How Much is 5%? Putting Fraud Loss into Perspective

A dollar these days may buy you a piece of candy, but not much more. A hundred dollars will get you an expensive dinner for two at a nice restaurant. One hundred thousand dollars is an above-average annual salary in some of the wealthier nations of the world. It’s a rare, but generous salary. Yet, next to a million dollars, it doesn’t look like much. 

A million dollars in $1 bills weighs about a metric ton (2,205 lbs) and a billion dollars in $1 bills laid out end to end would circle the earth 4 times. Can we visualize how large this is?

Visualization helps us understand how large these numbers are, and this is particularly important in understanding the scope of fraud today in all industries, especially telecommunications.

When we say that 20% of the calls your business receives are fraudulent or that 5% of a business’s revenue each year goes to fraudsters, it can be difficult to truly understand the scope of these losses and they can easily be ignored. It’s only 5%, after all.

If a bot automatically completes and submits thousands of contact forms on a business’s website with high rate numbers that lead to a corrupt operator, the call center then calls each one back, racks up enormous (and seemingly legit) charges on thousands of calls, which the business often pays without question at the end of the billing cycle. 

At the end of the year, companies lose millions of dollars to fraudsters without even knowing it. 

With the right tools, businesses around the world can protect themselves from such schemes and save billions of dollars each year in revenue while reducing crime at the same time.

To understand the scope of this problem, let’s look at more statistics. The 2019 CFCA fraud loss survey reveals a somewhat overwhelming picture of the fraud threats both telecom and non-telecom enterprises are facing. 

Putting Fraud Into Perspective

To put the losses into perspective and understand the scope of the damage it causes for different kinds of businesses around the world, we need to consider some statistics.

For example, the total global fraud loss in 2019 amounted to $28.3 billion.

$28.3 billion in losses is enormous. That’s nine zeros. We can all agree that such an amount isn’t spare pocket change. But most importantly, let’s visualize it. Bear with me: 

In 100 dollar bills, it weighs as much as a Boeing 747 (280,000 kg or 308 US tons).

What’s more, only 5 fraud types accounted for more than half of all such fraud losses.

Here is an overview of how much global revenue each telecom fraud scheme was responsible for in 2019:

Top Fraud Categories

• $1.92 B – Subscription Fraud (Application)
• $1.82 B – PBX Hacking
• $1.82 B – IP PBX Hacking
• $1.82 B – Wangiri (Call Back Schemes)
• $1.63 B – Abuse of network, device or configuration weaknesses
• $1.34 B – Subscriber Fraud (Identity)

Top Fraud Schemes

• $5.04 B – International Revenue Share Fraud (IRSF)
• $3.28 B – Arbitrage
• $2.71 B – Interconnect Bypass (i.e. SIM Box)
• $2.27 B – Domestic Premium Rate Service
• $2.00 B – Traffic Pumping
• $0.98 B – Wholesale SIP Trunking Fraud

Most of these fraud schemes steal more than a billion dollars each, every year, from businesses and telcos around the world. 

These are immense losses and today, with the right tools, businesses can protect themselves. 

However, it’s not only the schemes that are dangerous. Unexpected events like COVID-19 and other factors in our ever-evolving world present new opportunities for fraudsters to evolve and develop more sophisticated attacks.

This matter, alone, is one of the most important factors in fighting fraud today – being able to handle unexpected circumstances and ever-evolving threats. 

The current global COVID-19 pandemic is a perfect example of how fraudsters evolve, adapt and constantly present new challenges for fraud management systems as circumstances change.

Telecom Fraud Trended Up Amid the COVID-19

Total fraud loss in 2019 amounted to 1.74% of the global estimated telecom revenue. This is up from the 1.27% figure from 2017. 

This increase was driven by several factors, including:

• Cross-Industry Scams (Wangiri, Account Take-over & financial scams).
• Less coordination with law enforcement across the industry.
• More consumer data attacks targeted consumers, resulting in fraud attacks that impacted several industries.

As the landscape shifted, the fraudsters adapted. 

Now, the CFCA Fraud Loss Survey is released once every two years – the next one will be released sometime in 2021. But we can easily produce a meaningful estimate of the fraud loss in 2020 as well. This is particularly interesting because of the impact the COVID-19 pandemic has had on the telecom industry and its related fraud.

The estimated total telecom industry revenue in 2020 was $1.5 trillion. 

If we use the same $28.3 billion figure from 2019 and assume it was the same in 2020, we can estimate that roughly 1.86% of global telecom revenues may have fallen to fraudsters in 2020. 

Now, what do these numbers mean for businesses and operators? Let’s have a look, in detail.

How Big Were Fraud Losses in 2020?

What do the above percentages mean for a communications service provider (CSP)?

Major operators generate revenues of over 100 billion dollars each year. Even if fraud loss amounts to less than 2% of such revenues, that’s millions, and in some cases billions, in losses. 

Applying the above-estimated fraud loss of 1.86% of total telecom revenues in 2020, we can get an idea of how much revenue major operators likely lost to fraud in 2020. 

• AT&T:  With $171.8 billion in annual revenue, AT&T may have potentially lost $3.1 billion to fraudsters in 2020.
• Telefonica Group: A $49.2 billion yearly revenue in 2020 means fraudsters may have walked away with around $915 million from Telefonica in 2020.
• Vodafone Group: With $50.0 billion in revenue in 2020, $930 million may have been stolen.

These fraud losses are in the 100s of millions, or even billions of dollars in 2020. While these are just estimates, they are based on highly reliable statistics. 

Bear with me, again, while I put this into perspective. 

To be sure we’re not overestimating the size of these losses, let’s assume our above calculations are 95% off. Let’s assume the above companies lost only 5% of the potential fraud loss we’ve just calculated. 

The amounts are still enormous:

All of the above calculations are surmising what truly happened in 2020 and supposing that fraud loss numbers can be summed up in one blanket figure across the whole industry landscape. 

The real situation must be more nuanced. 

In any case, as we just showed, even if our initial calculations for 2020 were off by 95%, these companies still lost tens of millions of dollars to fraud that year.

In short, companies are facing enormous fraud losses in the millions and billions of dollars each year, despite using traditional fraud management systems (FMS). 

So, what can they do? These days, a traditional FMS isn’t enough. A business must find a state-of-the-art FMS that is capable of detecting and preventing modern fraud schemes, as well as evolving with the fraudsters to detect and prevent new fraud schemes as they emerge.

Shortcomings of Traditional Fraud Management Systems

The telecom industry has been around for decades and while the fraudsters have evolved and become more sophisticated each year, most fraud management systems haven’t. They still rely on an outdated reactionary approach.

They work like this: 

Fraudsters hit and take their profits. Afterward, the company’s fraud management team, along with their fraud management system, analyzes what happened, after the fact, to adjust their protocols to be better prepared next time. 

This essentially leads to a game of cat-and-mouse and allows fraudsters to get away with enormous sums of money before they’re detected.

If a business wants to be protected from telecom fraud in the 21st century, it must employ a modern FMS. Let’s look at what a modern FMS must entail. 

Modern Fraud Management Systems

Fortunately, there have been some landmark moments when the fraud prevention industry made steps towards improving fraud management. The problem is that most of these steps haven’t resulted in meaningful improvements in fraud prevention. 

For example, back in 2018, the ITW Global Leaders Forum established a Code of Conduct with a collectively agreed-upon list of principles for telcos and fraud management service providers to follow in their approach to detecting and stopping telecom fraud. 

This was a significant step forward for the telecom community, but the fraudsters have since maintained their foothold in the industry, which has amounted to billions in losses each year.

Fortunately, LANCK Telecom had already taken it upon themselves to level up their fraud prevention system to effectively mitigate modern fraud threats. 

Since then, LANCK has released one of the best fraud management systems on the market, offering an unprecedented, comprehensive approach to preventing telecom fraud.

It operates on state-of-the-art technological processes that detect fraud in real-time, leaving the game of cat-and-mouse behind. It uses a proactive approach to detecting and preventing telecom fraud.

While we can’t definitively say which tool is best for each business’s specific needs, we can outline in very simple language what sets the LANCK Telecom FMS apart from other solutions on the market.

LANCK Telecom FMS – A Robust Foundation

Several key features of LANCK’s FMS lie in its foundation:

• REAL-TIME SIGNALING LEVEL PROTECTION: Automatically detects telecommunications fraud attack parameters and immediately alerts with granular blocking.
• DEEP-LEARNING ALGORITHMS: Detects deeply disguised telecom fraud attacks on transit and retail traffic and identifies advanced fraud patterns.
• CUSTOMIZABLE PROTECTION POLICY: Adjust your alert & blocking policy to your exact specifications with configurable high-usage rules.
• EASY INTEGRATION: Integration is fast and simple. Immediate deployment with no CDR uploads, capital expenses or other complex procedures.
• COMPATIBILITY: Integrates with all voice switches. Uses SIP signaling and analyzes SS7 and accounting messages.

An FMS needs an advanced and highly intelligent foundation to ensure that it’s effective. Let’s look at the detection and prevention methods the LANCK FMS uses.

3 Innovative Components to Detecting and Stopping Fraud

The LANCK FMS uses three advanced methods to detect and prevent telecommunications fraud:

Proactive Monitoring

• This method detects fraud manipulations on an operator’s network.
• The system maintains a list of high-risk ranges.
• Fraudulent call attempts with these high-risk ranges trigger an alert to the operator, who can bar them for a predefined period.

Behavioral Analysis

• In-house machine learning (ML) algorithms detect deeply disguised fraud attacks on both hubbing and retail traffic and prevent them with minimal losses.
• Operates in real-time.
• Once the fraudulent traffic parameters are determined, the operator receives an alert.

Custom threshold-based rules

• An operator can configure real-time threshold-based rules to analyze usage and end-customer behaviors. 
• Once a threshold is broken, the operator is alerted and any active correspondent calls can be broken. 
• Traffic can be blocked for a predefined period.

Such features are essential in protecting both enterprises and telecom businesses from the wide array of telecom fraud attacks. Most importantly, the LANCK FMS can detect and prevent modern, sophisticated fraud attacks as they evolve, whether the world is amid a global pandemic or not.

Join Us today

The next CFCA fraud loss survey will reveal the changes in the telecom fraud landscape over the past two years and give us insight into how the telecommunications industry is managing fraud.  

It will also surely allow us to continue measuring the damage, in numbers, that telecom fraud inflicts each year. 

It will help us understand new issues and emerging threats. It will also remind us of the importance of finding the best FMS system available to protect our businesses and our clients, so we can continue focusing on what’s important. 

In the meantime, if you’re interested in learning more about LANCK Telecom’s FMS, feel free to look at our FMS page here. As a gift to all LANCK partners, we offer free fraud protection with our FMS.

If you are an enterprise not operating directly in the telecom industry, protecting yourself from fraud is equally important these days. You can find detailed information about our enterprise telecom fraud solution here. 

If you have any questions, you want to start using the LANCK Telecom FMS to protect your business and clients today, or you’d just like to chat, contact us here and one of our specialists will be in touch today. 

We’re waiting for you.