Lenders see higher cost of fraud in 2018

by Francis Monfort23 Oct 2018

The cost of fraud has increased in 2018 as the rise of digital lending brings unique fraud prevention challenges, according to the “True Cost of Fraud” study on lending released by LexisNexis Risk Solutions.

According to the LexisNexis Fraud Multiplier, for every dollar of fraud, lenders incur $3.05 in costs, compared to $2.82 in 2017, an 8.1% increase. Larger digital lenders, with at least $50 million in annual revenue, are hit hardest by fraud, incurring $3.37 in costs, which is up from $3.07 in 2017.

The 2018 study surveyed 186 risk and fraud executives at various lending institutions, including mortgage companies, auto lenders, non-bank personal loan issuers, non-bank credit card issuers, and finance companies.

According to the study, 54% of risk and fraud executives at large digital lenders state that verification of customer identity is their largest challenge. This is especially true of verification through the online channel.

Large digital lenders with international transactions also attributed nearly 40% of their fraud losses to their non-domestic business. Fraud that originates in Asia represents 57% of the total international fraud expenses for these lenders.

"While the rise of digital lending has given the lending industry exciting new methods of reaching consumers, it also has brought unique fraud prevention challenges," said Kimberly Sutherland, senior director of fraud and identity management strategy at LexisNexis Risk Solutions. "Areas like customer identity verification and synthetic identity fraud are key challenges for lenders, as they seek to reduce the risk of customer friction, while still maintaining rigorous fraud and identity standards. It is crucial that lenders use not just a large number of tools in their fight against fraud, but layer in the right combination of tools."