Study: ID Fraud Varies With Victims' Income Level

An analysis of a company's identity fraud victims may shed new light on identity thieves' tactics, end user reactions, and strategies for defending the customer, according to a new report published this week.

There are significant differences in the frequency and effectiveness of ID fraud attacks on users in different income brackets, according to a study by Javelin Strategy & Research.

Paradoxically, consumers who make $35,000 or less are hit harder by ID fraud than their higher-income counterparts. Customers who made between $15,000 and $25,000 annually incurred the largest average fraud amounts -- over $6,000 -- of any group in the study. Consumers who made $25,000-$35,000 incurred the largest out-of-pocket costs ($858), and consumers who made less than $15,000 experienced the longest time to resolution (44 hours) of their fraud problems.

"There's a general image out there that fraud hits higher-income users harder, but as we saw in the study, that's not always the case," says Rachel Kim, an analyst at Javelin and author of the study.

High-income victims -- those who make six figures or more -- did report the highest frequency of fraud of any group (7.25 percent had experienced an incident), but their average fraud loss was less than $5,600 and their out-of-pocket costs were the lowest in the study ($210).

Lower-income victims experience more debit card fraud than their high-income counterparts, where higher-income victims reported more credit card fraud (74 percent) than debit card fraud (20 percent).

Victims' reactions to the fraud also varied widely among income brackets, the study says. Lower-income consumers were significantly more likely to change merchants or financial institutions in response to an incident (40 percent to just 12 percent in the high income bracket), and many of them reacted by simply ceasing online banking (60 percent) and e-shopping activity. Higher-income customers, by contrast, increased their use of online services such as credit monitoring and online banking.

"What this says is that rather than making a mass outreach to all customers using the same message, financial institutions and other companies should probably vary their educational efforts in different customer brackets," Kim says. "On the back end, it may mean that you should vary your fraud filtering capabilities with different groups of customers."

For example, in the lower-income bracket, it might be beneficial to launch an educational campaign that brings out the advantages of online banking and encourages them to remain loyal to the company. Higher-income customers may need more coaching on how to use credit monitoring services or reduce the likelihood of targeted attacks.

"Phishers, in particular, are getting better at identifying high-income targets, so that's a trend we expect to continue," Kim says. "We're seeing spear-phishing attacks that are surprisingly convincing, and targeting specific individuals who are highly-placed in the organization," she says. "And these attacks are becoming a lot more convincing -- if you don't know what to look for, you would have no way of knowing they aren't genuine."

Whether their customers are predominantly in the lower-income bracket or higher-income bracket, however, companies should consider varying their educational and defensive strategies for identity theft according to those users' vulnerabilities and likely behavior, Kim advises.

"There are some very significant differences," she says. "It doesn't make sense to lump them all together."

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