Socure examines US$100B first-party fraud problem

First-party fraud is costing financial institutions and merchants in the U.S. more than US$100 billion per year, according to the latest report from identity verification company Socure. The company has now delved deeper into the figures it has collected in a webinar.

First-party fraud means using one’s own identity to open an account and using it for dishonest gains. According to the company’s research, the most common frauds include requesting refunds on received items, not paying credit cards and disputing legitimate transactions.

This type of fraud is widespread: More than a third (35 percent) of Americans admit they have engaged in this type of fraud while 10 percent say they have done it more than once. And it’s hard to detect.

“People find this to be a little more innocent than other types of fraud,” says Yigit Yildirim, Socure’s Senior Vice President for Data and AI and General Manager for Fraud and Risk Products

“If there are no obvious signals, there are no inconsistencies and there is no perceived victim aside from the institution […] it becomes infinitely more difficult to catch this type of fraud,” he adds.

Data shows that first-party fraud is often seen in online gaming and gambling, Buy Now Pay Later (BNPL), payment platforms and marketplace lending industries. Nearly a third of Gen Z, for instance, has made a purchase through BNPL without intending to pay it back. But first-party fraud continues to grow in all industries, according to Socure.

In account takeovers, third-party frauds and synthetic attacks, companies can focus on different signals such as different IP addresses and different devices to detect fraud. With first-party fraud, the tactics should be different.

“With first-party fraud, you have to rely on known outcomes, known history. That’s your best weapon to fight this kind of problem,” explains Ori Snir, Head of Product Management for Identity Solutions at Socure.

Consumers who have two or more closed accounts associated with first-party fraud behavior are 189 times more likely to commit first-party fraud again if given the chance, according to the company’s research.

Socure recommends investing in cross-industry data sharing, modeling and analytics to fight this threat. Last year Socure launched its FPF identification service, Sigma First-Party Fraud, alongside the First-Party Fraud Consortium. The product works by comparing customer’s reported personally identifiable information (PII) to the compiled network data and creates a list of FPF signals to quickly determine the likelihood of fraud.

Mike Cook, Vice President of Fraud Product and Investigations at Socure previously told Biometric Update that financial institutions can deter fraud through risk-based identity verification policies.

Another important step should be aligning with regulators on closing legal loopholes.

The U.S. Consumer Financial Protection Bureau (CFPB) and other lawmakers have been pushing to put the onus on losses linked to scams to financial institutions instead of customers. Some industry leaders, however, are concerned that this could make first-party fraud even more enticing.

Socure recently also published a report on how U.S. state governments are handling fraud in partnership with The Center for Digital Government.

Article Topics

banking  |  digital identity  |  financial crime  |  fraud prevention  |  identity verification  |  Socure