42% of Suspicious Banking Activity Linked to Identity Fraud

As fraudsters leverage sophisticated tactics, including artificial intelligence (AI)-powered identity manipulation, the FinTech sector finds itself in the crosshairs of an escalating battle against financial crime. This threat landscape is the central focus of the latest edition of the Identity Verification Series, a collaborative report by PYMNTS Intelligence and Intellicheck.

The report, titled “How FinTechs Are Fighting Identity Theft and Identity Fraud,” explores the growing fraud challenges confronting FinTech companies, examines the financial and compliance burdens they face, and highlights the emerging technologies and strategies being deployed to combat these threats. This study underscores the urgent need for FinTechs to bolster their fraud prevention and identity verification measures to protect both their operations and their customers.

The report paints a concerning picture of the current fraud environment for FinTechs. It highlights that about one-third of FinTechs have recently experienced fraud, a trend that mirrors an upward trajectory across the broader financial industry. In the United States alone, financial institutions witnessed a significant 65% increase in fraud losses, averaging $3.8 million last year. A particularly troubling aspect is the rising sophistication of fraudulent activities, making it difficult to distinguish them from legitimate transactions.

Notably, identity-related suspicious activity accounts for 42% of all suspicious banking activity, totaling $212 billion in 2021, with verification circumvention identified as the most reported type of fraud. This surge in identity-based fraud, fueled by dark web data and readily available AI tools, poses a significant risk to digital-first entities like FinTechs and their users.

Key findings from the report include:

Identity-related issues comprise 42% of all suspicious activity encountered by financial institutions. This underscores the central role of identity in fraud attempts and the critical need for robust identity verification processes.

Online and mobile banking channels account for 75% of the fraud attempts reported by FinTechs. This highlights the digital battleground where most fraud occurs, emphasizing the importance of securing these platforms.

Ninety-three percent of FinTechs find it challenging to remain in compliance with regulations. This reveals a hurdle for the industry as it grapples with both escalating fraud and increasing regulatory scrutiny.

In response to these threats, FinTechs are actively exploring and implementing new fraud prevention tools. A significant 52% of financial institutions plan to implement or increase their use of AI or machine learning for fraud prevention.

Furthermore, FinTechs are showing interest in investing in anti-scam education tools (81%), document verification software (65%), and identity risk solutions (55%). The report also provides examples of recent FinTech innovations aimed at countering fraud, such as Fortress Payments using selfie biometrics for enhanced security, and Tiller Technologies offering digital identity verification for international banking customers. Additionally, Fintech360 and FUGU have recently launched tools leveraging transaction monitoring, pattern analysis, and AI to combat various forms of fraud, including stolen identities and account takeovers.

Ultimately, the report emphasizes that proactive investment in robust identity verification systems and fraud prevention technologies is crucial for FinTechs to safeguard their operations, protect consumers, and meet the expectations of regulators.

This collaborative effort between PYMNTS Intelligence and Intellicheck provides valuable insights for professionals navigating the complex and evolving landscape of fintech security.