Amid coronavirus-driven lockdowns and social distancing, proliferating mobile apps and online channels have proven vital lifelines. US mobile banking grew 50% in the first half of 2020, new registrations spiking 200% in April alone. Burgeoning online shopping and contactless payments propelled record e-commerce sales. This momentous digital shift has provided salvation in a time of crisis – but, as a new fraud report by Javelin Strategy & Research and SAS examines, it is also fuelling a multibillion-pound fraud surge worldwide.
“We have seen an increase of almost 35% in fraud attempts, which indicates that criminals are more active in breaking through digital channels, taking advantage that fraud strategies leverage normal behaviour. Nothing is normal from a transaction perspective in 2020,” said one senior fraud management executive at a global card processor who contributed to the study.
Adapting mitigation efforts for a new normal
The report, The Escalation of Digital Fraud: Impacts of the Coronavirus on Global Fraud Challenges, is based on independent interviews of payment and security executives from 20 countries in five regions – North America, South America, Europe, Africa and Asia Pacific. Javelin conducted the interviews between January and September 2020. The research helped capture the pre-pandemic landscape through the various stages of pandemic shutdowns and early recovery efforts.
Experts from Javelin and SAS will explore the study during a live webinar, Understanding Your Customer in a Digitised Landscape, on Oct. 21 at 16:00 BST, and later available on demand. They’ll examine how COVID-19 has exacerbated payments fraud and other digital schemes – and how financial institutions can optimally respond.
“The rise in fraud has been felt by many countries across the globe as they have continued adopting digital payments technologies,” said Sundeep Tengur, Senior Business Solutions Manager at SAS. “Keeping ahead of fraudsters requires organisations to take advantage of all the digital data at their disposal and adopt a hybrid, multi-layered approach to decision-making. Advanced analytics provides newfound agility and will help ensure businesses come out of this pandemic stronger and more resilient.”
Among the study’s key findings and recommendations:
- Digital payments present an escalating global risk. Though prevalent payment technologies vary by region, fraud trends have significant commonalities across geographies. This indicates that criminals coordinate and share information more openly than financial institutions, giving them a significant advantage in thwarting fraud controls. Cross-border fraud is increasingly common.
- Digital fraud is increasing in frequency and sophistication. Fraudsters and criminal networks’ arsenal of tricks is becoming as advanced as the technologies used to detect their activities. Social engineering, identity schemes and the breadth of digital payment methods are shifting the odds in the bad guys’ favour. Organisations should be aware that new payment mechanisms are especially targeted due to ineffective risk mitigation controls at launch.
- Financial services organisations need layered technology and analytic capabilities to identify overlapping threats in real time. The complexity of criminals’ attack vectors demands a layered approach to preventing and detecting fraud, while also having a means to orchestrate strategies and investigation activities. Automated actions and predictive case management powered by artificial intelligence and machine learning can help reduce reliance on staff to monitor fraud activity and increase efficiency.
- Data is critical. Using data for real-time analytics and automated actions will be crucial to thriving in this new digital normal. Capabilities will vary based on technological maturity, but organisations at all stages have a common need for as much real-time data as possible to make effective decisions. Importantly, deploying cloud infrastructure for fraud management systems boosts data ingestion capabilities.
Managing risk during payment transformation
The transformation of payments – both in existing and new methods – requires financial institutions to understand all payment entry points. Protecting those entry points from digital fraud is considerably more complicated.
“The move from omnichannel to multichannel, combined with the sophisticated nature of tools criminals have available to them, provides a road map for financial institutions to build their near- and longer-term fraud mitigation strategies,” said Krista Tedder, Head of Payments at Javelin Strategy & Research. “Without technology and operational improvements, financial institutions face significant reputational damage and financial losses.
“While some improvements can be deployed quickly for more immediate relief, other advances will take months or years to develop,” continued Tedder. “The critical first steps are to start processing all data streams in real time and to combine identity management and transaction monitoring to not only identity fraud that has occurred, but to stop it even before it occurs. The financial services industry as a whole needs to better utilise available artificial intelligence and machine learning technologies.”
Since the start of the pandemic, financial institutions have tirelessly innovated to meet customers’ need for flexibility and immediacy. Now they must redefine how they protect themselves and their customers from the associated risks. Learn more about fraud analytics from SAS.