Despite the ongoing digitalization of our societies, many businesses still treat customer authentication, KYC checks, and fraud prevention solutions as a nicety or something to simply plug into their processes due to authorities/regulations.
Yet fraudsters continue to become smarter and more creative with their practices which could potentially leave you or your business at serious risk without a reliable fraud prevention partner.
This lack of appreciation can be seen in a Cifas research survey that took place last year which shockingly saw 80% of fraud prevention professionals judge businesses somewhat “unprepared” for the increase of fraudulent attacks due to COVID-19.
Furthermore, a high majority of those questioned (93%) said they believe the level of fraud would be “higher or much higher” in 2021 (see below.)
As an example of the potential costs, according to UK Finance, authorized push payment (APP) fraud cost consumers more than £207m in the first half of 2020.
With APP Fraud, victims unknowingly transfer money directly to a fraudster. This is usually after the perpetrator gains access to an individual’s information and then presents themselves as a company that the account owner is already doing business with.
Regulations such as the confirmation of payee in the UK have helped curve the impact but businesses can not rely solely on the actions of authorities due to the ever-growing presence of fraudster collaboration.
Another trick fraudsters utilize revolves around synthetic identity theft which combines real and fake data to create a phony online profile. This enables the criminal to steal money from creditors, open up accounts, and bypass other KYC checks.
Synthetic identity fraud has been judged as one of the fastest-growing types of financial crime as Experian’s 2021 Future of Fraud Forecast revealed it makes up 80% of credit card fraud losses and almost 20% of chargebacks.
The reason for this is because it is one of the most difficult types of fraud to detect because when the thief applies for an account, it can look like a real customer with a limited credit history.
Criminals often use the account responsibly to establish a reputable history or better yet, become added as an authorized user to an account with good credit, often in return for compensation to the existing account holder similar to the money mule method.
Once the limits are raised on a credit card, the fraudster(s) will max out the account and then quite simply disappear. This is otherwise known as ‘bust-out fraud’ because, by the time the banks begin the process to get their money back, they realize the person doesn’t exist!
Some ways in which criminals can secure a real person’s data include children’s records, medical information, and through data breaches, with availability to purchase ID documents on the dark web for surprisingly accessible prices.
The fraudster will also use a range of other tactics to support their efforts in making the fake account seem legitimate such as creating false documents/businesses, establishing some social media presence, and using drop addresses.
As well as these techniques, the pandemic caused a huge shift in consumer behavior (i.e. from retail to e-commerce) which in turn has given criminals more fraudulent opportunities.
Data from the UK’s Office National Statistics indicating eCommerce sales accounted for 34.7% of all retailing in March 2021, substantially higher than figures of the same month last year where the number stood at just 23.1%.
All this culminates into one outcome; merchants must invest in a fraud product that not only matches their requirements now but is agile to adapt to the criminal’s tactics.
Fraud is a constant game of ‘cat and mouse with the criminals leading the way as they are forced to constantly innovate.
For a business to survive without risk in the modern-day, they need to ensure their defenses are sturdy.
Thankfully it’s not just the criminals who are innovating; with huge advancements in machine learning, biometric technology, and consumer behavioral analytics, fraudsters can still be easily exposed throughout the customer journey without damaging customer experience.