Tackling Sophisticated Fraud: Innovations and Approaches for a Secure Digital Future

Fraud has permeated numerous aspects of our lives, infiltrating the most routine activities and transactions, causing unease and uncertainty for many individuals. In fact, fraud-related losses in the U.S. topped $10 billion last year, up 14% from the previous year, according to the Federal Trade Commission.

Take grocery shopping, for example. According to findings from a recent report by PYMNTS Intelligence and ACI Worldwide, 11% of grocery shoppers experienced fraud in March 2023, up from 7.2% in March 2022 and 5.7% in December 2021. Utility scams are also becoming more sophisticated, often leveraging artificial intelligence (AI) to operate at a larger scale, targeting not only consumers but also the utilities themselves.

Utilities United Against Scams, a consortium of more than 150 utilities working together to combat utility payments fraud, identified the top 10 imposter scams, including “disconnection deception” and “smishing scams.” Consumers are also targeted with search engine scams, where the scammer creates a fake utility payments page to trick customers. Not only does the scammer intercept sensitive personal and account information, in some cases, they combine and convert low-cost ACH transactions to expensive credit card payments, often with cards that carry high interchange rates.

Additionally, utilities are now being targeted by “card testers,” scammers that make small, phony guest payments to the utility by credit card, which pass the “test” upon authorization. The fraudsters often use bots to test stolen credit cards at scale and to dispute the transactions later. These test payments increase processing costs and can also cause chargeback rates to exceed set limits.

Fraudsters are also targeting auto lenders, creating synthetic identities that are not detected during the origination process, driving off in expensive vehicles, never be seen again (and never paid for). In fact, U.S. auto lenders saw a 38% rise in synthetic identity exposure year-over-year, reaching $1.8 billion last year and the second consecutive year of an upward trend.

Unsurprisingly, these increasing occurrences of payments fraud have raised concerns among consumers, leading to a sense of caution and reluctance in sharing or storing updated data, as well as heightened consumer concerns about using apps that aggregate and connect user payment information.

Specifically, 45% of consumers fear data breaches, 34% feel more vulnerable, and about 30% do not trust having personal information stored on a connected platform.¹ It’s no different when consumers are using online bank transfers for various payments such as online retail orders, utility payments or other recurring payments.

Per the study, more than 70% of individuals using online bank transfers in their recent payments worry about fraud, data theft and trust, while more than 40% of consumers cited difficulty in resolving security issues as a concern.¹

Tackling Sophisticated Fraud With Newer Technologies

Businesses, too, bear the burden of surging fraudulent activities, particularly as fraud techniques have evolved alongside new technologies like AI and generative AI. This evolution has led to fraudulent activities that are increasingly sophisticated, adding to the challenges faced by businesses in safeguarding against such threats.

As Erika Dietrich, VP, global fraud prevention risk services at ACI Worldwide, told PYMNTS, “What has changed is the speed and scale these tools and technologies give fraudsters,” not to mention how “They can educate themselves in open forums and chat channels on how to deploy and use these new technologies.”

Consequently, this puts businesses using outdated rails and anti-fraud methodologies at a major disadvantage.

“If you are using the older rails and anti-fraud methodologies, you are going to have a higher level of friction with higher decline rates, and you’re going to have more liability on the biller or the bank,” Dietrich said.

Companies recognize these challenges, with one in three firms citing the increasing complexity of fraud schemes as a major obstacle to combating fraud. The cost of adopting new technologies is another hurdle cited by nearly 40% of providers.¹ Overall, more than a quarter of these firms acknowledge that their existing solutions are incapable of spotting fraudulent transactions.

Going Beyond Payment Fraud and Detection

Dietrich pointed out this shift to emphasize the critical need to expand cyber defense measures beyond mere fraud detection and prevention strategies.

“With the world that we live in, digital identities are becoming more used than physical driver’s licenses or physical passports. [Businesses] need to deploy [sophisticated] cyber defense strategies that can not only detect and prevent fraud but also enable them to authenticate and verify consumers’ digital identities in real time, protecting against account takeovers, while seamlessly integrating any updates to their account,” Dietrich stated.

She added that identity security pain points are driving consumers toward alternative payment methods, such as digital wallets. As a result, applications – whether on the biller or banking side – that lack the ability to support these new payment methods securely face a significant hurdle.

It’s the reason why, Dietrich argued, organizations must employ sophisticated strategies and solutions that combine technology, data analytics and educational best practices for their employees to effectively safeguard against these attack vectors. This orchestrated approach, she noted, is key to building a robust defense mechanism for businesses.

Moving forward, Dietrich highlighted the potential for new technologies to not only combat fraud but also to facilitate a more consolidated and improved method of authentication across the various touch points with which consumers interact.

“There are too many silos that we live in, hopefully machine learning and artificial intelligence can bring down some of them, … not only for me as a consumer but also for banks, intermediaries, merchants, processors and governments to figure out an easier way for establishing trust in this digital world that we now live in,” she concluded.

Watch the interview with Erika and Austin Prey of PYMNTS.TV to learn more about the latest fraud trends and cyber defenses, and contact us at [email protected] to find out how ACI Speedpay with ACI Fraud Management can help you stay ahead of fraudsters.

¹ https://www.pymnts.com/study_posts/34percent-of-big-tech-and-fintechs-lost-customers-over-fraud/