Amid Confusion, Market for ID Theft Services Grows

They've seen the ads, heard the statistics, and read the reports. Now, many consumers are officially afraid of identity theft -- and they're creating a wave of demand for identity protection services.

According to reports issued separately this week by the Identity Theft Resource Center and Javelin Strategy and Research, consumers are confused by the volume of information they've received about ID theft, much of which is sensationalized or conflicting. This confusion is leading many to reach out for identity theft services -- even though they aren't always sure what they're buying.

In its annual report, the Identity Theft Resource Center said that misinformation is a primary reason why consumers make poor decisions about ID theft. "Misleading commercials continue to be shown on television that either glamorize identity theft or make light of this crime at the expense of existing victims," the report says.

"From the victim’s perspective, there is nothing glamorous about this crime," says Sheila Gordon, the ITRC’s director of victim services. "It takes hours of hard work, internal strength, time, and courage to clean up the mess left by an imposter. However, you rarely hear about these stories -- you hear about the exciting exploits of 'Bonnie and Clyde' or movies like 'Catch Me If You Can.' In romanticizing identity theft, the media entices novices and young adults to try their skill at identity theft and to play the role."

The flood of information also has desensitized consumers to the threat and created apathy among some, the ITRC says. "The failure to believe someone could steal your identity generates apathy," the report says. "Therefore, individuals fail to take proactive steps to minimize risk."

But in many other cases, the hoopla surrounding identity fraud is causing consumers to urgently -- and sometimes blindly -- seek protection, creating a burgeoning market for ID fraud prevention services, according to Javelin, a market research firm. "Due to the confusion and fear of consumers, identity fraud protection services are a marketer's dream," Javelin says in its report.

The ITRC concurs. "[In 2007,] the ITRC saw an increase of products being sold to capitalize on the identity theft fears of consumers," its report says. "Unfortunately, some of these products do not carefully explain their limitations and lead consumers into believing that the product can completely protect them from this crime. Some products have merit, but it is definitely a 'due diligence' environment."

Javelin predicts that the market for identity fraud protection services will continue to grow at double-digit rates, with high profit margins, for the next several years.

More than 33 million U.S. adults already use a credit monitoring service, and more than 32 million use fraud alert services, Javelin observes. In the future, there is a promising market for data mining -- in which a service provider scans public information and Internet carding sites to warn users of potential threats -- and credit freeze services, which allow consumers to block access to their credit reports, the research firm says.

At the moment, however, consumers don't know how to choose these services. "At present, the most successful identity fraud protection services will be determined by marketing, rather than effectiveness, because consumers are confused, frightened, and fraught with misconceptions," the report says. Over time, such services will be differentiated by price, features, ease of use, factual advertising, and the ability to prevent fraud, rather than just detect it, Javelin says.

In the meantime, confusion likely will reign throughout 2008, the ITRC says. "There will be a continuation of contradictory studies with less agreement on victim census, cause and effect, facts, and overall cost of identity theft," the report predicts. "This will lead to confusion, misguided legislation, and governmental actions."

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