Person-to-person fraud is on the rise every day. 53% of Americans have already become victims of digital payment fraud,1 and 48% expect to be a victim of cyber scams in the future.2
Digital payment platforms are used for peer-to-peer payments, bill pay, storing gift cards, purchasing bitcoin, and contactless POS payments. Most offer little to no buyer protection.
Digital wallets represent immense money flow (a whopping $1.9 Trillion in transaction values in 2023) so financial institutions must be prepared for fraud attributed to person-to-person apps.3
Bad actors can execute their cyber fraud through many schemes, but the common one involves ACH payments. It looks like this:
- Commit a phishing scheme to trick the victim. This is usually a written communication like an email, text, or social media message, and can also be a phone call. In these communications fraudsters pretend to be the financial institution or a representative from the payment platform.
- Trick your financial institution into initiating payment to themselves from your consumer’s account. They disguise this as a refund.
- Your financial institution completes the transaction to the fraudster. This is how the fraudster completes the payment app fraud with ACH. The bad guys can also commit payment app fraud with linked debit cards and account numbers.
Payment apps offer many opportunities for fraudulent activity, and the bad guys continue to steal funds from accountholders by hacking accounts, accessing compromised cards, and through stolen devices. Once the funds are stolen they can be sent to fellow criminals and are very difficult to recover, leaving your consumer - and your credit union or bank - with lost dollars.
3 Strategies to Reduce Payment App Fraud Losses:
- Detect - Consumer education is a very important part of payment app fraud detection. However, with the drastic rise of fraud and the creativity that the bad actors are leveraging, it is no longer sufficient to rely on your accountholders alone to detect this type of fraud. It is also not considered best practice to rely on the payment app platform or your card issuers to detect fraudulent activity. To fight against fraud, your institution needs to be able to detect when fraud is or is about to happen. Fraud detection and monitoring measures need to leverage AI and flag potential fraud in real-time.
- Protect - Protecting against fraud is tedious and delayed without the right technology. When fraud is detected real-time it becomes easy to protect your institution and your consumers against losses. An enterprise-wide risk management system is needed to monitor transactions across all channels for fraud and database intrusion in a real-time environment, rather than using batched data. This type of system aggregates your institution’s data on premise. Leveraging advanced artificial intelligence allows the system to act as an alerting smoke detector rather than a reactive fire hose.
- Respond - Historically, fraudsters have more agility to pivot to new fraud techniques than financial institutions do to stop them. With advanced, real-time fraud defense solutions financial institutions are able to be more agile and proactive in responding to fraud when it occurs. In addition to supporting accountholders, encourage victims of fraud to report their case to the FTC.
Every dollar of fraud - regardless of the origination - costs a financial institution $4.00.1 With high losses, consumer vulnerability, and reputational risk on the line, financial institutions must have a proactive fraud detection strategy in place. The best way to purge and reduce payment app fraud is to implement stronger, more advanced technology than the fraudsters.
1https://www.youtube.com/watch?v=KZfVipxowRs
2https://www.ipsos.com/en-us/nearly-1-3-americans-report-being-victim-online-financial-fraud-or-cybercrime
3https://www.juniperresearch.com/research/fintech-payments/core-payments/digital-wallet-research-report/