The Fraud Next Door: Confronting the True Scale of First-Party Fraud

First-party fraud, or the use of one’s own true personally identifiable information to knowingly and deceitfully commit a dishonest act for financial gain, is a $100 billion problem.

When the Good Go Bad

This fraud next door is all around us. Socure research conducted in October 2023 found that 35% of Americans surveyed admitted to committing some form of first-party fraud, with 34% of those who committed fraud saying they did so due to economic hardship. Consumer intent — or the thought behind a consumer’s transaction or purchase — can be fluid, and life events such as a job loss can turn legitimate customers into fraudsters.

Socure found that the most commonly admitted type of first-party fraud — 22% of surveyed Americans — is requesting a refund on an online purchase even when the item was received, followed closely by choosing not to pay off credit card bills indefinitely (21%), and disputing legitimate financial transactions (20%).

The use of one’s own identity — with all of the right credentials — makes first-party fraud much harder to solve than identity fraud that’s associated with stolen, manipulated, or fabricated identities.

Measuring consumer intent is nothing more than a guessing game, with losses in the U.S. alone projected to exceed $100 billion annually. It also doesn’t help that a stunning 77% of Americans think there are some instances of first-party fraud that should not carry legal consequences.

To date, there has not been a comprehensive solution that solves first-party fraud across scheme types and industries, while returning low false positives and high fraud capture rates.

Until now.

A Path Forward to Fight First-Party Fraud

We’re proud to share the launch of our first-party fraud solution, Sigma First-Party Fraud, powered by the dual launch of the First-Party Fraud Consortium (FPFC). The first of its kind, the consortium seeks to unify companies in collectively capitalizing on shared data and insights, allowing our customers to detect and stop fraud before it takes hold.

Socure’s consortium’s founding members include the nation’s largest digital banks and payment platforms, such as SoFi, Green Dot, Ingo, Varo, and Public, providing expansive insights into both positive and risky consumer activity across the industry.

In our newly launched report – the most comprehensive industry study of first-party fraud to date – we reveal findings around predictive patterns in first-party fraud. From more than 150 million transactions across geographies and companies of all sizes, we found that signals such as accounts with multiple authorized users or recent closures can be used to spot consumers likely to commit fraud.

A few of the key takeaways:

• Consumers who have 2 or more closed accounts associated with first-party fraud behavior (i.e. fraudulent disputes) are 189 times more likely to commit first-party fraud again if given the chance.
• Accounts with 5 or more registered authorized users are 22 times more likely to be linked to first-party fraud.
• 30% of consumers who held accounts across at least four financial institutions that participated in Socure’s consortium study committed first-party fraud.

By analyzing data across financial institutions, Socure identified signals consumers exhibit when perpetrating fraud for personal gain. For example, the research found consumers with two or more closed accounts due to fraud are 189 times more likely to commit fraud again. Accounts with 5+ authorized users also see higher fraud rates. Further, 30% of consumers holding accounts at four or more participating institutions committed first-party fraud.

Socure’s findings present an opportunity for the industry to collaborate on better ways to identify and thwart first-party fraud. Institutions are fighting back to recoup losses, but will it be enough?

As regulators look to shift liability for authorized push payment fraud, financial institutions must prepare for an explosion of first-party fraud attempts. It’s time to be proactive now. Through industry collaboration and investment in pioneering techniques, together we can reduce the more than $100 billion lost annually in the U.S. to first-party fraud.

Download the report, Socure Identity Risk Insights: Defining and Solving the Elusive Challenge of First-Party Fraud, here.

*Socure conducted this research using an online survey prepared by Method Research and distributed by PureSpectrum among n=1,000 adults ages 18 – 77 in the United States. Respondents were evenly split on gender with a spread of ages and geographic location. Data was collected from October 1 to October 3, 2023.