Tackling the Many Faces of Fraud Requires Many Players

Author: Jackie Barwell

The quick access to money offered by real-time payments has contributed to a significant increase in confidence tricks, also known as authorized push payment (APP) scams, around the world. Research included in Fight Real-Time Payments Fraud in Three Simple Steps from ACI Worldwide shows the proportion of consumers that reported falling victim to a confidence trick was 25% in 2022, up from 14% in 2021.

Today, the value of losses to scams globally is comparable to those of traditional card fraud. They even exceed them in some markets. Take the U.K., for example.

Research included in Fight Real-Time Payments Fraud in Three Simple Steps from ACI Worldwide shows that card fraud losses amounted to $716 million in 2022, while losses attributable to scams reached a staggering $973 billion. Many other markets are trending in this direction, highlighting the scale of the problem and the urgency of finding effective solutions.

A multilayered problem

Delving into the many faces of fraud is the subject of the latest analysis released by ACI’s Inside Real-Time platform, a video-led research project featuring exclusive data from GlobalData.

Unmasking the Many Faces of Fraud, a four-part series, explores how criminals are using increasingly sophisticated methods to persuade victims to authorize payments to accounts under their control. Increasingly, it is digitally savvy consumers that are most often falling victim to these cleverly orchestrated, multilayered deceptions.

Behind the scenes, the criminals are able to get away with these scams thanks to similarly multilayered setups of synthetic identities and mule accounts, used to access stolen funds without directly implicating themselves.

Both banks and regulators must get to grips with synthetic identities and mule accounts to bring the problem of scams back under control. Yet, as our accompanying expert commentary discusses, while the fraudsters become ever more sophisticated and ever bolder, regulators and banks remain tangled up in discussions around data privacy, how to apportion liability, and whether and when to compensate victims.

The profound impact of social engineering

The hook for many scams is social engineering, the process by which fraudsters exploit a person’s trust in individuals or institutions to obtain money directly or extract confidential information to gain access to their accounts.

Fraudsters have flooded the internet with fake domains that closely mimic genuine banking websites and offer tempting investment opportunities. These organized criminal networks use strong telephone scripts to further convince victims of their authenticity. They also trawl social media for personal information they can use to their advantage as opportunities to pose as friends, relatives or potential romantic interests.

Our research finds the impact of social engineering to be profound. Beyond the emotional distress and significant financial losses for individuals and banks, financial institutions bear the cost of social engineering-based fraud through negative customer experiences. These erode confidence and drive customers away. A significant 26% of survey respondents who fell victim to fraud closed their accounts in response, illustrating the need for better protection and security measures.

Who’s liable, and when?

And as the volume of scams grows, the debate over who should be held liable for fraud losses is heating up.

In Unmasking the Many Faces of Fraud, our experts discuss the ways in which shared accountability between receiving and initiating financial institutions has been proposed in some regions. More ambitious approaches to appropriately apportioning liability are also covered, including whether social media and telco platforms should be held at least partially responsible for the role they play.

“Both banks and regulators must get to grips with synthetic identities and mule accounts to bring the problem of scams back under control.”

These platforms are often used by fraudsters to execute their scams. Incentivizing their involvement in combating scams could foster greater collaboration and more effective fraud prevention strategies.

Multilayered solutions are needed

The solution to scams according to our analysis is a multilayered approach combining advanced fraud prevention technologies, shared responsibility among stakeholders and incentives for other players to actively participate in the fight against scams.

Machine learning, biometrics and enhanced authentication are all changing the way banks take on the scammers. Enhanced monitoring of account activity and incoming funds at receiving banks is helping some banks to spot questionable transactions more easily and create a more hostile environment for fraudsters.

Between better use of these transaction monitoring technologies, KYC and AML at the receiving bank, and better collaboration between all parties to a transaction, the financial industry has the collective capability to face fraud head on. If, that is, it can learn to wield it.

For more commentary and insights on how financial institutions can fight back against the threats scams pose to consumers, businesses and banks alike, head to Inside Real-Time and watch“Unmasking the Many Faces of Fraud”.