Home Slider Navigating the Evolving Fraud Landscape: Key Insights and Strategies for Financial Institutions

Navigating the Evolving Fraud Landscape: Key Insights and Strategies for Financial Institutions

by internationalbanker

By Rob Rendell, Global Head of Fraud Market Strategy & Fraud Prevention, NICE Actimize





The world of fraud is constantly evolving, with advanced artificial intelligence (AI) and other emerging technologies making detection and management more challenging than ever for financial institutions (FIs). Along with battling new threats, FIs are now tasked with re-navigating old threats that are gaining new life through AI-enabled fraudsters.

Surges in fraud attacks, coupled with the imposition of new mandatory regulatory standards, compel financial institutions to implement fraud-prevention measures for customer-initiated transactions, even when they are marked as scams. The intricacies of fraud-liability shifts lie at the forefront of these concerns, with a heightened focus on emerging sophisticated scams, such as money mules and authorised push payment (APP) fraud.

So, how do FIs move forward? The best way to prepare for 2024’s threat landscape is to fully understand the perils they face and collaborate with experts to bolster collective intelligence and innovation. We recently analysed billions of banking and payment transactions for our “2023 Fraud Insights” report. Its key findings will help FIs strengthen their fraud-prevention strategies and safeguard their organisations in 2024.

The state of fraud in 2023

Among the report’s most striking findings were the increases in payment volumes and subsequent fraud attacks this year. Compared to the first half (H1) of 2022, the total volume of all payments rose by 22 percent, while both attempted dollar and unit attack rates grew by 18 percent. This surge in fraud attacks has put immense pressure on FIs to adapt their strategies and adopt next-gen technologies, such as AI and generative AI (GenAI), to combat these threats effectively.

The traditional nature of international payments (higher value but lower volume) makes any increase in attempted-fraud volume within this channel particularly concerning, with the attempted-fraud rate for international payments up by 31 percent in H1 2023.

Recent fraud trends have followed the “history repeating itself” theme, especially when considering threats related to customer onboarding and first-party fraud. In parallel, newer threats over digital channels have been amplified by fraudsters developing complex new scams, recruiting money mules and perfecting attack tactics.

The speed and variety of these scams in 2023 have highlighted the urgent need for FIs to act and invest in advanced technologies and implement next-generation fraud prevention, such as real-time analytics and artificial intelligence/machine learning (AI/ML), to stay ahead of the curve and protect customers.

P2P fraud trends

Peer-to-peer (P2P) (the consumer-preferred payment channel) transactions have experienced a significant shift in fraud trends. The overall attempted P2P-fraud dollar volume has decreased by 18 percent, reflecting the positive steps banks and FIs have taken to improve fraud controls for these types of payments. But over the last 18 months, the average attempted-fraud amount has remained high at $510. While high, this amount will not surprise many fraud analysts, as fraudsters continue targeting high-value P2P transactions, such as those involving fake online marketplace advertisements.

Notably, the average attempted-fraud rate for P2P transactions exhibited a substantial decrease of 38 percent in the first half of 2023 compared to the first half of 2022. Despite this decrease in fraud rate, the total transaction volume surged by 40 percent, while the actual volume of attempted fraud experienced a more modest decline of only 6 percent. This indicates that real-time fraud controls are working.

When comparing web-based and mobile-based P2P transactions, the report revealed that web-based transactions are four times riskier than mobile-based ones. Although there has been a decline in attempted-fraud losses for both channels, FIs must recognise the higher risks associated with web-based P2P transactions and prioritise their security measures accordingly.

And as the lures of cryptocurrencies and get-rich-quick schemes have quieted, so have scam-related events within this space. Correspondingly, investment scams commonly known as “pig butchering” in the cryptocurrency domain have decreased.

This shift in trends contrasts with the increasing prevalence of advanced purchase, impersonation and fee scams. This phenomenon lends credence to the hypothesis that fraudsters have redirected their attention toward shorter-term, lower-value scams. Notably, this shift is pronounced in purchase and impersonation scams on social-media platforms, where their growth has been unchecked.

International transaction fraud is on the rise

International payment fraud is becoming increasingly significant, with attempted-fraud loss per individual transaction rising from $47 in the first quarter (Q1) of 2022 to $52 in the second quarter (Q2) of 2023. Additionally, attempted-fraud rates surged relative to 2022’s overall fourth-quarter (Q4) transaction volume. These figures demonstrate that FIs must focus on uncovering trends within cross-border payments to reduce fraud losses.

Attempted fraud in international transactions witnessed a substantial 31-percent increase in associated dollar values. From January 2022 to June 2023, the average dollar amount for attempted fraud in international transactions rose significantly, reaching nearly US$12,000. This underscores the imperative for financial institutions to allocate resources to bolster international fraud-prevention efforts, focused specifically on identifying and mitigating the risks associated with money-mule activities.

Moreover, discernible evidence indicates a shift in focus among fraudsters, transitioning from longer-term scams, such as romance and investment fraud, to shorter-term schemes, particularly within the realm of international purchase-related scams. The incidence of unauthorised-payment fraud and account takeover (ATO) experienced a notable 35-percent increase in international transactions. This unequivocally signals the urgent need for heightened emphasis and strategic investments in international fraud-prevention measures.

Overall, the figures surrounding international payment fraud are astonishing, with attempted-fraud loss per individual transaction and attempted-fraud dollar value associated with international transactions both increasing significantly. FIs must focus on collaborating with industry experts to uncover trends within cross-border payments, detecting and mitigating money-mule risks, and investing in international fraud prevention to combat this growing issue.

Embracing strategies for combating fraud

Year-over-year increases of 22 percent in payment volume and 18 percent in attempted dollar and unit attack rates are unsustainable. To combat looming threats, FIs must evaluate their current fraud-execution practices with a multi-pronged approach that includes:

  1. Implementing next-gen fraud prevention: Utilising real-time, automated, AI/ML-based solutions helps FIs respond faster to threats, improving their detection capabilities.
  2. Modernising fraud analytics: Adopting intent-based, typology-centric detection and data-enrichment techniques increases detection accuracy and reduces false positives.
  3. Harnessing the power of the cloud: Leveraging cloud technology for scalability, network analytics and lower operational costs results in consistent, effective results.

Success lies in collaboration and industry-wide efforts

Successfully combating fraud requires not only a multi-disciplinary and holistic approach but also cross-industry collaboration. FIs must work together and cooperate with law-enforcement agencies to strengthen their collective intelligence and innovation. By sharing information and resources, FIs can better protect their organisations and customers from the ever-growing fraud threat.

The above trends demonstrate the importance of staying vigilant and adaptive to combat an ever-changing fraud landscape. By understanding the latest trends and embracing a modernised strategy incorporating machine learning and artificial intelligence, FIs can develop robust strategies and leverage advanced technologies to safeguard their organisations and customers. This will ensure a stronger and more resilient position in the face of these evolving threats.


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