ID Fraud Heads in the Right Direction: Down

With data breaches constantly making headlines, it would be easy to conclude that fighting payments fraud is a battle that can’t be won. But there are encouraging trends, according to Javelin Strategy & Research’s latest annual identity-fraud study.

Some 12.7 million Americans fell victim to ID fraud last year, a big number but down 3% from 13.1 million in 2013. And estimated fraud losses fell 11% to $16 billion from $18 billion in 2013. Losses are down a full 50% from 2009.

While those decreases are encouraging, fraud obviously is far from tamed. The percentage of Americans victimized by ID fraud has remained steady for the past three years, coming in at 5.2% in 2014 versus 5.4% in 2013 and 5.3% in 2012. But those numbers, too, are better than the 6% in 2009.

Any improvement in the number of victims and losses is good news, especially after a year when the number of consumers notified that their personal data had been compromised jumped 160% to 61.8 million from 23.8 million in 2013, according to the study.

James Van Dyke, chief executive at Pleasanton, Calif.-based Javelin, a unit of Greenwich Associates LLC, attributes the reductions to consumers becoming more aware of potential fraud and to industry’s greater use of real-time and interactive technology to spot suspect transactions and cut off fraud early.

“It’s a combination of increased vigilance on the part of consumers, certainly … but it’s also the providers that are taking advantage of a lot of the tools,” says Van Dyke.

In contrast to some researchers who tally up records exposed in publicly reported data breaches, Javelin generated its 2014 data from a representative sample of 5,000 adults, including 790 fraud victims and a number of households with no land lines or access to the Internet.

The survey covered fraud using items that could identify a consumer, including debit and credit cards and demand-deposit and other types of bank-account numbers.

Fraud on existing credit and debit cards is the most common type of ID fraud, accounting for $9 billion of the $16 billion in losses last year. That’s down from $11 billion in 2013, but up from $8 billion in 2012 and tied with $9 billion in 2011.

The mean and median amounts of all fraud per victim fell in 2014 to $1,228 and $293, respectively, down 13% and 9% from 2013.

How much ID fraud costs consumers directly varies widely. The median consumer out-of-pocket cost from fraud on existing card accounts remained at zero in 2014, as it has for years. That’s because of card issuers’ and financial institutions’ zero-liability policies.

But many consumers do take a financial hit, Van Dyke notes, though out-of-pocket losses have been declining. The mean out-of-pocket cost for all victims last year was $115, barely changed from $114 in 2013 but well below the $365 average found in the 2012 survey.

“Mean fraud amount has been steadily dropping just a bit, but this urban legend never dies that consumers pay nothing,” says Van Dyke.

Drill down to non-card types of ID fraud, and you’ll find that many consumers pay far more than $115. For example, the mean consumer cost on existing non-card account fraud was $273 last year, up from $207 in 2013.

New-account fraud, when a criminal creates a new financial account using stolen credentials, results in an average cost per victim of $398 on a mean of $3,232 in fraud. And account takeovers by fraudsters result in a mean cost to the victim of $411 on $2,542 in average fraud per incident.

The 2014 survey was sponsored by Tempe, Ariz.-based LifeLock Inc., a provider of ID-theft protection products for consumers and fraud and risk-management services for businesses.

—Jim Daly