New Fraud Risks Rise, Experian Reports

While many businesspeople surveyed by Experian for its 2024 U.S. Identity & Fraud Report say they completely understand the impact of fraud on their business, commercial fraud losses continue to increase. New fraud risks arise constantly as consumers’ digital lives expand, the report says. That has implications for strategies necessary to combat fraud and retain consumer trust.

“To keep pace with the market, businesses will need to apply a multifaceted strategy that leverages the right data and tools in an orchestrated way that brings to bear multiple types of recognition and security to stop all types of fraud,” the report says.

Experian conducted two surveys in March. One asked more than 2,000 U.S. consumers about their online interactions and expectations regarding security and customer experience. The second survey asked more than 200 U.S. businesses about their strategies for effective e-fraud management, customer identification and authentication, including investment related to security and customer experience.

Cybercrime was the top concern for businesses, cited by 45% as their top operational challenge. It was followed by Generative AI (GenAI) or deep fakes, peer-to-peer (P2P) payment scams, identity theft and transaction frauds in the top five.

Investing to Build Consumer Trust

Though the report did not look specifically at auto dealers, the report’s findings “absolutely” apply to dealers, Jim Maguire, Experian’s senior director of product marketing for automotive, tells WardsAuto.  

It’s important for dealers to “combat technology with technology,” Maguire says. Investing in more-advanced fraud solutions not only helps mitigate risk but also builds consumer trust, he says.

The survey found physical biometrics, PINs sent to a mobile device and behavioral analytics make consumers feel most secure and “some would argue that trust is a critical form of currency in a highly competitive market,” Maguire says.

However, fewer than 30% of businesses use advanced technology, including physical biometrics and behavioral analytics, for fraud prevention, he says.

U.S. adults lost more than $43 billion to identity theft and fraud in 2023, the report says. Meanwhile, fraud scams and bank fraud schemes caused losses of more than $485 billion in losses globally.

And as more retail activity has moved online, consumers have become more concerned about conducting digital activities. In this year’s report, 80% were “somewhat” or “very” concerned about it, up from 61% in 2023.

That is impacting their online behavior. While consumers’ online activity remains consistent, they are opening fewer online accounts, the survey finds. It also finds a decrease in consumers’ willingness to share data online. The percentage plunged to 9% this year, down from 34% in 2023.

“The decrease in willingness and decreased consumer trust are signaling shifts in the market that businesses should be aware of,” the report says.

A large majority of consumers – 82% – expect businesses to react to their fraud concerns, and 63% of consumers say it is extremely important for businesses to recognize them online.

Fighting Generative Artificial Intelligence Fraud, Or Not

Cybercriminals are increasingly employing GenAI in their crimes and GenAI is used to generate fake identities, among other uses. Businesses recognize GenAI’s threat, but businesses in general aren’t prioritizing investment in technology to fight GENAI, the report finds. Experian defines GenAI as “a subset of artificial intelligence techniques that involve algorithms capable of creating realistic content, such as text, music, images, code etc., from input data.”

Detecting and preventing GenAI was chosen by 17% of businesses as the greatest areas impacting the health of businesses, the top concern tied to detecting and preventing cybercrime.

However, businesses aren’t putting their money where their concern is. Preventing and detecting GenAI fraud and deepfakes came in ninth on the list of actively pursued initiatives in 2024. Combating GenAI fraud and deepfakes didn’t even make the top 10 in a list of the most important investment areas for 2024.

Interestingly, “implementing new analytics methods and new Artificial Intelligence models to improve customer decisions” was the top-ranked most crucial investment area for 2024, chosen by 17%. In second place, chosen by 14%, was “improving how we detect and prevent cybercrime.”

This may be shortsighted. Experian warns that fraudsters have seen the benefit of leveraging GenAI and are already “supercharging” criminal efforts to defraud businesses and consumers alike.

Dealer Takeaways

The most common threats dealers face, Maguire says, are third-party fraud or fraudsters stealing an identity to purchase a vehicle; first-party fraud or a person knowingly misrepresenting aspects of their identity “often with the intention of not paying for the vehicle;” and synthetic identity fraud, or creating a fake identity and building a credit profile over time before using the identity to buy a vehicle they do not intend to pay for.

The key takeaway of the Experian report for dealers “is that not all fraud is perpetrated equally,” Maguire says. “As a result, dealers and lenders need to tackle specific fraud schemes with the appropriate approach.”

That establishes consumer trust and protects dealerships against fraud, he says.

“Distinguishing among the most common fraud schemes impacting the automotive industry is crucial to protecting dealer and lender portfolios,” Maguire says.