Digital fraud continues to flourish, with recent surveys finding that security breaches have increased 67 per cent since 2014 and 11 per cent since 2018. Casualties of these breaches in the first half of 2019 alone include 4.1 billion personal records exposed in a variety of ways: 52 per cent through hacking; 33 per cent via phishing; and 32 per cent through social engineering, with many involving more than one method.
Information security system spending is expected to reach $131 billion worldwide by the end of the year and $174 billion by 2022. Many of these investments are in artificial intelligence (AI) and machine learning (ML) applications, which are becoming integral to cybersecurity systems across a range of industries. Seventy-five per cent of banks rely on AI applications to prevent fraud, for example, as do 80 per cent of telecommunications companies and 68 percent of retailers.
One area in which AI and ML could prove particularly effective is application fraud, which sees cybercriminals submitting financial product applications to banks with no intention of paying them back. AI and ML are adept at finding fraudulent activities that many human bankers would write off as risky loans, especially when bad actors use fabricated identities that leave no identity theft victims to bring attempted fraud to FIs’ attention.
The cybersecurity market is seeing record investments financially, but it faces a crucial talent gap. A recent survey found that the industry needs at least 4 million new cybersecurity personnel to effectively fight digital fraud worldwide on top of the 2.8 million people already employed by the industry. This 4 million figure is a 33 per cent increase over what was needed last year, highlighting the fact that the growth of digital fraud is exceeding that of the cybersecurity industry.
One factor potentially contributing to the growth of digital fraud is the outbreak of Covid-19, the disease caused by the coronavirus, which is stretching cybersecurity resources thin as more experts work from home. The European Central Bank recently warned that an additional virus-related factor contributing to the cybercrime threat is the fact that many more customers are engaging in digital banking rather than visiting physical bank branches. The ECB recommended that banks work with third-party security contractors to keep themselves safe for the duration of the pandemic.
E-mail fraud is just one method that cybercriminals leverage in their schemes, but a recent study from threat intelligence firm Digital Shadows found that it is also the most profitable due to its high margins. Phishing scam tutorials and website templates are available on dark web marketplaces for less than $30 each, and fraudsters using them stole more than $1.7 billion last year. In contrast, a fake website targeting online banking services costs $67.91. These resources not only train hackers on how to conduct digital fraud, but can also give them ready-made tools with which to do so.
- This article first appeared in the Digital Fraud Tracker report in March by PYMNTS.com, the business-to-business platform for the payments industry