Download the latest Embedded Finance Tracker®, a Galileo and PYMNTS collaboration.
With payment and financial fraud growing ever more prevalent–and sophisticated–banks are stepping up their defenses, leveraging anti-fraud technology to shore up vulnerabilities and stay one step ahead of the bad guys.
Given the crucial role trust and security plays in banks’ relationships with their consumer and business customers, outpacing fraud is mission critical for FIs, and failure to do so could have disastrous consequences–a lesson some banks recently have learned the hard way.
However, effective fraud defense requires more than simply deploying the latest high-tech tools–and an increasing number of financial institutions are emphasizing cooperation alongside innovation to address the threat. Industrywide, that strategy is giving rise to some promising new tactics banks can bring to bear in the fight against fraud.
Feeling fraud’s sting.
2023 has been a banner year for fraudsters, who have taken advantage of an increasingly digitized, omnichannel financial services and payments ecosystem to exploit new avenues and weak points through which to operate.
For example, the rise in credit card-based B2B payments has driven a corresponding increase in fraud, with 36 percent of U.S. companies who have been hit by payments fraud traced it back to card transactions, according to a study by Trustpair and GIACT.
Real-time B2B payments have been another top target for fraudsters, with 24 percent of banks in a survey by Aite-Novarica reporting a surge in small business authorized push payment fraud via these real-time payment channels.
Particularly vulnerable demographics such as younger and less financially healthy consumers have been especially ripe targets, recent data show. According to a study conducted by J.D. Power, 47 percent of retail banking consumers under the age of 40 had been a victim of some form of banking fraud over the past year. Meanwhile, half of consumers who were financially overextended by debt were preyed upon by fraudsters during the same period.
Recent months also have witnessed the impact of fraud on an institutional level, with a whopping 78 percent of European banks reporting being affected by a third-party data breach stemming from fraudsters accessing a vendor’s systems, according to a report by SecutiryScorecard. Fourth-party breaches–in which a vendor’s vendor is compromised–were even more prevalent, with 84 percent of FIs affected by such an event, according to the survey.
For banks, failure to combat fraud can result in drastic damage–and for smaller institutions with fewer cash reserves, such shortcomings can be particularly disastrous. Earlier this year, Heartland Tri-State, a Kansas community bank with $140 million in assets, failed as a result of falling victim to fraud, according to officials.
New bank alliances taking on fraudsters.
Given the scope of the fraud threat to the banking industry as a whole, it’s perhaps little surprise that FIs around the world are banding together to address the challenge.
In Spain, Banco Santander, BBVA and CaixaBank earlier this year formed a joint venture, dubbed FrauDfense, for pooling insights and empowering a collective response to the fraud issue. Meanwhile, an initiative led by the Stock Exchange of Thailand is bringing together the country’s regulators and banking industry groups to address the rising tide of fraudulent investment scams.
In the United Kingdom, nine major banks have joined with Mastercard under the payment network’s Consumer Risk Fraud platform, which leverages Artificial Intelligence to combat real-time payments fraud. Based on fraud detection results over the program’s first four months for one participating bank, TSB, the platform could save UK banks a total of £100 million if adopted by all banks in the country, according to Mastercard.
Want to Learn More?
For more insights on how technology and teamwork are helping banks fight fraud, download the latest Embedded Finance Tracker®, a Galileo and PYMNTS collaboration.
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