Last year, more than 150,000 U.S. consumers were victims of identity theft, leading to 300,000 fraudulent transactions, according to a report released this week by Meridien Research, Inc., in Newton, Mass.
Meridien expects identity theft to rise dramatically in coming years as various online credit and payment systems make it easier to conduct “faceless transactions.”
In 2006, Meridien expects there will be about 450,000 victims of identity theft, which can be any transaction in which one customer poses as another. The thefts will result in more than 900,000 fraudulent transactions.
Monetary losses from identity fraud hit businesses hardest. Whereas the average victim suffers an average loss of $808, including expenses to repair any damage done, institutions absorb about $18,000 in fraudulent charges per victim, Meridien’s report says, citing numbers from the University of California at San Diego. Overall, institutions suffered losses of about $2.7 billion per year since 1998, a figure that is expected to rise to more than $8 billion by 2006.
There are a number of reasons that identity theft is a particularly insidious form of fraud, including the difficulty in identifying the fraud at the time of the transaction. For the same reason, transactions involving identity theft tend to be of higher monetary value that other types, Meridien says. Recovery of losses is also unlikely and any institution found to be at fault for the theft of personal information will see consumer trust erode dramatically, Meridien says.
Consequently, financial institutions, especially, have begun to spend significantly to curb identity theft. Going forward, Meridien expects 93% to 95% of that spending will come in the form of transaction fees to third-party providers of credit, debit and fraud data. Institutions will spend more than $250 million on such fees in 2002, and more than $500 million in 2006, the company predicts.