% at the 95 percent confidence level. Data reflects the U.S. Financial Services population based on weighting to U.S. Economic Census.
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 Group (LSE: REL/NYSE: RELX), a global provider of information and analytics for professional and business customers across industries. For more information, please visit www.risk.lexisnexis.com and www.relx.com.