Fraud doesn't look the same across all ethnicities, ages or incomes. And when broken down, the numbers reveal a stark contrast. For example, Hispanics and African-Americans aged 25-54 have a 56 percent higher chance of becoming victims of identity fraud compared to other consumers. And together, the fraud cases of these two ethnicities represent 35 percent, or $20 billion, of total annual identity fraud losses.
By contrast, even though households earning over $150,000 are 50 percent more likely to be victimized than the average household, their losses are among the lowest, at $4,376 per victim or six percent ($3.6 billion) of total annual losses. One reason for the lower numbers are measures taken to protect the assets of the highest earning households, whether done by consumers themselves, their surrogates, or the institutions that house their assets, that are effectively reducing fraud losses for this demographic by at least 31 percent compared to the average loss for all victims.
Excerpts from the May 2006 report, "The Demographics of ID Fraud," a companion to the "2006 Identity Fraud Survey Report" published by Javelin Strategy & Research in January-examine identity fraud and its characteristics relative to the demographics of its victims. The report provides financial institutions with a finer understanding of how their identity fraud prevention, detection and resolution processes can be modified to better serve their clients and reduce operating losses. Representative summary findings are excerpted below. Additional characteristics of identity fraud victims by income, age, ethnicity and geography; demographic characteristics of identity fraud cases; and the types of accounts that are targeted for fraud can be found in the full report.
The Javelin "2006 Identity Fraud Survey Report" provides consumers and businesses an in-depth and comprehensive examination of identity fraud in the United States. The purpose of the report is to help readers understand the causes and incidence rates of identity fraud and the success rates of methods used for its prevention, detection and resolution. The 57-page report builds on the Javelin "2005 Identity Fraud Survey Report" and the Federal Trade Commission's "2003 Identity Theft Survey Report." The set of questions and underlying methodology used were identical or highly similar to the 2005 and 2003 surveys. This allows the ability to provide longitudinal trends on various subjects, such as incidence rates and detection methods.
In addition, to more deeply explore the significance of past responses, a discrete number of new questions were added. These probed the behaviors of consumers before and after personal information was compromised and/or misused, to identify any correlations to the fraud operators' behaviors and to discover potential opportunities for consumer education.
In all, 5,000 consumers, representative of the U.S. population, were interviewed via a standardized 44-question telephone survey to develop more accurate and actionable insight into this pervasive and costly crime. The polling yielded interviews with 529 fraud victims.
The results show identity fraud affects the youngest adults, households with the lowest incomes, and certain minorities (i.e., Hispanics and African-Americans) the most. Whether due to lack of knowledge or lack of resources, these demographic groups appear to be easier targets for fraud operators.
Identity fraud, victimizing almost nine million U.S. adults in the past year, represents $56.6 billion in annual losses for financial institutions and retailers. While growing consumer awareness and improved company prevention and detection measures have curtailed an increase in the number of identity fraud victims, losses from identity fraud have increased 22 percent over the past two years, averaging $6,383 per victim.
Young and low-income adults are the least prepared to protect personal information under their own control. As household income increases, the primary source of breach of information shifts from consumer control to outside agencies. When known, 77 percent of households earning less than $35,000 reported the means of access to personal information was residing primarily within their own control. Conversely, only 57 percent of households earning more than $100,000 were the primary caretakers of the breached means of access to personal information.
Access to personal information is partially determined by the behavior of consumers. For example, consumers earning less than $35,000 shred documents prior to discard at the rate of 58 percent, while those who earn more than $35,000 shred documents at the rate of 75 percent.
Generation X victims (ages 25-34) reported that 72 percent of their fraud cases originated with a means of access within their own control, while 68 percent of blacks reported the same.
Detection of fraud is inefficient among Hispanics, African-Americans, young adults, and low-income groups. It takes far longer to detect identity fraud perpetrated on Hispanics and African-Americans, the youngest adults, and people with household incomes under $35,000. Consequently, misuse of their identities is also lengthier, resulting in higher average losses.
These groups self-detect fraud at a higher rate than their counterparts, signifying perhaps a lack of focus by risk-management groups on their account activity. The extended length of misuse also indicates a lack of timely account monitoring by the consumers themselves.
People from households earning less than $15,000 and households earning more than $150,000 self-detect fraud at the same rate. Since high-wage earners experience a high rate of fraud, yet low-average fraud amount and short misuse and detection time, it is evident that their surrogates and the efforts of risk-management groups are more effectively protecting their assets. On the other hand, even though low-wage earners experience a low rate of fraud, their average fraud amount is larger and the length of information misuse and detection time much longer than those of most other wage earners, indicating inadequate awareness by these consumers of the dangers of identity fraud coupled with insufficient monitoring of account activity by risk-management groups.
Victimization by friendly fraud (close associates), when the perpetrator can be identified, is most prevalent among Hispanics, young adults, low-income people, and seniors. Of those who knew the identity of the fraud operator, all minorities reported high victimization by friendly fraud. However, Hispanics reported the highest rate of victimization, at 65 percent. Friendly fraud is also prevalent among young adults and seniors. Friendly fraud was experienced by 69 percent of young adult victims and 50 percent of senior victims.
Victimization by friendly fraud decreases as household income increases. Households earning less than $50,000 are three times more likely to be victimized by friendly fraud than those earning more than $50,000. Of households earning less than $15,000 that are victimized, 76 percent are by friendly fraud.
The victims' demographics determine the type of fraudulent new accounts that will be opened. Black victims experience twice as much new account fraud as other ethnicities and Hispanic victims experience two times higher fraudulent new loan accounts, indicating the lack of access to or usage of credit reporting or credit monitoring services for these minorities.
Fraudulent new loan accounts increase in volume as the age of the victim increases, perhaps because older consumers are more credit worthy. Conversely, the volume of new fraudulent electronic (e.g., telephone, eBay) accounts increases as the age of the victim decreases.
The same pattern with minor variations can be seen with the misuse of existing accounts. Existing checking accounts of all victims are targeted for fraud, but only electronic (Internet and e-mail payment) accounts of households earning $50,000 or less are generally breached, indicating perhaps a lack of proper knowledge or security installed on the home computer.
Misuse of existing loan accounts is most prevalent among victims from households earning $100,000 to $150,000.
Results from the 2006 Identity Fraud Survey Report indicate that-of the 47 percent of victims who knew how their information was stolen-businesses accounted for 28 percent of the breached access points to consumer information, including: employee malfeasance at 15 percent, fraudulent transaction processing at seven percent, and data breaches at six percent. The losses from these breaches total $12.5 billion, or 22 percent, of the total annual fraud losses.
Consumers account for 63 percent of breached access point occurrences, totaling $40.1 billion, or 70 percent of annual losses. Considering the breach of sensitive information via access points primarily under consumer control results in over two times the frequency of identity fraud and almost 2.5 times the losses, there is a considerable void in consumer education and awareness. There is a critical need to arm consumers with appropriate tools to protect themselves.
Consumers have generally acted on the common advice to shred documents prior to discard, effectively eliminating the garbage bin as a source for information theft. Some 69 percent of consumers have adopted this preventive measure.
A second tip, to use secure mailboxes, has not yet captured the attention of most consumers. Only 31 percent of consumers use secure mailboxes for incoming and outgoing mail. Yet even this small percentage has contained losses from this source to under $2 billion annually.
While consumers are becoming educated on how to protect information outside their homes, sufficient attention is lacking in securing documents inside the home, the office, and the briefcase. Over half of annual losses (more than $32 billion) are caused by lost or stolen checks, cards, and wallets or by friendly fraud. One way to minimize the exposure to these losses is to eliminate the paper, thus the need to secure it, by moving customers to a paperless service. Due to its convenience and accessibility, the Internet is increasingly becoming the primary vehicle for consumers to conduct their routine banking (36 percent) and their shopping (46 percent), and even to apply for loans and other services (12 percent). Yet the survey shows that the rate of identity fraud from online activity remains virtually unchanged at 9 percent.
These preventive measures have been adopted with distinct variations by different demographic groups. Consumers earning less than $50,000 are more likely to secure their mail than those earning over $50,000. Conversely, the frequency of shredding sensitive documents increases as household income increases. Consumers earning less than $50,000 shred documents at the rate of 61 percent, while those who earn more than $50,000 shred sensitive documents at the rate of 77 percent.
The usage of online services is also driven by economic factors, increasing as household income increases. Households earning over $50,000 are almost twice as likely to bank, shop, and apply for services online as their counterparts. Households earning over $150,000 bank online at the rate of 67 percent and shop online at the rate of 80 percent.
At 72 percent, Caucasians lead in preventing "dumpster diving" identity theft by shredding their discarded sensitive documents, while African-Americans and Hispanics shred documents at 9 percent below the consumer average.
Similar to the demographics by age, there is little difference in consumer behavior by ethnicity in regard to securing mail. Asians are enthusiastic users of the Internet and utilize online banking at the rate of 58 percent and online shopping at the rate of 67 percent, almost 20 percentage points more than the average of other ethnic groups for each of these activities. African-Americans shop online the least and also are least likely to bank online.
Consumer behavior related to securing mail varies little among age groups. Two-thirds do not use secure mailboxes for their incoming or outgoing mail. However, over two-thirds of most age groups shred sensitive documents prior to discarding them. The exception is 18- to 24-year-olds, who shred documents at the rate of 51 percent, 20 percentage points below the average of the remaining population.
As can be intuitively predicted, the younger the consumer, the more likely the usage of online services. Gen X is the most avid Internet participant group, using online banking (56 percent) and online shopping (62 percent) at almost 20 percentage points more than the average of other age groups. The least frequent users of the Internet are seniors, who bank and shop online at 14 percent and 20 percent, respectively.
Households earning more than $100,000 are victimized 1.5 times more frequently than those earning less than $100,000. Yet on average, the higher-income fraud cases, at 35 days, are detected two months sooner than the fraud cases for households earning less than $100,000. As a result, the length of misuse is 60 percent shorter, the fraud amount is 25 percent lower, the consumer cost is 60 percent lower, and the resolution time is 55 percent quicker for the higher-income group than the average for their counterparts.
People in households earning less than $35,000 are the most oblivious to the occurrence of fraud. For members of this income group, their information is misused the longest and detected the slowest.
The biggest portion of identity fraud losses is incurred by victims earning $75,000 to $99,999, totaling $12.5 billion. This demographic also has the highest average loss per victim, yet a slightly lower than average fraud rate. On average, the length of time their identity is misused and the time it takes to discover their fraud cases is twice as long as for those households earning higher incomes.
Households earning over $150,000 represent a concentration of wealth and are natural targets for fraud operators. While they are victimized at a rate 50 percent higher than any other group, the total loss from this demographic is $3.6 billion, or 6 percent of the total. The average loss per victim is one of the lowest.
While households earning less than $15,000 are victimized at almost half the rate of those earning over $150,000, total losses incurred from the lowest-income group are over 60 percent higher than that of the highest-income group.
Identity fraud among Asians is almost half as likely to occur, as compared to the average of other groups. When it happens among Asian consumers, it is more likely to be credit/debit card misuse. Consequently, Asians experience the lowest fraud loss amounts, averaging less than half the average amount for all victims. They also experience the lowest consumer cost and the shortest resolution time.
Hispanics experience the highest rate of fraud as well as fraud loss amounts, followed closely by African-Americans. While Hispanics and African Americans experience identity fraud at a higher rate than other ethnicities, they also self-detect fraud cases more than other ethnicities. Asians self-detect fraud cases the least, and the fraud cases of Caucasians are detected the fastest.
Caucasians represent a majority of the U.S. population, and by extension should represent the majority of victims. Fraud losses incurred from cases related to Caucasians do represent the majority of the total annual loss at $32.7 billion; yet the rate of victimization and mean fraud loss amount for this demographic is less than the average for all ethnicities.
Hispanics and African-Americans experience fraud at a higher rate than other ethnicities. The loss incurred from victims of these ethnicities represents $20 billion of the total annual loss amount. Fraud cases for these groups are in general less frequently detected by others.
Identity fraud is most prevalent with consumers under age 44. As consumer age increases, the incidence of identity fraud declines. The youngest adult consumer is the most unaware when identity fraud occurs. Compared to the average, the misuse of identity in this group continues 1.5 months longer and the detection of fraud is protracted by a month. Consequently, the youngest adults experience the second highest average fraud amount, at $8,248. Gen X (age 25-34) members are victimized at the highest rate, 5.4 percent, and experience 25 percent of the total fraud amount. Consumers aged 35-44 experience the highest average fraud amount, at $9,435. Seniors, on the other hand, are victims of identity fraud at almost half the average rate. Their fraud cases are discovered first and, as a result, they experience the smallest average fraud amount, at $2,665.
Some 58 percent of fraud cases of victims aged 35-64 are not self-detected. Victims become aware of these frauds via notification from others. Conversely, 54 percent of fraud is self-detected by victims aged 34 and below, 7 percentage points higher than the average self-detection rate. It appears that neither the consumer nor the institution is sufficiently focused on preventing and/or detecting identity fraud for this age group.
Rubina Johannes is a research analyst for Javelin Strategy & Research. For a copy of the report-"The Demographics of Identity Fraud"-contact the research firm at 925.225.9100, ext.16, or visit www.javelinstrategy.com/research.
