The uneconomical target is no target at all for fraudsters

With a third of 2014 already in the rear view mirror we can safely say that fraud is unlikely to stop impacting financial service organisations in the near future, if indeed ever, writes David Pope

The uneconomical target is no target at all for fraudsters

With a third of 2014 already in the rear view mirror we can safely say that fraud is unlikely to stop impacting financial service organisations in the near future, if indeed ever, writes David Pope

As CIFAS noted in its annual Fraudscape report, the fact that the cost of fraud in the UK can only be estimated at between £52bn and £85bn is in itself of great concern.

So what can be done to turn the tide on the cost of fraud and start driving it significantly down?

While there is no silver bullet, the aim of the game is to adopt a layered defence using technology and process that makes a financial institution an uneconomical target for fraudsters. Often this means going beyond the box-ticking approach that customer ID checking regulation seems to engender.

Fraudsters are subject to the laws of economics and want to make a profit

It’s a fraudster’s job to select targets by identifying and exploiting weaknesses and loopholes. Often fraudsters don’t work alone but outsource functions to specialist contractors. Sometimes they work with specialists who probe and test financial services firms for weaknesses. At other times, they work with specialists whose job it is to commit the initial identity theft before the fraudsters goes on to perpetrate the fraud. In other words there is a cost to the fraudster, in either time or money.

If these weaknesses are easily identifiable, or if a company employs minimal customer identification processes to tick the regulatory box then defence systems become easy prey and the fraudster will waste no time in striking. Once they have identified the weak spot they will skilfully target it to ensure they make a quick profit and more often than not they will be long gone before you are even aware they were there in the first place.

Perhaps more scarily for businesses and financial service providers is that once they have made their get-away, the fraudster will have no hesitation in either returning to repeat the feat or sharing how they have gone about it with fellow criminals on underground internet forums – who will in turn come knocking.

If you’re a cost-effective target the fraudster will strike

Fraudsters will not only spend significant time seeking out the weakness in the system – much like the burglar that walks up and down miles of streets to find the one open bathroom window – they will very quickly weigh up how much they are likely to make out of striking against you.

When Jumio produced the Fraudsters Playbook White Paper we spent days interviewing convicted fraudsters. In that process it became abundantly clear that they all had a knack for not only spotting a weakness but also recognising a profitable weakness. They would not only have recognised the initial ‘open window’ but also assessed the risk of getting in and out without being noticed so that they could realise their pay-out.

No matter what lengths businesses or financial services had gone to prevent fraudulent activity fraudsters would not think twice about exploiting any weaknesses providing their time and money is profitably spent.

If they’re likely to make a loss the fraudster will steer clear

However there is one saving grace for the industry and that is, without stating the obvious, that fraudsters are in many ways shrewd business people. This common trait means that if your system is going to cost them more to exploit than they are likely to gain they are going to leave you alone and go looking for softer, cheaper targets.

What this should spell out for the financial service sector is that making themselves an uneconomical target for a fraudster is a far better form of defence than trying to beat fraudsters at their own game and anticipate every move that they are likely to make.

As a result it is high time that financial services firms add identity document authentication services to their armoury of existing customer verification processes. Advanced ID document authentication offers an excellent way of making yourself an uneconomical target as it immediately creates an overhead for the fraudster – before they have even started looking for a flaw in the system.