Predicting Fraud Threats During the COVID-19 Pandemic and Approaches to Mitigate Against Them

Thus far, 2020 has been characterised by the unprecedented speed and scale of changes to our daily lives. In just a couple of months, COVID-19 has wreaked havoc on homes, places of business and the global financial landscape in general — consequently creating a playground of potential opportunity for fraudsters and criminals.

Whilst we’ve studied and analysed trends in financial crime from previous recessions, no existing data can truly tell us what to expect as the UK heads toward a recession caused by a pandemic. Nor can we confidently predict what effects the crisis will have on the psychology of consumers. What we can say with more certainty is fraudsters thrive off uncertainty and chaos. As consumers adjusted to new work and home lives at the beginning of the lockdown, fraudsters were busy increasing COVID-19-related fraud by 400% in March, and exploiting the public’s need for information by creating an estimated 3–5% of the 4,000 coronavirus global domains registered.

We’re in unchartered territory where fraud can threaten the integrity of the financial sector and test its resilience to withstand an economic downturn. With the UK economy contracting — UK GDP has been downgraded from 1.0% to 0.7%, now to -1.4% for 2020 annualised growth (1 Oxford Economics - GDP, real, LCU)— businesses need to act quickly and efficiently against fraud to help consolidate performance.

For many, the 2008 ‘Credit Crunch’ remains a recent and painful memory. But we should also recognise we’ve come a very long way in the past 12 years. We’ve seen accelerated advances in smartphone technology, the release of 4G and now 5G mobile networks, and a seismic shift in consumer expectations. As a result, we’re far from strangers to interacting digitally with our friends, family and colleagues, and for many of us, digital is the route we actively prefer when interacting with businesses. Whereas up to now, digital been a choice or an option, COVID-19 has made it the only way the majority of businesses can interact with consumers.

“The way we digitally engage with each other and businesses has changed dramatically since the last recession. COVID-19 has emphasised this, highlighting the importance of having good processes and solutions in place,” explains Sarah Golding, Head of Fraud Consultancy, TransUnion in the UK. “Since the last recession, advances in technology have of course also been adopted by criminals. Dark web marketplaces have become increasingly sophisticated e-commerce platforms and threats, such as money mules, impersonation fraud and account takeover, continue to grow in volume and complexity.”

Not only are we facing a socioeconomic crisis the likes of which we’ve never seen before, we’re in a situation where almost every variable in the equation of this recession is different to those previous. As such, we must first approach the problem by asserting what we know to be constant.

First of all, and most fundamentally, it seems certain financial crime is set to increase. Indeed, March alone saw a 400% rise in COVID-19-related fraud, with corresponding losses over £2m by April and over 4,000 coronavirus domains registered globally — of which 3% are estimated to be malicious and 5% suspicious.

Previous economic downturns also suggest we’ll see a rise in both third-party and first-party fraud. Consumers are already being flooded with COVID-19-themed social engineering calls and phishing emails actioning them to hand over their bank details and other sensitive information. First-party fraud, unfortunately, is also likely to follow suit as industries and companies continue to cut back or shut down completely, and more people find themselves in financial distress. Finally, a new variable in the fight against fraud — which the timing and nature of the downturn has added to the equation — is the need for digitisation. To stay afloat through lockdown and beyond, businesses that haven’t previously digitised their consumer interaction will need to. And they’ll have to do so quickly.

Whether having experienced fraud first-hand or not, any reader is likely to appreciate it’s an evolving challenge. To battle it effectively, businesses must be both agile and accurate in their analysis and development of strategy. More explicitly, fighting fraud requires ample and expert resource — which is the final variable in the equation and most unstable. 

The ripple effect of the COVID-19 lockdown is affecting and reducing resource at an unprecedented rate. In some businesses, head count is being reduced by furlough and redundancy to help balance books. Where businesses don’t need to make these cuts, a surge in obligations, such as section 75 claims, mortgage payment holidays and loan breaks, are likely to drain operational teams’ bandwidth. In addition, the move to working from home, particularly for businesses where this was previously uncommon, may be impacting productivity and stretching resource even more thinly.

Sadly, the reality is even if your business is affected by none, all or a couple of the above, it’s likely it could experience an increase in sick and compassionate leave during the pandemic.

As a leader in data and analytics, the team at TransUnion has pivoted to operating in lockdown with speed and efficiency and are operating BAU. This is highlighted by some of the work Sarah Golding and her team have been undertaking: “Since the start of COVID-19, we’ve been ramping up the way we support our customers. We’ve created a series of webinars and guides to provide actionable insights and ideas. We’re also seeing some sectors, such as government and public sector organisations, needing to implement fraud solutions at speed, whilst traditionally offline businesses are cleverly using this time to work with us in strengthening their fraud strategy with tools that help them build trust with customers and processes to ensure they’re ready when allowed to reopen.”

Our Fraud consultancy and analytics team is an invaluable resource of financial crime expertise with a proven track record of delivering market leading insights. We recognise for many of our customers, the focus has quickly flipped from growth to risk, and we’re here to support that transition. We can help you:

• Maximise fraud prevention whilst minimising false positives
• Optimise existing scorecards and policy rules
• Evaluate additional data sets to add to your fraud controls
• Re-orchestrate and optimise your fraud and verification strategies to aid digitisation

Further insight