By Brian Pennington, Liaison Technologies
In April Experian released their 2012 review of Fraud in the UK. There are some interesting findings and a summary of the 28 page document is below.
Executive Summary of the Report:
- Annual fraud losses across the UK are now estimated to now top £70 billion
- Of this around £3.5 billion is in financial services
- A year-on-year rise of 4% in application fraud rates across all financial services products has been noted – reflecting a trend traditionally seen during downturns
- Mortgage fraud rose by 8% in 2011, highlighting the level of exaggerated affordability and adverse credit some customers are now trying to hide
- Insurance fraud has risen by 23%
- The most significant year-on-year increase in fraud was seen around current accounts, which were up by more than half
- First party fraud has continued to rise, while third party identity fraud has declined
- A seasonal uptick in first-party fraud was also noted with significant H2 rises during the run up to Christmas
- Traditional blue collar and welfare-dependent groups were among the most likely to attempt first-party fraud, as well as now becoming victims of fraud
- The switch sees fraud moving closer to home and suggests an ‘anyone goes’ approach by fraudsters willing to aggressively pursue more lower-yield opportunities
- Card fraud and automotive fraud both saw 40% year-on-year falls, suggesting identity capabilities and verification technology are improving
- Elsewhere, fraud on savings and loan products has seen modest falls within the past year, also reflecting improving industry-wide good practice
Fraud in the UK is now at a record level.
During the past 12 months, Experian estimates it went up by at least 4% and is an industry with an annual turnover that is now estimated to cost the country more than £70 billion.
Mortgage fraud findings:
- 2006, around 15 frauds per 10,000 applications were being detected
- 2008 the figure stood at around 26 per 10,000
- 2011 34 per 10,000 mortgage applications were found to be fraudulent
Insurance Fraud Rates
At present around 11 frauds in every 10,000 policy application and claims are fraudulent.
The Association of British Insurers is detecting more fraud than ever with more than 2,500 fraudulent claims worth £18 million every week.
The most common frauds:
- Home insurance with 66,000 bogus or exaggerated claims detected
- Dishonest motor insurance claims with 40,000 frauds uncovered
Of these, motor frauds were by far the most costly, totalling £466 million. As a result, insurance fraud is estimated to now cost £2.1 billion per year.
Current Account Fraud Rates
Within the past 12 months, the rate of current account fraud jumped from more than 20 per 10,000 applications, to around 36 in every 10,000 applications. Around 60% of current account fraud was committed by first-parties, while the remaining 40% was committed by third-party identity fraudsters.
Automotive Fraud Rates
Fraud rates have fallen significantly in automotive finance, dropping from nearly 40 frauds per 10,000 applications at the end of 2010, to around 23 per 10,000 by the end of 2011. The vast majority (85%) of successful frauds were committed by first-parties, possibly reflecting an increasing availability and prevalence towards dealer credit.
Card Fraud Rates
Experian found that during the past two years the overall rate of credit card fraud has also dropped away.
There has been a sizeable swing from third to first-party frauds during 2011. After a stable first three quarters to 2010, the proportion of first party fraud began to rise rapidly, peaking at 70% in Q3 2011. Although the economy is likely to be a factor, with hidden adverse credit and inaccurate salary as the most common reasons given, this trend in behaviour is also partly driven by some lenders’ changes to reporting methodology.
Savings Accounts Fraud Rates
The fall in fraud rates has coincided with a decrease in the average time after application when a fraud was noted, with 75% of fraud being marked within one month of the application.
Towards the end of 2011, lenders began to note more first-party frauds, citing previous payment fraud. The victims are largely the highest earners as they continue to clearly represent the richest pickings for fraudsters.
Loans Fraud Rates
Loans show a slowly decreasing fraud rate, down around 10% on the year but remaining at around seven frauds per 10,000 applications. More than three out of four (76%) loans were marked as fraud within one month in H2 2011, down slightly from 83% in H1 2010.
First Party Fraud – Where it Occurs
London continues to be the centre of UK fraud, with acute problems in the inner-city boroughs of Tower Hamlets, East Ham and Woolwich. There also, London continues to be problem in and around southeast London
The recent trend for a broad westward migration along the Thames Valley and out into the Home Counties has also continued. This is typified by the commuter towns of Reading, Luton and Croydon, which all recorded above average levels of fraud.
Northern Ireland continues to be a disproportionately high-risk region.
Elsewhere in the UK, provincial inner cities including Birmingham, Manchester, Leeds, Sheffield, Coventry, Leicester, Derby, as well as a triangle of Fenland towns around Peterborough, all showed an uptick in first-party fraud.
Third Party Fraud – Where it Occurs
The geographic spread of third-party fraud is broadly in line with first-party fraud, although there are far higher concentrations within the London boroughs, inside the M25’s commuter belt and with notable spikes along the Thames Estuary’s gateway towns. During the past few years there has been a gradual migration outside of Greater London, although more recently the numbers suggest a contraction back into London – particularly around East London.
The Fraudsters Pattern of Behaviour by Numbers
1. The UK’s leading ecommerce businesses say their peak fraud period is from 9pm to 12 midnight. Nearly three out of 10 (28%) companies surveyed cited this period in which most fraudulent orders were put through their site
2. With thousands of websites to defraud and thousands of institutions offering credit, it’s no great loss to fraudsters when they do get beaten by the embedded defences companies put in place. Fraudsters simply move onto the next site in the list. According to a survey of fraud managers at internet retail operations, seven out of 10 (70%) of retailers don’t report fraud to the police.
3. Fraudsters favour a mid-range attempt that doesn’t arouse suspicion or warrant great scrutiny. Fraud managers have indicated that nearly half (43%) of attempted fraudulent transactions were in the £250 to £500 range, while less than a third (29%) were in the £500-plus bracket
4. Despite the obvious advantages offered by the online retail environment, many fraudsters still prefer to use a third-party to distribute stolen property, often favouring the convenience and ease of a speedy cash sale to a member within their broadly co-operative fraud networks
5. Fraud managers have their own online forums to discuss, share information, tips and fraud alerts to work together to beat the fraudster, so it’s unsurprising to find that fraudsters also have their own forums as well. Numerous ‘carding sites’ exist on the web where sets of card numbers, names, addresses and other information any web-literate person can purchase and take home, before attempting their own Card-Not-Present scam.
Download the full copy of the Experian 2012 Fraud Report here, registration is required.
You may also want to read RSA’s April Online Fraud Report 2012.