D Theft Study Shows Consumers Not as Fearful, But Willing to Switch Institutions to Reduce Risk
FRAMINGHAM, Mass. -- Consumer fears about identity theft are easing, but that's not necessarily all good news, according to a new report from Financial Insights.
The research and advisory firm's 2007 Consumer Banking Survey shows that consumers are less worried than they were in a similar study two years ago, but also shows that a growing number of consumers, especially in the 25- to 44-year-old age groups, have switched financial institutions to reduce their risk.
Overall, 53% of consumers were worried or very worried about identity theft in the 2007 survey, down from 60% from two years ago, despite the "steady stream of reports of lost or stolen customer data," observes Karen Massey, senior analyst for consumer banking and credit and author of the report titled "Consumers Speak About Identity Theft: Does Perception = Reality for U.S. Banks."
In it, Massey asks, "Consumers trust more today than they did two years ago that their identity is being protected, but by whom?
"Although it is possible to conclude that financial institutions and merchants have taken appropriate measures to restore consumer confidence, it is more likely that consumers have ceased behavior they perceive to be risky, particularly providing personal information online," the Financial Insights analyst says.
"There is no good news here for bankers that hope to entice consumers to embrace low-cost self-service channels," she says.
Massey says the online channel is typically the first service channel abandoned by consumers suspecting fraud and that younger consumers are most likely to react by going offline and/or switching providers.
Twice as many respondents in the 25- to 34-year-old age group in 2007 said they had switched financial institutions to reduce their risk of identity theft than said they did in the 2005 survey (13.7% to 6.7%).
"Financial institutions must recognize that the under-35 age group has demonstrated the most sensitivity to fraud and identity theft and is also the age group most likely to engage in online activity," Massey says. "Ensuring a safe online environment is essential to attract and retain this highly sought-after group of consumers."
Financial Insights says this year's survey included 1,013 telephone interviews conducted in February among randomly selected Americans age 18 and over, a group balanced to be representative of the continental United States based on region, population density, household income and size, and type, with a margin of error of plus or minus 3.1% based on a 95% confidence interval, and it mirrored the 2005 survey's methodology.
Changing Perceptions Shape Reality
The report notes a changing definition of identity theft in the public consciousness and among regulators alike, from the strict definition of creating a false identity based on a stolen Social Security number to
phishing, credit card fraud and the wide range of hacks and thefts.
The report also notes wide variation in the actual numbers of people affected by such crimes.
For instance, the Consumer Sentinel database catalogued from complaints received by the Federal Trade Commission says 246,000 U.S. consumers reported they had been victims of identity theft in 2006. However, the FTC itself estimates that nine million Americans are affected by identity theft each year. The Financial Insights survey, meanwhile, shows that 4.5% of respondents say they had been victimized at some point in their lives, which translates to about 9.7 million people, a percentage down sharply from the 8.4% reported in the 2005 survey.
"We did not provide a definition of identity theft to our survey respondents. Rather, we allowed them to apply their own perceptions of identity theft," Massey says in her report. "This is ultimately most material to financial institutions because, regardless of the facts, consumers will behave based on their own perspective and hold the institution accountable accordingly."
Consumers are more attuned to spotting fraud attempts such as phishing, have gotten better at using anti-virus software and firewalls, and continue to expect their banks and credit unions to make them whole if losses do occur, "a practice that costs banks an estimated $50 billion per year," Massey says.
Higher-income consumers are being targeted more these days, Massey adds, as fraudsters score less often but rake in more ill-gotten gains per victim than before. Geography also seems to be a factor, but apparently not as much as in the 2005 survey. Respondents in the West and Midwest were the most likely to say they had been affected in 2007 (5.5% and 5.4% respectively), numbers down sharply from 2005, when 13.3% of respondents from the West said they had been victimized, and 7.4% in the Midwest said they had been.
Financial institutions, responding to consumer and regulatory expectations alike, will continue investing heavily in fraud risk management and prevention of all kinds, the report says, with identity theft continuing to make headlines, despite its relatively low rate of actual occurrence.
"Strictly speaking, identity theft isn't as big a problem as other types of fraud for financial institutions," Massey says.
"Credit card counterfeiting, check kiting and the like rack up much larger losses. However, what has made identity theft a hot topic is the havoc it has played on consumers," she says.
"Identity theft and online fraud have become common knowledge in our society because of the rising number of cases and prominent coverage," Massey says, citing media reports and financial institutions' own advertising campaigns.
"Therefore it is important for financial institutions to understand trends in identity theft as well as consumers' experience with and perceptions of identity theft to properly align fraud mitigation and management with consumer expectations," the Financial Insights analyst says.