Hold onto your identity, the next few years could be a wild ride, as forecasts indicate that losses from identity theft will reach $2 trillion by the end of 2005 if the 300 percent compound annual growth rate remains unchecked.
An Aberdeen Group report reveals that by the end of 2003 alone, identity theft will cause $221 billion in worldwide losses — with the U.S. accounting for a $73.8 billion slice — and Jim Hurley, vice president and managing director of information security at Aberdeen, believes that the security problem could eventually ruin individual commercial businesses, entire economic sectors, and governments.
These predictions indicate a wildly growing problem since 2002 when worldwide identity theft losses measured $73.8 billion — $24.6 billion occurring in the U.S. — and the rise in crime is largely attributable to the accessibility of personal information.
“The ubiquity of Internet-enabled telecommunications is making it very easy for identity thieves to apply for credit and make purchases — by using any well-sourced personally identifiable (PI) dataset — from almost any location,” said Hurley.
Hurley points out that identity thieves are taking advantage of a system that is basically flawed since most merchants and credit issuers tend to automatically approve credit for well-scoring PI data. Likewise, higher scoring PI data tends to push up loss rates as merchants and issuers try to salvage business and avoid irritating new customers.
In February 2003, mi2g reported that a hacker gained access to several million Visa and Mastercard credit card accounts in the U.S., and their research has consistently shown that Brazilian, U.S. and European criminal syndicates have been carrying out credit card and identity theft by targeting the proliferating e-commerce vendors and their credit card settlement agents. Often, these profiles are being sold on the black market for $1 per number.
Online merchants have the ability to assuage consumers’ fears of identity theft by instituting stringent protective measures. A MasterCard International study of more than 1,000 U.S. consumers found that 70 percent are concerned with security and fraud issues, and 61 percent are worried about credit card numbers being intercepted by hackers. Furthermore, nearly three-quarters (73 percent) of the respondents agreed that enhanced security features would influence their decision to purchase online in the next three months.
The survey segmented the participants into five categories, in order to better understand the relationship between Internet experience and online shopping behavior.
- Nearly one-quarter (22 percent) were identified as Confident Core Users. This group averaged 5.9 years online and showed the highest Web usage and online buying among all the segments, fully integrating the benefits and functionality of the Internet into their lives. About 18 percent of their overall credit card spending happens online vs. offline. Although they are shopping online the most, this group still has moderate concerns about Internet security.
- Another 22 percent were categorized as Cautious Shoppers. While this group is Internet savvy, they exhibit lower online spending and are less experienced with using the Internet for financial and credit card activities.
- Mainstream Users account for another 22 percent of research participants, and they use the Internet for a variety of activities, centered on time-savings and entertainment activities and light online purchasing.
- Representing 23 percent, Curious But Not Convinced users have low levels of Internet purchasing experience and lower usage of online products and services, but are just beginning to recognize some of the benefits of the Internet.
- At only 11 percent, Technology Skeptics are the least experienced Internet users with low utilization across all areas, and average online tenure of 3.8 years. They have the highest concerns about Internet security, privacy and technology in general. As a result, they are more comfortable with traditional shopping channels.
“This segment-specific attitudinal analysis implies that key security and privacy concerns inhibit online buying among consumers with even two to four years of experience online. It also suggests that online retailers and issuers could and should do more to ease consumer fears,” said Steve Orfei, senior vice president and head of MasterCard International’s e-commerce and e-B2B center of excellence.
The problem of identity theft is so severe, the U.S. Department of Justice has created the “Operation E-Con” initiative, involving the collective participation of 43 United States Attorneys’ Offices, the FBI, the FTC, the Postal Inspection Service, the Secret Service, and the Bureau of Immigration and Customs Enforcement to root out and take action against some of the leading forms of online economic crime.
Operation E-Con has conducted more than 90 investigations involving 89,000 victims and estimated losses of more the $176 million, in efforts to stem the more than 263,000 Internet-related fraud complaints that occurred in 2002.