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Financial fraud affects consumer bank behavior, Gartner finds

Survey finds victims of financial fraud more likely to change their shopping and payment behavior, including their choice of bank.

A new report released by Gartner Inc. Wednesday shows the impact of data breaches and financial fraud on consumers' behavior, including their banking activity.
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About 7.5% of U.S. adults lost money due to some type of financial fraud, mostly due to data breaches, according to a survey of 5,000 Americans conducted by the research firm last September.

Of the respondents, 14% said they were victims of credit card fraud and 7% said a thief used their debit or ATM card to make purchases or withdraw cash. Six percent said they were victims of new account fraud, where a thief opened an account in their name, while 5 % said a criminal stole money out of their existing checking or savings account and 4 % said a thief forged checks on their account.

Compared to the average consumer, nearly twice as many people who lost money to fraud changed their shopping, payment and e-commerce behavior, according to Avivah Litan, vice president and distinguished analyst at Gartner.

"We all read about the data breaches. This survey certainly proves they're having an impact in terms of spooking customers," Litan said.

Victims of electronic checking and/or savings account transfer fraud were almost five times more likely to change banks due to security concerns, compared to the average consumer, according to the report.

"From a bank point of view, this is really causing customer churn," she said. "It's costing them customers."

Consumer security concerns have a big impact on online banking, she said, with 20% of survey respondents worried about security, saying they stopped or won't start transferring money between accounts. The percentage doubled among fraud victims.

While only 6% of the consumers surveyed said they changed banks due to security concerns, the number jumps to 28% among checking/savings account transfer fraud victims, according to the report.

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Thirty-five percent of survey participants said security was an important factor in their decision to bank online or do more business with their bank online, but security isn't as important to consumers as bank fees and customer service, the Gartner survey showed. Security, however, becomes much more important for consumers who have been victims of a financial account takeover, according to the report.

Litan advised financial institutions that have implemented strong security to publicize that fact to their customers to gain their confidence. They should also engage customers to participate in security; an example would be to sign up for a service that alerts them to suspect transactions, she said.

"There's a lot of value in advertising your security," Litan said. Right now, banks aren't using security as a customer retention tool, she added.

One company that's benefitting from consumers who change their online payment behaviors due to security concerns, particularly those who are fraud victims, is PayPal Inc., she said. Survey participants said they switched to PayPal because of concerns about online payment safety while using other payment systems. PayPal has promoted its security, which has really helped the company, Litan said.

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