Approximately 7.5 percent of U.S. adults lost money as a result of some sort of financial fraud in 2008 — in large part because of data breaches, according to a recent survey by Gartner, Inc.
Analysts said this is having an adverse effect on consumer victims who are significantly changing their financial transaction behaviors.
Gartner surveyed nearly 5,000 U.S. adults in September 2008 to gauge the impact of identity theft, and the leading types of financial fraud. Payment card fraud — that is, credit, debit and ATM card fraud — was the method most actively used by crooks to steal money, claiming 36 percent more victims in 2008 than other types of fraud.
New-account fraud, in which a thief steals identity information to open a new account, occurs less frequently than payment card fraud, although Gartner estimates that up to half of all new-account frauds involve synthetic identities, and therefore many cases go unreported.
"When compared with the average consumer, nearly twice as many people who lost money to fraud in 2008 changed their shopping, payment and e-commerce behavior," said Avivah Litan, vice president and distinguished analyst at Gartner. "Furthermore, fraud victims are also more cautious about which brick-and-mortar stores they shop at and how they pay for goods when they get there, demonstrating more awareness of the risk of data breaches."
Litan said victims of electronic checking and/or savings account transfer fraud in 2008 were nearly five times more likely to change banks because of security concerns, when compared with the average customer. About twice as many of the victims curtailed online money transfers and bill payment used in online banking.
Conviction rates for these crimes are quite low. Less than one-third of the victims reported the crimes to law enforcement, and about 5 percent reported them to the Federal Trade Commission. The chances of a criminal getting arrested and convicted for identity-theft-related fraud are much less than half of 1 percent.
Gartner found that financial losses were highest in the case of new-account, credit card and brokerage fraud, with average losses per incident totaling $1,097, $929 and $900, respectively.
However, victims of brokerage, credit card and debit/ATM card account fraud find it easiest to recover their losses, receiving an average of 100 percent, 86 percent, and 77 percent of the funds stolen, respectively.
In contrast, victims of new-account fraud, check forgery, and checking or savings account fund transfer fraud recovered the lowest percentage of stolen funds, or 42 percent, 48 percent and 54 percent, respectively.
New-account fraud is also the most difficult from which to recover, with 35 percent of victims suffering further from a damaged credit rating, which can take years to restore.
"Given the impact of financial breaches on the consumer, it is not surprising that many are now changing their behaviors," said Litan. "In percentage terms, the behaviors most influenced by security concerns include online shopping and payments. Online banking also takes a big hit, with 20 percent of worried consumers in our survey saying that their online banking behavior has been affected. This percentage doubles among fraud victims." Gartner found that PayPal has received a big boost from those who change their online payment behavior because of security concerns.
While a relatively modest 6 percent of all consumers say they changed banks as a result of security concerns; that number rises to 28 percent among victims of checking/savings account transfer fraud. This compares with 5 percent overall who switched because of concerns regarding the financial health of their banks and 21 percent overall who changed because of excessive fees.
Litan advised financial institutions that have implemented strong security controls and protections to make this fact visible to their customers and engage customers in jointly participating in security solutions.
"Most consumers will say that security is as important to them as the financial health of the institution, and this rises significantly in importance among customers who have been victims of a financial account takeover," she said. "Financial institutions that take security seriously will be rewarded with greater customer retention, which is a smart move when you consider that the cost of acquiring new customers is typically much higher than the cost of retaining existing ones."