Digital channels and devices have changed everyday life for consumers – dramatically altering the way they interact with each other and businesses.  This in turn has changed the way criminals operate, effectively tapping the prodigious amount of information consumers transmit digitally to defraud financial service providers, merchants, and other online businesses.  It is no coincidence then that adoption of digital channels and devices have grown in tandem with fraud, which reached a record high in 2016. 

Yet not all consumers are equally at risk as how they connect, share, and shop can each have an appreciable effect on a consumer’s risk of becoming a victim.  By breaking down consumers into different cohorts, Javelin was able to discern how certain digital behaviors contribute to the risk of fraud.  When it comes to fraud, going digital is a double-edged sword and awareness of the implications is critical to preventing every year from becoming a record year for fraud.

Over the course of the last 5 years (or so):

  • Facebook went from 845 million to 1.86 billion active monthly users worldwide (120% increase)
  • Twitter went from 117 million to 319 million active monthly users worldwide (173% increase)
  • E-commerce grew from $234 billion to $424 billion in the U.S. (81% increase between 2010 and 2015)
  • M-commerce grew from $24 billion to $122 billion in the U.S. (408% increase between 2012 and 2015)
  • Online banking grew from 60% to 73% of consumers (in the past 30 days in the U.S). (22% increase)
  • Mobile banking grew from 22% to 58% of consumers (in the past 90 days in the U.S). (164% increase)

And over that same period Identity fraud went from 11.6 million to 15.4 million victims, (33% increase) but it’s not all doom and gloom as the total lost to identity fraud decrease going from $18 billion to $15.7 billion (13% decrease). 

Within these trends lay three important points about how fraud has changed as a result of the digital revolution:

  1. There is more fraud thanks to the speed that it facilitates and the information consumers are sharing online
  2. Fraud is easier to detect, especially when consumers are empowered
  3. Digital adoption is becoming increasingly pervasive despite fraud

So when we consider the above and dive more deeply into the behaviors of the different consumer cohorts (which were discussed in our 2017 Identity Fraud Study sponsored by LifeLock, an identity protection company), we notice a logical connection between their digital lives (or lack thereof) and the fraud they experience:

  • Offline Consumers: With little social network or e-commerce activity, they prefer to do their shopping in person and keep their financial records on paper. This limits their exposure to fraud, with less information publicly available to fraudsters. However, it also makes it difficult for them to quickly detect fraud when it does occur, leading to notably higher fraud losses.  They represent 35% of consumers and are most likely to be Boomers and members of the Greatest Generation.
  • Social Networkers: With so much personal information available on social networks, they are particularly vulnerable to account takeover, since fraudsters can use this information to either impersonate their victim or impersonate the victim’s financial institution to get more information.  They represent 34% of consumers and are most likely to be Gen X’ers.
  • E-Commerce Shoppers: Tech-savvy and affluent, they frequent online and mobile commerce sites. With payment account information exposed across a wide array of sites, this segment faces the highest rate card fraud among the four segments. Fortunately, with high use of online and mobile banking, these consumers also detect fraud in record time, keeping it from spiraling into complex, expensive schemes.  They represent 17% of consumers and are most likely to be Gen X’ers.
  • Digitally Connected Consumers: The smallest segment, these consumers like to push the boundaries of digital shopping and social activity. Nearly one-third have used a mobile wallet in the past 7 days and four in ten have made a P2P payment in the last 30 days. This technology-permeated lifestyle contributes to diverse fraud vulnerability – these consumers are around 30% more likely to become a victim of each fraud type. They represent 14% of consumers and are most likely to be Millennials and Gen X’ers.

For all of these logical connections, they represent only a snapshot in time.  There is a seemingly endless flow of new products and services being created as part of the digital revolution, accompanied by new benefits and risks.  And as more consumers transition to digital, the risks will only grow, especially as criminals become increasingly sophisticated.  Getting and staying ahead of fraudsters will require engaging consumers to make them aware of the benefits and risks inherent to digital, and empowering them to counteract these risks. There is no need to paint digital as dangerous because on the contrary the use of digital services, such as alerts, identity protection and strong authentication can make consumers better protected from fraud.  Digital is a powerful force that has changed how we connect with the world, and that is being used against us.  Fortunately, whether or not we are victims or beneficiaries of the digital revolution is very much under our control.  


About Al Pascual

An accomplished industry analyst, market researcher, and financial industry practitioner, Al Pascual is Javelin’s Senior VP of Research and Head of Fraud & Security. As SVP of Research, he oversees the firm’s operations and ensures that Javelin’s research content provides the innovative perspectives that clients expect from the firm.

As Head of Fraud & Security, Al provides clients actionable insights on a variety of fraud and security issues, acts as a partner in developing strategies for managing risk, and identifies and raises awareness of future threats and solutions. Al researches a range of topics, including the applicability of biometrics in banking and payments, the effect of data breaches on the integrity of consumer identities, the relationship between identity fraud and loyalty, and the best methods for securing data and transactions.

Al has presented findings from Javelin’s rigorous, industry-leading research at conferences around the world, including BAI, CARTES, Money20/20, NACHA, and RSA. Al has provided commentary on fraud and security issues to media outlets such as American Banker, Bloomberg, CNNMoney, Fox Business, Reuters, The New York Times, The Wall Street Journal, The Washington Post, and Wired.

Previously Al held risk management roles at HSBC, Goldman Sachs, and FIS. He is a member of the Association of Certified Fraud Examiners, the International Association of Financial Crimes Investigators, and the Federal Reserve Secure Payments Task Force. He earned a Bachelor of Arts degree in History from the University of South Florida.

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