Green Shoots As UK Payments Fraud Starts To Fall

UK Finance’s annual fraud report finds that overall fraud shrank by 8 percent in 2022 as the end of the pandemic reshaped the fraud landscape, again.

Criminals stole more than £1.2bn in authorised and unauthorised fraud in 2022, equivalent to more than £2,300 every minute, according to the report. This was 8 percent less than fraud losses in 2021.

The overall decrease is partly due to a significant 17 percent fall in authorised push payment (APP) fraud losses to £485.2m, which has been a major concern for policymakers having overtaken card fraud for the first time in 2021.

This figure is even more impressive given that the total value of Faster Payments, the payments rail where almost 90 percent of APP fraud takes place, increased by 25 percent in 2022, according to Pay.UK.

This means there was an even greater decline in the rate of fraud, falling by up to a third.

The report also notes that there was a 5 percent increase in the overall amount of APP fraud loss reimbursement.

“It’s positive to see a decrease in APP fraud and an increase in the amount of APP fraud losses reimbursed,” the PSR’s spokesperson said, adding that “more still needs to be done across the whole ecosystem to prevent fraud and protect victims”.

Although it is uncertain what exactly was behind the drop, it is likely to be a combination of better fraud prevention programmes at banks, regulatory initiatives, such as confirmation of payee (CoP), more awareness from the consumers side, as well as the easing of COVID-19 restrictions.

According to Dan Holmes, fraud prevention strategy & SME at Feedzai, banks limited losses more effectively in 2022 because they targeted investment and impersonation scams specifically, which typically lead to a higher average loss per case.

“Banks applied amplified focus on the detection of these scams and especially how to recognise the danger signs sooner,” Holmes said.

As well as applying technology, such as machine learning and behavioural biometrics, banks have also introduced better operational processes to more appropriately handle the risk of scams when speaking to possible victims.

This includes authentication processes to better uncover the intent behind a transaction, “so understanding why a customer is making a payment, rather than if it was them making the payment”, he noted.

“In parallel to the technology, banks have also done a great job at driving consumer awareness around the risk of these common scams,” Holmes said.

“This has effectively meant that the customer themselves in many cases has become the first line of fraud defence for the bank.”

Better awareness, alongside CoP, was also an important factor for Mark Bish, product manager at Bottomline.

He told VIXIO, “consumers and businesses are clearly more aware of verifying the name on the accounts they are paying as their banking apps force them to use the service when adding new payers,”

The theme continues to be promoted on social media, news channels and topical television shows which helps consumers and businesses protect themselves, Bish added.

The end of COVID-19 restrictions may have had a positive impact on investment fraud and certain types of impersonation scams, according to UK Finance, as fraudsters had less opportunities to contact victims after people returned to offices.

Card fraud rises

By contrast, the end of the restrictions had an opposite effect on card fraud losses, which have started to grow again after four years of decline.

Overall card fraud registered a 6 percent increase in 2022, generating £556.3m in total losses. As a result, it re-took the top spot from APP fraud as the largest fraud type.

This increase was in part driven by lost card fraud, which benefited from the contactless limit increases during the COVID-19 pandemic, as well as from the increased acceptance during lockdowns.

In positive news, card not present (CNP) fraud, which still represents the highest portion of total card losses (£395.7m), declined 4 percent in 2022.

This could be a sign that strong customer authentication (SCA), which came into effect in March 2022, is beginning to make an impact.

UK Finance notes that regulatory initiatives, such as CoP and SCA, “are having an impact” but it stresses that “too much money is still getting into the hands of criminals”.

Bish pointed out that “although much has been done to reduce fraud levels and losses, including the introduction of CoP, which has made a considerable difference, fraudsters continue to find new loopholes and seek out new opportunities”.

Responsibility of tech companies

For the first time, UK Finance was looking at where fraud originates from and found that 78 percent of APP fraud cases originated online.

Among those, social media platforms account for the greatest number of cases. Around three quarters of online fraud starts on social media.

Meanwhile, 18 percent of fraud cases originate via telecommunications. These are usually higher value cases, such as impersonation fraud, and account for 44 percent of total losses.

“Our data also makes clear just how much fraud emanates from online platforms and through telecommunications,” David Postings, chief executive at UK Finance, said.

“The government’s new fraud strategy rightly says we need to focus on stopping it at source and that these other sectors need to do far more to tackle the problem they are facilitating.”

As reported by VIXIO, the UK Home Office released its fraud strategy last week which includes commitments for technology firms, as well as penalties for those that fail to protect users.

Rocio Concha, Which? director of policy and advocacy, also highlighted the role of the government in cracking down on online fraud “without delay”.

“If the government is serious about its fraud strategy, the Online Safety Bill must provide meaningful protections against the deluge of online advertising fraud we all face on some of the world’s most popular social media sites and search engines,” she stressed.

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