COVID-19 is giving way to a surge in fraud, with new types of fraud appearing and new motivations to commit crimes like banking fraud. As the economic repercussions of the pandemic continue to be felt, higher levels of fraud could become a new normal.

A recent TransUnion study revealed that online fraudulent activity increased by 11% between March and June 2020. The financial sector is particularly affected as more banks switch to remote work and the volume of digital transactions increases in light of COVID-19.

The pandemic is giving way to a surge in fraud, with new types of fraud appearing and increasing access and motivation to commit crimes like banking fraud. While some sources estimate that $77 million has already been lost due to COVID-19 fraud, the FTC has published an estimate of $97 million in losses. As the economic repercussions of the pandemic continue to be felt, higher levels of fraud could become a new normal and call for new fraud prevention measures.

Why is COVID-19 causing a surge in fraud? The underlying drivers for fraud provide some insight into the current surge we’re seeing.

Fraud Motivations: The Fraud Triangle (or Square) 

Criminologist Donald R. Cressey came up with the Fraud Triangle model to answer the question: Why do people commit fraud? 

Understanding the factors that make up the Fraud Triangle can help you develop a better fraud prevention system:

  • Opportunity. Fraud can’t exist without an opportunity, whether it’s a weak system that can be exploited or something of value to obtain. The abundance of stolen data available at a low cost is the perfect scenario for creating opportunity.
  • Rationalization. Everyone agrees that committing a crime is reprehensible, but fraud becomes justifiable to a criminal if the gain is sufficient or if they feel entitled to it. Fraudsters can also rationalize their actions if they feel that there is no other solution to get out of financial hardship.
  • Pressure or motivation. Criminals won’t commit fraud unless they’re in a situation where they need money.
  • Capability. Cressey’s model has been updated with an additional factor. Capability looks at the ability to commit fraud, including traits of character, knowledge and skills. The capability threshold is lower than ever before since fraudsters often don’t need technical skills.

COVID-19 is causing a surge in fraud

The pandemic is heightening the four factors discussed above.

New opportunities

Pandemic relief efforts are creating new opportunities. The FBI recently reported a surge in fraudulent unemployment claims made with stolen identities, and stimulus checks are an additional reason to commit banking fraud and take over a victim’s bank account.

Between social distancing and remote work, more people are online. This increases potential points of contact with fraudsters. For example, pandemic-induced financial anxieties can make people more likely to fall for scams such as phishing emails that impersonate FDIC or IRS personnel and ask for banking credentials and other sensitive information.

Fraud rationalization

It’s easier to rationalize fraud as pressure increases. Criminals who commit banking fraud might also feel that they’re not hurting anyone since the money they steal is insured, and they might feel that banks aren’t negatively impacted by the pandemic compared to other sectors (such as manufacturing or food services). Some criminals might also see stolen stimulus checks and unemployment benefits as money they’re entitled to.

Increased pressure

The pandemic is creating a situation where economic and health uncertainty is widespread. With the unemployment rate reaching a high of 14.7% in April 2020, plenty of Americans are finding themselves in a tough financial spot and might feel that fraud is the only option they have left.

Capability and lowered barriers

The FTC has received over 90,000 reports of fraud related to COVID-19 since the beginning of the year. Between the increase in people working from home and the financial stress the pandemic puts on people, criminals can implement new schemes that require very little technical skills.

To elaborate, Google blocks around 100 million fishing emails every day, and it’s estimated that 18 million of these fraudulent emails are coronavirus-related. COVID-19-related schemes with low capability barriers include tech support scams that target remote workers, promises of coronavirus testing supplies, fake small business loan applications, and promises of getting stimulus checks earlier. Economic uncertainty is making people fall for these scams more easily.

There are other fraud-related trends that have contributed to a lowering of capability barriers over the past few years. In 2019, over 164 million records were exposed through data breaches. Fraudsters don’t need advanced technical skills to use stolen information, and they can purchase stolen Social Security numbers for as little as $1, while online banking credentials can sell for anywhere from $20 to $200.

In the past, high-level attacks directed against banks required advanced technical skills. These high-level attacks are being replaced with account takeover, a much simpler type of fraud that targets an individual. There were 380,000 cases reported in 2017, and this number increased to 679,000 in 2018.

Why you need a solution like

We’re seeing a surge in fraud connected to COVID-19, but underlying factors like financial hardship and ease of access to stolen credentials could become the new normal. 

There are steps financial institutions can take to fight banking fraud and cope with the increased threat level that will likely remain a constant as the economy recovers from COVID-19.

Here’s how can help:

  • Our AI can test multiple model algorithms and generate an optimized model for your organization.
  • Our system improves the quality and quantity of data used to assess risks for each transaction.
  • You can rely on AI to analyze multiple data points, get a comprehensive picture of a transaction and flag anything out of the ordinary.
  • Our AI generates risk scores in real time and prevents fraud before it happens without impeding customer experience.

Request a demo to see for yourself how our AI-based solution can help with banking fraud.