ID Theft: Don't Take It Personally

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Identity theft often feels less like a random act of fraud than a personal breach of a victim's secrets. But while consumers feel the sting from having their private data stolen, it's their banks that are increasingly picking up the bill.



That means financial services are absorbing a much larger chunk of fraud losses, says Javelin president James Van Dyke. "Businesses are really stepping up," he says. "Even as the cost of fraud mitigation becomes higher, they're bringing the out-of-pocket expense for victims closer and closer to zero."

Van Dyke argues that 2009's fraud increase stems at least partly from the year's economic troubles and unemployment. "If you're feeling desperate, you have the motivation to perform this kind of crime of opportunity," he says.

And why are banks willing to cover a larger percentage of those fraud costs? Van Dyke posits that the firms are dealing with consumers' increasing impatience regarding data security issues and the growing problem of losing customers after fraud incidents. In about one out of five cases, according to Javelin's research, a victim of identity theft switches banks. "Acquiring a new customer can costs hundreds of dollars, and banks are becoming more and more sensitive to the cost of losing that relationship," he says.

Financial services firms don't merely pay the cost of successful identity theft, they also suffer from the initial data breaches that spill thousands or millions of customers' personal information. In 2009 the average data breach cost the affected business $6.75 million, up from $6.65 million in 2008, according to a Ponemon Institute study released last month.


But Javelin's numbers represent a different, disturbing trend, says Ponemon's president, Larry Ponemon. If banks are paying a larger fraction of the cost of identity theft, consumers may not feel responsibility for preventing that fraud, and are more likely to skip simple prevention steps like keeping their antivirus software updated and checking their bank statements for unusual transactions.

That could translate into higher fees for all customers as banks pass on the cost of fraud losses, Ponemon argues. "As long as organizations are paying the cost, there's no incentive for the individual to step up to the plate and take responsibility," says Ponemon. "That's a big tax on all of us."

But Javelin's Van Dyke says consumers aren't likely to be more careless with their identity data just because banks are footing the bill. Even in situations where a credit card company vows to pay all fraud costs, he says, consumers still have an inherent sense of privacy. "We've found that individuals really guard their personal identity," says Van Dyke. "They have a high degree of fear and anger when it's stolen, even when they have zero liability."

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