Current Payment Fraud Trends & How To Mitigate Them

Payment fraud impacts businesses’ financial performance, customer trust, loyalty, and retention. First-party fraud, or friendly fraud, occurs when a customer purchases online and disputes the charge with their bank, claiming the item was not received or was defective. In these cases, the customer’s claim is not based on a genuine issue but on a desire to keep the item and get a refund. The merchant bears the cost, losing time and resources. Understanding these trends allows businesses to better protect themselves against evolving fraud attacks. By changing the way we authenticate users for payments, businesses can reduce the risk and mitigate the impact of all types of fraud.

What Is Payment Fraud?

Payment fraud is a serious issue involving the unauthorized use of stolen or fake payment information to carry out transactions. It can occur when someone uses your financial details without permission to make purchases or transfers.

This type of fraud can stem from various sources, such as data breaches where credit card information is stolen and sold on the dark web. It affects numerous payment methods, from credit cards and virtual checks to direct debits and phone payments.

Another instance of payment fraud is when the legitimate person claims a transaction was not done by them. This is sometimes called friendly fraud. 

In both these cases, the payment fraud can be difficult to resolve because financial institutions and merchants rely on historical behavioral and transactional patterns to ascertain if the correct person made the payment and these can be circumvented by fraudsters.

Effective Security Measures Against Payment Fraud

Implementing strong authentication is really the only way to properly defend against payment fraud. Best practices call for two factors to be used independently – something you have, something you know, something you are. The strongest factor is something you are (biometrics). Anonybit’s decentralized solution makes it safe and secure to use biometrics and makes it very hard for fraudsters to circumvent security controls.

Types Of Payment Fraud

Account Takeover (ATO) Fraud

Account Takeover (ATO) fraud occurs when a hacker gains access to a victim’s online account through the use of stolen credentials. They can change account details and make unauthorized transactions. According to the 2024 Identity Fraud Study by Javelin Strategy & Research, ATO fraud continues to be a significant concern. The study found that 18% of consumers surveyed reported being victims of account takeover attacks, with 62% of these incidents occurring within the past year. Over 34% of those affected experienced fraud multiple times, often while using digital subscriptions, online shopping, and financial services. The average time consumers spent resolving identity fraud issues, including ATO, increased dramatically to nearly 10 hours in 2023, up from 6 hours in 2022. Additionally, the average out-of-pocket expenses for victims rose by 70% to $202, compared to $119 in 2022.

The source of these attacks can vary greatly. Approximately 60% of ATO victims report using the same passwords across multiple accounts, which puts them at high risk of identity theft if their passwords are compromised. ATO can lead to significant financial losses and damage your reputation. If customers feel their accounts are insecure, they may lose trust in your business.

Chargeback Fraud

Often referred to as friendly fraud, chargeback fraud occurs when a customer makes a legitimate purchase but later disputes the charge with their bank, claiming they never received the product or service. This type of fraud can hurt your bottom line, as you not only lose the sale but may also incur chargeback fees. It can also affect your merchant account status, leading to higher processing fees or even account termination.

Authorized Push Payment (APP) Fraud

APP fraud occurs when victims are tricked into making real-time payments to fraudsters, often through social engineering tactics, such as impersonation. This type of fraud can be particularly damaging because victims often have no recourse to recover their funds once the payment is authorized. 

Preventing Data Breaches and Account Takeover Fraud with Anonybit

At Anonybit, we help companies prevent data breaches and account takeover fraud with our decentralized biometrics features and fraud prevention software. With a decentralized biometrics solution, companies can enable passwordless login, wire verification, step-up authentication, and help desk authentication.

To achieve this goal, we offer security solutions that cover the user lifecycle such as:

• 1:N deduplication, synthetic and blocklist checks upon account origination
• Passwordless login
• Step up authentication
• Account recovery
• Secure storage of biometrics and other PII data

Anonybit eliminates the tradeoffs between privacy and security. Prevent data breaches, enable strong authentication to eliminate account takeovers, and enhance the user experience across the enterprise using Anonybit.

Book a free demo today to learn more about our integrated identity management platform.

Related Reading

• Identity Providers
• Liveness Detection
• Biometrics Identity Verification System
• New Account Fraud
• Online Banking Authentication
• Fraud Detection In Banking

5 Payment Fraud Trends You Need To Know About

1. The Use of AI-Based Attack Vectors

Artificial intelligence (AI) is increasingly becoming a tool for criminals in their quest for fraud. While AI has many beneficial applications, it’s also being misused to launch sophisticated attacks.

Cybercriminals leverage AI for various malicious activities, including creating convincing deepfakes for extortion, corporate espionage, and distributing illegal content. As AI technology evolves, so do the tactics criminals use. They’re employing techniques like data poisoning, corrupting data to mislead AI systems and injection attacks, all of which can involve deceiving biometric systems. The rapid advancement in AI means we can expect even more sophisticated attack methods in the future.

2. The Rise in Fraud-as-a-Service

Fraud-as-a-Service (FaaS) is a growing trend where cybercriminals provide fraud-related tools and services to others lacking technical know-how. This model makes it easier for less skilled individuals to commit fraud.

Instead of using dark web marketplaces, scammers are turning to deep web messaging apps like Telegram. 404 Media reported on a website that promotes photos and videos of real people designed to bypass selfie checks for online services. Essentially, these real people have sold their identities (likenesses) to be turned into stock models that fraudsters can now use.

The Impact of Generative AI on Payment Fraud

The rise of generative AI (GenAI) has exacerbated this issue, as it enables criminals to quickly process and analyze large volumes of data, enhancing their ability to target victims more effectively and make their fraud attempts more successful.

3. The Persistent Realities of BEC (Business Email Compromise)

In 2023, 63% of organizations experienced  BEC, according to a survey by US Bank. BEC attacks involve criminals who persuade employees to initiate wire, check, or credit card payments by sending fraudulent emails. The emails appear to be from genuine customers, vendors, or executives, making them very difficult to recognize as fraudulent. 

Types of Information Targeted in BEC Scams and Organizational Vulnerabilities

In the email, the attacker may only ask for the employee to make a payment. In a softer play, they may ask for bank account numbers or routing codes. They can also include requests for personally identifiable information (PII) or Wage and Tax Statement (W-2) forms for employees. According to the survey, enterprises with at least $1 billion in annual revenue were more susceptible to BEC schemes.

Companies with less than $1 billion in annual revenue were more likely to be defrauded by individuals outside their organizations. The more significant threat to those organizations is personal and confidential information theft. Damages from these thefts can be challenging to measure, ranging from financial penalties to legal and regulatory actions.

4. Synthetic Identity Fraud Remains One of the  Most Common Forms of Identity Theft

Criminals are expected to continue exploiting data breaches, weak IT protocols, fake websites, and other social engineering schemes like:

• Phishing, 
• Smishing and vishing to collect legitimate data and combine it with fake information to create what are known as synthetic identities. 

Reports vary, but it is estimated that between 3-10% of all accounts are of synthetic identities.

According to analyst house The Aite Group (now Datos Insights), synthetic identity fraud represents 10-15 percent of charge-offs in an unsecured lending portfolio. US consumers reportedly lost nearly $8.8 billion to identity theft and fraud scams in 2022, and this number is estimated to reach $23 billion by 2030.

5. Pig Butchering

According to Visa’s Spring 2024 edition of its Biannual Threats Report, pig butchering scams have emerged as one of the top four payment threats against consumers. This scam, a masterclass in social engineering, plays the long game, making it especially effective when individuals grapple with financial constraints and search for quick solutions. 

How Fraudsters Manipulate and Exploit Victims

In a pig butchering scheme, fraudsters employ intricate tactics to dupe victims into investing substantial sums of money. Victims are promised a high return on a short-term investment, such as cryptocurrency or mortgage investments. The scammer establishes an intimate relationship with the victim, sometimes initially doling out impressive interest payments, enticing further investments from their targets. This process fattens up the unsuspecting investor by cultivating a sense of trust.

When the investor attempts to withdraw their funds, the fraudster vanishes into the digital abyss, the victim ends up empty-handed.

Related Reading

• Third Party Fraud
• Payment Fraud Prevention
• Fraud Detection Analytics
• AI Fraud Detection Banking
• Payment Fraud Trends
• First Party Fraud Detection
• Fraud Management System In Banking
• Fraud And Identity Management
• First Party Fraud vs Third Party Fraud
• ACH Fraud Prevention
• Biometrics In Banking
• Real Time Transaction Monitoring
• Digital Injection
• First Party Fraud Detection
• Fraud Management System In Banking
• Fraud And Identity Management
• First Party Fraud vs Third Party Fraud
• Fraud Detection Software For Banks

How to Mitigate Payment Fraud Risks

Real-Time Fraud Detection Solutions: The Key to Stopping Fraud in Its Tracks

To tackle fraud effectively, you need more than just basic rules. Opt for a real-time fraud detection system that goes beyond individual rules by ensuring people really are who they claim to be when conducting a transaction. The way to do this is with biometrics. Biometrics, like selfies, fingerprints and palms are difficult for fraudsters to spoof, especially when layered with liveness detection technologies, and provide the strongest safeguard against payment fraud and identity theft. Anonybit makes it easy to deploy biometrics safely and securely by storing the biometric data as anonymous bits, so they cannot be stolen or manipulated. 

AI-Powered Solutions: Next-Level Intelligence for Fraud Detection 

AI is a game-changer in fraud detection. Incorporating AI tools on top of biometric authentication can help to maximize the user experience and only raise alerts for specific risk levels. For instance, instead of relying on static thresholds, use risk data to set fraud transaction monitoring levels that make sense for your specific context. This helps catch suspicious transactions without setting off unnecessary alarms for normal activity. The combination helps to reduce the time wasted on false positives and ensures your team can respond swiftly to genuine issues.

Adopt a Risk-Based Approach: Customize Your Strategy to Fit the Situation 

Tailor your authentication and fraud prevention efforts to:

• Different payment flows
• Security measures
• Customer profiles

A risk-based approach ensures that resources are allocated and controls are applied where they are most needed, enhancing overall effectiveness.

Related Reading

• Fraud Systems For Banks
• Fraud And Authentication Management
• Identity Verification For Banking
• OTP Fraud
• Multi Factor Authentication Banking

Book a Free Demo to Learn More About Our Fraud Prevention Software

At Anonybit, we help companies prevent data breaches and account takeover fraud with our decentralized biometrics technology. With our decentralized biometrics framework, companies can enable passwordless login, wire verification, step-up authentication, help desk authentication, and more. 

Comprehensive Security Solutions for Companies

We aim to protect companies from data breaches, account takeovers and synthetic identity on the rise, privacy regulations, and digital transformation. To achieve this goal, we offer security solutions that cover the user lifecycle such as:

• 1:N deduplication, synthetic and blocklist checks upon account origination
• Passwordless login
• Step up authentication
• Account recovery
• Secure storage of biometrics and other PII data

Balancing Privacy and Security with Anonybit’s Integrated Identity Management Platform

Anonybit eliminates the tradeoffs between privacy and security. Prevent data breaches, reduce account takeover fraud, and enhance the user experience across the enterprise using Anonybit. Book a free demo today to learn more about our integrated identity management platform.