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Fraud Becoming a Significant Drain on Revenues for CUs
Monday, March 12, 2018 6:45 AM

A dollar of fraud costs credit unions and other financial institutions $2.67 in chargebacks, fees, interest and labor, according to a new study by LexisNexis Risk Solutions.

"As digital channels become more prevalent, particularly with consumer demand for mobile banking, fraud is a significant drain on financial services companies’ revenues—more than just the value of the fraud itself," said Paul Bjerke VP of fraud and identity management strategy for LexisNexis Risk Solutions.

The survey of 185 risk and fraud executives at credit unions, banks, wealth-management companies, trusts, and investment firms found that fraud’s price tag is even higher when the institutions have at least $10 million in annual revenue and earn at least 50 percent of it via online or mobile channels. For them, every dollar of fraud costs $3.04, versus $2.35 for similar institutions that get less than 50 percent of their revenue from online or mobile channels.

The study also found that over a third of monthly transactions are fraudulent among institutions with at least $10 million in annual revenues. The mobile channel is a big culprit, according to LexisNexis Risk Solutions.

Fifty-six percent of fraud losses are due to identity-related fraud, and 62 percent of fraud losses at institutions with at least $50 million in annual revenue were due to identity fraud, according to the study.

Flagging transactions is now common among financial institutions, but fraud has increased the workload and cost associated with manual reviews. Between 12 percent and 25 percent of declined transactions are false positives, depending on the size of the institution, according to the data. Manual reviews now make up about a quarter of financial services firms’ fraud mitigation costs.

“Financial services firms that track fraud costs by both channel and payment method experience lower fraud costs: $2.49 per dollar of fraud, versus $3.04 per dollar of fraud. Large digital firms are most likely to track fraud costs by both channel and payment method, while mid-sized firms with revenues of $10 million to $50 million still lag behind,” LexisNexis reported.

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