A new report from LexisNexis [1] found fraud costs are rising for both U.S. and Canadian financial services’ firms. For every $1 lost to fraud now costs U.S. financial services firms $4.23, compared to $3.64 in 2020–a 16.2% increase. Canadian financial services firms saw fraud costs rise 19.6%, from $3.16 in 2020 to $3.78 in 2022.
Additionally, the report said the volume and cost of mortgage-related fraud is high for originators, servicers and title/settlement firms. Most of that cost goes toward labor used for fraud detection, investigation, reporting, and recovery.
Depository originators have the highest cost, with every $1 of fraud costing them $5.34.
"It's clear that fraud has become more complex with various risks occurring simultaneously," said Chris Schnieper, Senior Director of Fraud and Identity Strategy for LexisNexis Risk Solutions [2]. "To minimize fraud, organizations can no longer rely on manual processes or point solutions to reduce fraud, manual reviews and costs. Firms using a multi-layered solutions approach that integrates identity verification and authentication within digital consumer experience can lower their cost and volume of successful fraud. This approach improves identity verification and fraud detection effectiveness and lowers friction for trusted consumers."
The report says fraudsters are targeting mobile channels, increasing bot attacks and buy now, pay later scams are a growing concern for financial services and lending firms. The report continued, adding mobile channels now generate a “sizable” level of transaction volume and fraud costs.
“Banks and credit lenders are beginning to accept BNPL (buy now, pay later) as a digital payment method, which respondents indicated represents one-third of the overall average transaction volume,” the report said [3].
While fraud costs have increased, CoreLogic reported that mortgage fraud risk declined in Q2 of 2022, falling 7.5% annually, according to its latest Mortgage Fraud Report [4].
CoreLogic reported that an estimated 0.76% of all mortgage applications contained fraud–approximately one in every 131 applications. By comparison, Q2 of 2021, that estimate was 0.83%, or approximately one in 120 applications.
Risks of Income and Property Fraud posted the largest year-over-year increases in Q2, 27.3% and 22.6%, respectively. Authors of the report were not surprised, considering that purchase loans now account for more mortgage transactions than refis, and that the former are more susceptible to fraudulent activity.