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Coordinated cyberattacks, phishing scams, and identity theft are among the banes of modern digital life. Financial institutions and fintechs alike have many processes in place to combat these threats from third parties.Much more difficult to detect and deal with are instances
This scam is the digital equivalent of shoplifting. That is when someone disputes an ATM transaction where money was actually withdrawn. Or credit for an item he purchased.He disputed the card transaction, but changed his mind and was too lazy to return it. That’s when he tells Uber and DoorDash that he didn’t receive the chicken wings he was greedily munching on during the dispute.
This form of crime is called
Most people in this country would never shoplift a candy bar from a corner store. But behind the security of the computer screen,
And all too often they get away with fraud. That’s because proving fraud and seeking compensation is usually more time-consuming and expensive for a company than simply writing it off.
For those who think this is a victimless crime, it is not. Victims, not just banks, credit card companies, and online businesses, are paying higher interest rates and inflated prices as you, me, and U.S. businesses recoup $100 billion a year in losses from first-party fraud. This includes everyone else who is.
Because Gen Z has grown up interacting in a virtual world and not in person, their online behavior is often more transgressive and dangerous than what most people do in person.
Our research shows that more than half (52%) of Gen Zers say they would commit first-party fraud if they knew there would be no negative consequences. Nearly one in five (19%) don’t even think it’s unethical. This is three times more than her baby boomer generation (6%). Additionally, nearly one in three Gen Z participants in the survey admitted to purchasing through a BNPL loan with no intention of paying it back.
Another factor driving the rise in first-party fraud is economic necessity. According to the study, approximately 34% of these crimes were in response to economic uncertainty and the recent surge in inflation. Gen Z has much less time to build wealth and deal with rising prices, making first-party fraud a more attractive option to make ends meet.
Whatever the reason for this type of crime, a key question is how to make it more difficult for first-party fraud to occur.
Policy makers have a role to play. Combating this form of crime means updating regulations governing online transactions that inadvertently facilitate first-party fraud. Well-intentioned policies aimed at protecting privacy and protecting consumers from fraud have the unintended consequence of leaving too many people vulnerable to the effects of their own ethical lapses.
To protect innocent victims, the Consumer Financial Protection Bureau has responded to fraud against individuals by holding financial institutions, rather than consumers, responsible for losses. This was intended to protect consumers such as retirees, people with assets who are less tech-savvy and more likely to be targeted by fraud. However, these rules further reduce the likelihood that perpetrators of first-party fraud will be held financially responsible for their violations.
The current system gives first-party fraudsters the power to repeatedly defraud different banks with small transactions, but banks don’t have the resources to identify fraud with 100% accuracy. Simply put, financial institutions have their hands tied and need anti-fraud technology that understands the nuances between potential legitimate and fraudulent disputes and sniffs out high-risk activity.
Financial services and online commerce companies need to work together by sharing critical data points that will help them easily identify the worst offenders of first-party fraud and chase them down before they fall for them again.
For example, an application that contains recently created emails will raise a major red flag. Similarly, accounts that are closed within 90 days of opening are three times more likely to be first-party fraud. Large data networks are essential to preventing fraud, and the industry must work together to solve this rapidly growing problem.
We have seen early progress through the creation of groups like Socure’s First Party Fraud Consortium. The network represents many of the country’s largest digital banks, including SoFi, GreenDot, Varo, and dozens of others. By pooling data and insights, members of this group will be able to detect and prevent first-party fraud before it takes hold.
Many people find it so easy to commit digital crimes that they would never attempt in real life that they personally find acceptable. To combat this growing trend, a standard definition of first-party fraud developed across industries is desperately needed. Changing the definition of first-party fraud from consumer “intent” to “deceptive” and “fraudulent” will greatly enhance our ability to stop consumer activity.
It is time for our industry to share broader knowledge and insight into loss-making financial transactions. The more you can understand consumer behavior across the financial ecosystem, the more effective you will be at identifying and stopping first-party fraud.
