The International Monetary Forum recently forecast that the global economy will shrink this year for the first time in more than 70 years. Appropriately dubbed the ‘Great Recession’, the current financial crisis is causing unrest across the world for consumers, businesses, governments and financial institutions. Paul Gillingwater, European lead, Fraud and Risk Intelligence at Unisys, examines the growing link between this time of unrest and a rise in financial fraud and provides insight for businesses and governments on how to tackle growing consumer fears.
Over recent years we have seen a significant rise in financial fraud across Europe. This form of fraud, which primarily encompasses identity theft and credit card fraud, is now the number one consumer complaint and billions of Euros are lost each year to unscrupulous operators, hackers and gangs.
And how are consumers reacting to this burgeoning offense? According to research from Unisys - poorly. The Unisys Security Index, a bi-annual global study, shows that nearly two thirds (61 per cent) of Europeans believe that the world financial crisis will increase the risk that they will personally fall victim to financial fraud.
According to fraud prevention agency CIFAS, in 2008 fraud levels increased by 16 per cent compared to the previous year. Facility takeover frauds – when a fraudster takes over a victim's bank, credit card or catalogue account - increased by 207 per cent. Specifically, a survey conducted by MessageLabs directly following the bank chaos which began in August 2008, reveals that phishing attacks rose by 16 per cent between August and September before a surge of 103 per cent the following month.
So why is this happening? During a time of financial unrest when banks are making global headlines, it makes sense for spammers to use the credit crunch as a hook to exploit the worried and confused customers who have been shaken by recent events and are looking for a way out.
And how can we explain the sudden increase in the number of perpetrators of these attacks? Hand in hand with a recession comes insecurity. It is this insecurity which increases the motivation for some employees and consumers to commit crimes in order to maintain their existing lifestyles, replace lost funds, or meet increasingly challenging sales targets. In short, difficult economic times can foster the criminally opportunistic and create desperate individuals who embark on desperate measures to deal with personal debt. An overall rise in white-collar crime is in turn seeing attacks such as identity theft and credit card fraud explode.
Additionally, consumers are an easier target for credit card fraud during a recession – leaving themselves more open and vulnerable to fraudsters. As they desperately shop online for bargains, they are not as cautious as they might have previously been.
Finally, there has been a serious breakdown in the relationship between financial institutions and their customers. Consumers have lost faith in banks and no longer trust them to protect their livelihood and money. As faith in financial institutions declines, consumers become a prime target for online attacks such as fraudulent mass e-mail campaigns designed to lure customers into providing personal financial information such as passwords or account information – phishing attacks.
Revisiting Unisys Security Index results from March 2009, the survey reveals significant disparity across Europe, with only one third (32 per cent) of Dutch consumers believing that there is an increased risk of fraud during the recession, compared to 83 per cent of Spaniards. Interestingly, the Spanish were more concerned than their German counterparts over this issue, with just over half (56 per cent) of German consumers thinking that the global crisis will increase the risk of ID theft. This figure falls as income rises – Germans with monthly household incomes of 4,000 Euros or more worry the least. Surprisingly, the research places Germany as one of the least worried nations over this issue, coming fourth out of the five countries questioned.
Perhaps the impact of the financial crisis has not yet filtered down from company level to consumer in Germany, or perhaps the German public planned well for it.
Despite the Belgians relatively low levels of concern in the overall Security Index, residents are clearly worried about this issue, as two thirds (63 per cent) think that their personal risk of ID theft and credit card fraud will increase in light of the recession.
The British are also extremely anxious about ID theft, with a clear majority (72 per cent) believing their personal risk will increase. This puts the UK as the second most worried European country, at 11 per cent below Spain.
While there is disparity across all of the regions surveyed in Europe, these results underscore the urgent need for companies to address this burgeoning fear. Banks and financial service providers in particular must now do everything to win back the trust of their customers. These include strict security measures to protect data, identities, credit cards and cash cards.
It is important that any company doing business online or handling sensitive data take note that the current financial crisis has deepened consumer fear and intensified risks. Outside of the financial services industry, all organisations in both the public and private sector must demonstrate good security practices, ensuring that the high profile security breaches and customer data losses of the past 12 months become a thing of the past. Although cyber criminals will continue to attempt to access our private information, consumers, companies and governments can all work together to combat the threat and reduce the risk of fraudsters succeeding.
While the debate rages on about the mechanics of government bailouts and optimal interest rates, one thing is certain: there will be no return to economic stability without increased trust and rising consumer confidence. Restored trust among banks will open the flow of credit and boost deposits. Stronger trusts between governments and citizens will promote the sense that economic growth and fair markets can be sustained over the long term. And importantly, secure operations and high-quality customer experiences will help inspire the confidence necessary to boost consumer spending.
For more information about the Unisys Security Index and full European results, visit http://www.unisyssecurityindex.com.