The Fraud Next Door: First-Party Fraud Runs Rampant in America

INCLINE VILLAGE, Nev., October 23, 2023 – New research from Socure, the leading provider of digital identity verification and fraud solutions, reveals that first-party fraud costs U.S. financial institutions and merchants more than $100 billion a year. Moreover, more than one in three Americans (35%) admit to committing first-party fraud themselves, in which people use their own identity to commit a dishonest act for financial gain. The results underscore that, with minimal stigma or personal consequences, first-party fraud has concerningly established itself as a widely accepted everyday activity.

The report, the most comprehensive study of first-party fraud ever undertaken, combines two significant pieces of research – a survey of 1,000 U.S. consumers and deep insights gleaned from hundreds of millions of financial transactions. This was done to expose the elusive, widespread nature of this massive problem and the behaviors and motivations of those behind it.

America’s First-Party Fraud Epidemic

According to Socure’s survey data, an alarming two in five Americans (40%) say that they know someone who has engaged in some type of first-party fraud. This includes requesting a refund on an online purchase by falsely claiming that a delivery has been lost, choosing not to pay off credit card bills indefinitely, making a purchase through a “Buy Now Pay Later” (BNPL) loan or maxing out a credit card with no intention of paying it off, or disputing a legitimate financial transaction. What’s more, a large majority (77%) believe that there are some instances where first-party fraud should not carry any legal consequences.

“America has an enormous first-party fraud problem that we’ve swept under the rug for too long. Countless consumers take advantage of a system with little to no consequences, despite causing billions in losses,” said Mike Cook, Vice President, Fraud Product and Investigations at Socure.

“While many may feel that first-party fraud is a victimless crime, this blossoming culture of unalloyed theft is driving higher costs for every single consumer. To combat this, it’s time for our industry to share intelligence, create a widely-accepted definition that focuses on these fraudulent behaviors, and push for regulatory changes that will close loopholes for those carrying out these all-too-common acts.”

Falling on hard times is the most common rationalization for engaging in first-party fraud, as 34% of those that admitted to the practice cited economic hardship as their reason. Additional excuses were that it was an accident (29%) and that they knew someone else who had successfully committed the act with no repercussions, which drove them to commit first-party fraud themselves (19%).

Younger Americans are far more likely to engage in first-party fraud. A majority of Gen Zers (52%) say they’d commit first-party fraud if they knew there would be no negative consequences, and 1 in 5 (19%) do not consider it to be ethically wrong – a rate three times higher than Baby Boomers (6%). Nearly a third of all Gen Zers (30%) admit to making a purchase through a BNPL loan without intending to pay it back – the most common behavior amongst this age group.

Behavioral Insights: First-Party Fraud Tell-Tale Signs

Socure has also analyzed hundreds of millions of financial transactions beyond the standard credit report to understand the behavior of first-party fraudsters, discovering several tell-tale signs:

• Fraudsters often use newly created identity contact elements such as email, address, and phone numbers to create new accounts (oftentimes during the same week), most likely in an effort to avoid follow-on collection attempts.
• Consumers who have two or more closed accounts associated with first-party fraud are 189 times more likely to commit fraud again.
• The more users are on an account, the more likely first-party fraud is to occur. For instance, accounts with five or more registered authorized users are 22 times more likely to be linked to first-party fraud.
• An account closed within 90 days from opening is three times more likely to have committed first-party fraud.

Despite these increasingly clear indicators, much more needs to be done to effectively fight back. According to an additional recent poll conducted by Socure, nearly 50% of financial institutions do not go back to the consumer to collect funds, even if it’s determined that it is first-party fraud. Instead, they opt to “just take a loss,” leaving little incentive for fraudsters to stop what they’re doing.

Full data, analysis and insights into how to best stop first-party fraud can be found within the following report: Socure Identity Risk Insights: Defining and Solving the Elusive Challenge of First-Party Fraud.

To learn more about Socure’s First-Party Fraud solution or to join its consortium, visit Socure’s website.

Methodology

Consumer survey: 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 represented. Data was collected from October 1 to October 3, 2023.

Behavioral analysis: Socure has worked with several industry-leading fintechs to develop a consortium of payments, transactions, new account applications and more. Through this effort, researchers analyzed data from hundreds of millions of financial transactions from January 2019 through December 2021, which was combined with the company’s own customer data spanning more than a decade from industries including the largest U.S. traditional banks and fintechs, point-of-sale lenders, Buy Now Pay Later, online gaming and gambling, and investment accounts.

About Socure

Socure is the leading platform for digital identity verification and trust. Its predictive analytics platform applies artificial intelligence and machine learning techniques with trusted online/offline data intelligence from physical government-issued documents as well as email, phone, address, IP, device, velocity, date of birth, SSN, and the broader internet to verify identities in real-time. The company has more than 1,800 customers across the financial services, government, gaming, healthcare, telecom, and e-commerce industries, including four of the top five banks, 13 of the top 15 card issuers, the top three MSBs, the top payroll provider, the top credit bureau, the top online gaming operator, the top Buy Now, Pay Later (BNPL) providers, and over 400 of the largest fintechs. Marquee customers include Chime, SoFi, Robinhood, Gusto, Public, Poshmark, Stash, DraftKings, the State of California, and Florida’s Homeowner Assistance Fund. Socure customers have become investors in the company, including Citi Ventures, Wells Fargo Strategic Capital, Capital One Ventures, MVB Bank, and Synchrony. Additional investors include Accel, T. Rowe Price, Bain Capital Ventures, Tiger Global, Commerce Ventures, Scale Venture Partners, Sorenson, Flint Capital, Two Sigma Ventures, and others.