Americans are increasingly worried about financial fraud, a new survey finds – even if many of them are willing to bend the rules themselves.
In a new report from FICO, 32% of Americans ranked fraud protection as their most important consideration when choosing a financial account, with 71% putting it in their top three issues.
Identity theft is a prime concern among survey respondents, with more than one-third of them ranking it as the financial crime they’re most worried about. Card theft and being “tricked into sending money” were the next two most popular fears, with 18% citing the latter as their top worry. This comes as mortgage scams and title theft are on the rise, with criminals using increasingly sophisticated techniques to scam would-be homebuyers out of downpayments for homes that they don’t actually own.
The study reveals a tension in customer expectations, though. While fraud protection was a top issue on the minds of consumers, ease of use was close behind, with 40% of respondents ranking it as their first or second most important consideration. This creates a tension for banks as they work out ways to keep customers safe – something that often requires user friction in the form of verification checks like two-factor authentication – while also making their platforms easy and simple to use.
Adam Davies, vice president of product management at FICO, said financial institutions should look to AI and other big data solutions to try and find the right balance and apply checks more precisely.
“When that balance is optimized in a best practice way, the vast majority of legitimate applicants won’t even realize that fraud checks are happening in the background,” he said.
Some borrowers okay with bending the rules
Despite fears of being a victim of credit fraud, though, many applicants aren’t exactly against manipulating the numbers for their benefit. According to the survey, between one-quarter and one-third of Americans are open to fibbing about their income. When it comes to mortgage applications, 29% of respondents said it was okay in some circumstances or considered it normal to exaggerate how much they make, and one-third felt that way when applying for loans.
Davies pointed to several factors that lead consumers to overstate their income. Some are overly optimistic that they’ll get pay raises or earn more in the future, he said, while others take the view that everyone else is doing it so it’s not a big deal. And then there are economic factors.
“When times are tough, we typically see a rise in opportunistic first-party fraud,” he said. “With housing costs and living expenses outpacing income growth, some consumers genuinely believe they can afford the payments even when their documented income suggests otherwise.”
While borrowers may not think much about being overly-optimistic when listing their income, Davies warned it can be a costly problem for lenders.
“In some products or portfolios, first-party fraud may account for up to 30% of the debt book,” he said. “This not only drives financial losses but also leads to substantial operational and capital expenditure chasing debt that’s unlikely to be recovered.”
Concerns about fraud come at a precarious time for banks and the mortgage industry. Artificial intelligence is creating huge challenges as advances in deepfake technology make it easier for scammers to impersonate sellers, even on video calls, worrying many experts. During a recent talk at the Federal Reserve Board, OpenAI CEO Sam Altman warned of an “impending fraud crisis” for financial institutions as generative AI quickly outpaces companies’ ability to authenticate transactions.
