Fraud and the Consumer: Does trust matter? Kieran Hines, Datamonitor 1

Introduction After the 2010 Fraud Conference we decided to look more closely at fraud in our global consumer survey This gives us a very consumer-centric view on fraud, particularly on how well banks meet expectations As a result, we have a lot of data to talk through this afternoon 

Agenda What is the consumer view of UK fraud? How does this affect banks and issuers?

Key messages Reducing fraud will require targeted messaging at high risk groups Avoiding a negative behaviour change is worth anti-fraud investment Dealing with the aftermath of fraud well is almost as important as prevention

What is the UK fraud story?

19.2% 12.8% 6.4% Experienced fraud since 2009 Were compromised once Were a victim two or more times Over 65s more likely to be a victim (24%)

Which types of fraud occur most frequently? Mobile banking 8.0% compromise Identity theft 9.1% Online or phone banking 10.8% compromise Tricked into giving details 11.4% to a fraudster Compromise at ATM 13.5% Compromise in a shop or 17.0% restaurant Of the total, what is the proportion of fraud by type? Pie or horizontal bar charts showing the %. Add the actual fraud data? Online payment fraud 30.2% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% Proportion of the number of incidences of fraud (%)

The age breakdown of fraud paints a reasonably unsurprising picture -15% -10% -5% 0% 5% 10% 15% 20% 25% 30% 18-24 25-34 35-44 45-54 55-64 65+ Proportion of all fraud (%) -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% Share of fraud relative to the total population

What types of fraud are younger consumers most susceptible to? -12.0% -10.0% -8.0% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% Relative incidence of fraud (%) 25-34 18-24 More likely Less likely Mobile banking Tricked into giving details to a fraudster Online or phone banking Compromise at ATM Compromise in a shop or restaurant Identity theft Online payment fraud

In the case of online payment fraud, familiarity is the key to fraud prevention 45% 18-24 25-34 35-44 45-54 55-64 65+ 40% 35% Share of total online payment fraud since 2009 (%) 30% 25% 20% 15% 5.0% 7.0% 9.0% 11.0% 13.0% 15.0% 17.0% 19.0% 21.0% 23.0% 25.0% Share of the total number of online payments in 2011 (%)

More mature consumers are also high risk in some situations 65+ Compromise in a shop or restaurant 35-44, Online payment fraud 65+ Compromise at ATM 45-54, Online payment fraud 55-64, Compromise in a shop or restaurant 65+ Online payment fraud 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% Incidence of fraud relative to the market average (%)

How concerned are consumers about being a fraud victim? 19.6% 21.1% 18.3% 22.5% 22.2% Proportion of consumers 'Very concerned' about fraud (%) 18-24 25-34 35-44 45-54 55-64 65+

However there are some big differences in the level of concern about fraud by type 30.0% Online payment fraud 25.0% Mobile banking compromise 20.0% Proportion of consumers who are 'Very Concerned' about fraud (%) Tricked into giving details 15.0% to a fraudster Online/phone banking compromise 10.0% Identity theft Compromise in a Compromise at ATM shop/restaurant Fear of fraud relative to incidence – highlight mobile banking compromise 5.0% 0.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% Reported incidence of fraud since 2009 (% of respondents)

Relative likelihood of fraud (%) A major issue is that some high-risk groups are not overly concerned about the dangers 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% -3.0% -2.0% -1.0% 1.0% 3.0% 5.0% Concern about being a victim of fraud, relative to the total market (%) Relative likelihood of fraud (%) 55-64, Compromise in a shop or restaurant 65+ Compromise at ATM 65+ Compromise in a shop or restaurant 25-34, Identity theft 18-24, Mobile banking compromise 45-54, Compromise in a shop or restaurant 18-24, Online or phone banking compromise

This sense of some consumers not being careful enough is certainly well-founded -3.0% -2.0% -1.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% Proportion of consumers, increased fraud risk (%) 0.0% Keep a 18-24 25-34 35-44 45-54 55-64 65+ Increased record of fraud risk PIN

Indeed, certain attitudes correlate with higher levels of fraud 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% There is more I could do to protect myself against fraud If I am a victim of fraud I will get my money back from the bank I am more careful now than I was a year ago Proportion of consumers who "Strongly agree" with each statement (%)

How well do banks and issuers serve customers who report fraud? -10.0% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% How well treated when reporting during investigation Speed and ease of sorting things out Satisfaction with how the post-fraud process was managed (%) Focus on one or two outliers?

However, the experience is not uniform across all age groups -20.0% -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% How well treated when reporting the case How well treated during investigation Speed and ease of sorting things out Consumers who are 'very happy' relative to the average (%) 65+ 55-64 25-34 18-24

What are the costs of fraud?

Fraud has both direct and indirect costs There are several direct costs of fraud Detection/prevention Losses £233m in H1 2009 £170m in H1 2011 The indirect costs can be more significant

Fear prevents consumers from doing the ‘right’ things Frictions in moving customers to lower-cost servicing Online banking Lost revenue opportunities Online commerce Contactless cards

There is also a post-fraud behaviour change 25% keep the card/account open and are more careful 11% do not change their behaviour 13% keep the card/account but use it less 13% become dormant accounts 27% close the affected account 10% don’t revisit the location of the compromise

This impact is more pronounced in some kinds of fraud than others -25.0% -20.0% -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% Online payment fraud Compromise in a shop/restaurant Online/phone banking compromise Mobile banking Difference between the average reaction to all types of fraud and the selected types shown (%) “Good” reactions “Bad” reactions

What role does trust play in this? -20.0% -10.0% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% Consumers who agree that banks are doing enough to protect them , and the relative difference(%) All consumers 18-24 25-34 35-44 45-54 55-64 65+

In some cases trust can lead to recklessness -20.0% -10.0% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% All consumers 18-24 25-34 35-44 45-54 55-64 65+ Consumers who agree that they will be refunded any fraud losses (%)

Indeed, a high level of trust can work against a bank if a customer is compromised -4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% Good Bad Retail Reaction to online payment fraud by consumers who have a high level of trust (%) Banks are doing enough to protect against fraud If I am a victim I will get my money back

Consumers who are convinced they will be refunded respond well though Banks are doing enough to protect against fraud If I am a victim I will get my money back -3.0% -2.5% -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% Kept the card/account but am more careful I do the same as before Kept the card/account but use it less Kept the card/account but do not use now Closed the card/account Do not go back to where the compromise happened Do not use any products of this type now Reaction to online payment fraud by consumers who have a high level of trust (%)

Effective case handling has the biggest impact on the behaviour change Good Bad Retail change 0.0% Speed and ease of sorting it out -2.5% -2.0% -1.5% -1.0% -0.5% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% Who were happy with their post-fraud experience (%) Reaction to online payment fraud by consumers Happy with the experience when reporting

A smooth process means consumers are more likely to remain customers Happy with how it was reported Speed and ease of sorting it out -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% Kept the card/account but am more careful I do the same as before Kept the card/account but use it less Kept the card/account but do not use now Closed the card/account Do not go back to where the compromise happened Do not use any products of this type now Who were happy with their post-fraud experience (%) Reaction to online payment fraud by consumers

So is trust irrelevant?

Key messages Reducing fraud will require targeted messaging at high risk groups Avoiding a negative behaviour change is worth anti-fraud investment Dealing with the aftermath of fraud well is almost as important as prevention

Any questions? Kieran Hines Practice Leader, Global Financial Services e: khines@datamonitor.com t: 020 7551 9363