Fraud losses from email phishing attacks will hit $137m globally in 2004, according to a study from research and consulting firm TowerGroup. The figure is much lower than previous estimates. For example, a September survey commissioned by TRUSTean, an online privacy non-profit organization and NACHA, an electronic payments association, put US phishing losses to date at $500m.
TowerGroup reckons previous studies have overstated financial losses while underplaying the potential impact of phishing on lost consumer confidence. Phishing attacks are successful in fooling only a very small fraction of the online population and are, to many consumers, a nuisance like spam. TowerGroup reckons other analysts have overestimated response rates.
Beth Robertson, senior analyst in the global payments research service at TowerGroup and co-author of the research, said "Phishing attacks can allow criminals to fraudulently obtain consumer data, but they do not as commonly result in an actual fraud event in which accounts are accessed or funds are stolen."
Scam emails that form the basis of phishing attacks often pose as 'security check' emails from well-known businesses. These messages attempt to trick users into handing over their account details and passwords to bogus sites. The collected details are used for credit card fraud and identity theft. First seen more than a year ago, phishing emails are becoming increasingly sophisticated, directing users to bogus websites which accurately reproduce the look and feel of legitimate sites.
Like most observers TowerGroup agrees that phishing is on the rise but it reckons other surveys underreport the actual level and mix of phishing attacks. It estimates the number of phishing attacks will top 31,000 globally in 2004, reaching 86,000 next year as fraudsters begin to target customers of smaller financial institutions and a wider range of online merchants.
Phishing attacks are becoming more sophisticated as "organized crime rings have taken over much of its development" TowerGroup notes. "Not only has the quality of fake emails improved, but more effective targeting is increasing the efficiency of phishing attacks. Phishers are also integrating their scams with malicious software (or "malware") downloads, as well as complex new variants better classified as 'malware attacks' than as phishing - making the threat from these attacks more dangerous and more difficult to detect and prevent," it said.
The cost of managing phishing losses will be "far greater" than the cost of direct fraud. George Tubin, senior analyst at TowerGroup and co-author of the research, said: "One of the greatest liabilities is the potential loss of customer confidence in the Internet as a channel for provisioning financial services, not to mention loss of trust in financial institutions themselves. This is a critical issue, given the rising importance of the online channel in the retail financial services delivery mix."
The TowerGroup research report titled, A Phish Tale? Moving From Hype to Reality, catalogues the increasing sophistication of phishing and related internet scams. A companion report, No Phishing Zone: Vendor and Industry Initiatives to Curb E-Mail Fraud, looks at how the financial services industry is fighting the problem. ®
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