Merchants must remain vigilant against fraud and ensure they have the necessary tools to combat it. Failure to do so may render their fraud detection efforts ineffective. This article explores the payment fraud landscape in 2023, and provides you with the latest updates on mitigating potential fraud risks.
Due to the rapid changes in technology, fraudsters are able to access more sophisticated methods of committing fraud. 2023 will likely see lower barriers to entry and a greater incentive for perpetrators to commit fraud. Merchants will be particularly sensitive to friction, i.e., any action that disrupts the user experience or may increase data collection but decreases sales conversion rates. To combat this problem, anti-fraud machine learning and AI systems are set to skyrocket as more efficient means of identifying and blocking fraudulent activities.
The implementation of strong customer authentication (SCA) has aided in combating online fraud. According to Visa data, the use of EMV 3D Secure has tripled since the beginning of 2021, resulting in a 28% decrease in card-not-present fraud. However, certain online transactions are exempt from SCA verification, such as those outside the EU, fixed amount subscriptions, merchant-initiated transactions, and transactions below €30. Merchants in eCommerce outside the EU, as well as those with high volumes of these transactions, may encounter more instances of fraud during 2023.
The rise in account takeover (ATO) fraud is attributed to the abundance of data available on the black market, obtained through the use of malware and bots from various sources and channels. The number of ATO fraud attacks increased by 131% in the second half of 2022 compared to the first half, indicating that as fraud prevention measures such as SCA are implemented in one area, it shifts to another.
Although fraud growth rates have slowed down, protecting transactions is crucial in 2023 due to economic turbulence, changing consumer behavior, and inefficient merchant systems. This protection is necessary not only to safeguard merchant revenues but also to reassure customers about the safety of their data and build trust. Customer trust is invaluable, and once lost, it's challenging to regain. The significance of preventing fraud is evident from the fact that 43% of businesses are worried about how eCommerce fraud affects their brand reputation, up from 26% in 2020.
Advancements in technology, including AI, are enabling fraudsters to increase their level of sophistication.
The emergence of Artificial Intelligence (AI) has revolutionized the way we interact with technology. More recently, AI technology has been used by fraudsters to become even more sophisticated in their schemes. AI-driven chatbots such as ChatGPT, released in 2020 and updated to version 3.5 on March 15th 2022, can generate human-like text conversations and dialogues – this is especially useful when attempting to gather sensitive private information for nefarious purposes. In the same vain, image generation models like MidJourney are allowing fraudsters to create realistic deepfakes which represent a real person in specific contexts.
The increase in fraud can be attributed to the lower barriers to entry and the current economic downturn.
It is more important than ever to be aware of the heightened risk of fraud as a result of economic hardship and lower barriers to entry leading to an increase in viable opportunities for criminals. Fraud as a Service has paved the way for sophisticated tools and tutorials, which can easily be acquired offering fraudsters with little or no experience the means to get money out of the system. According to SEON data there was 10.72% increase in declined transactions from October to December 2022 alone! If suspicious activity is also taken into account then this figure jumps up to 12.90%, indicating an alarming rate at which fraudulent activities are becoming a major problem across industries such us iGaming and neobanks. For example back in 2022 when there was a huge wave of tech layoffs, these experienced individuals were able to use their skillsets to engage in fraud on a level unimaginable before – demonstrative by the fact that the iGaming sector saw 25.3% growth in the amount of suspicious activities and digital banking/neobanks 8.6%.
A new approach for emerging trends
Criminals are constantly finding new and sophisticated ways to commit payment fraud, so it is essential that businesses stay ahead of trends.
Growing Use of AI & Machine Learning Technology for Detection & Prevention Measures
AI and machine learning technology are quickly becoming an integral part of the fraud prevention landscape. AI-powered solutions can help detect fraudulent activity by analyzing large datasets to identify patterns and anomalies that would otherwise go unnoticed. These solutions can also provide automated real-time alerts so businesses can respond quickly to suspicious transactions. Additionally, machine learning algorithms can be used to create dynamic risk scoring systems which assess the risk associated with each transaction and adjust accordingly. By leveraging AI and machine learning technology, businesses can gain a proactive advantage in their fight against payment fraud in 2023.
Increased Focus on Crypto Exchanges as Targets for Attackers
Cryptocurrency exchanges are becoming an increasingly common target for attackers who are looking to steal digital assets. In 2023, the focus on crypto exchanges is likely to increase as these platforms become more popular and their user base continues to grow. As such, it is essential for crypto exchanges to take steps to protect themselves and their users from fraudsters. This can include implementing strong authentication measures, deploying advanced detection technologies, and conducting regular security audits. Additionally, crypto exchange operators should prioritize educating their users about potential risks in order to reduce the chances of fraud occurring in the first place. With effective prevention and protection measures in place, crypto exchanges can go a long way towards ensuring the security of their customers' digital assets in 2023.
Potential Increase in Fraud Due to Economic Downturn
The economic downturn of 2023 is likely to result in a rise in payment fraud. As businesses and individuals struggle financially, the temptation to commit payment fraud may become too great for some, thus resulting in an increase in fraudulent activity. To mitigate this risk, organizations should focus on implementing effective fraud prevention measures such as setting up dual authentication systems, utilizing advanced analytics technologies, and establishing strong anti-fraud policies. Furthermore, companies should conduct regular internal reviews of their transaction histories in order to identify any potential fraudulent behavior. Organizations should also train their staff on how to recognize and respond to suspicious activity.
Renewed Focus on Customer Accounts & the Customer Journey
Small merchants are using ecommerce to expand globally. They need platforms that can accept alternative payment methods used in different parts of the world. However, these platforms must also guard against fraud attempts from new sources, markets, or channels. Merchants face a dilemma. They want to reduce friction in transactions to increase checkout conversion rates, but authentication is necessary to protect consumers' data. Finding the right balance is difficult. Merchants can avoid frictions like false declines, failed log-ins, using expired card data, and manual checks by reviewing how they deploy anti-fraud measures.
Deeper Understanding of the Threat Landscape with Advanced Analytics
Advanced analytics technologies are becoming increasingly important for businesses in 2023 as the threat landscape continues to evolve. Advanced analytics can help companies gain a more comprehensive understanding of their risk environment by analyzing large volumes of data and uncovering patterns that can indicate malicious activity. In addition, advanced analytics can also be used to detect subtle changes in customer behavior, such as unusually high spending or sudden account changes, which can signal fraud. By leveraging advanced analytics technologies, organizations can gain a deeper understanding of their threat landscape and identify potential threats before they cause any harm. This will help them protect their customers and their business from the ever-changing fraud landscape in 2023.
Combating fraud with intelligent and agile tools
During times of disruption, such as the pandemic, fraudsters often take advantage of B2B and B2C payment flows by utilizing methods like phishing and bots. They may also create counterfeit websites that mimic legitimate banking or merchant sites in order gather sensitive personal or payment information. As AI innovations continue to develop, merchants should carefully assess and improve their fraud protection strategies to increase the strength of their defenses.
In order to effectively combat fraud, merchants must utilize intelligent and agile tools that can anticipate and prevent attacks. With the integration of payment platforms that can gather data from multiple sources, it has become increasingly easier to proactively stop fraud in its tracks through real-time account monitoring and instant blocks. These tools can also aid in quickly identifying legitimate customers and accurately pinpointing fraudulent activity.
When onboarding sub-merchants and new customers, it is recommended that merchants utilize comprehensive KYB and KYC checks. Additionally, merchants should seek out payment service providers that are fully PCI-DSS certified, which offers the strongest level of payment data encryption and can serve as a trustmark to reassure consumers of secure transactions.
Merchants can benefit from integrated platforms that offer fraud protection and accept various payment methods. These platforms are provided by experts in securing online transactions, which can alleviate the burden of investigating, monitoring, and combating fraud on their own.
With more than 35 years experience, Cryptomathic is a trusted provider of payments security solutions to the financial services sector. Read more about our card payments and security solutions or contact us to discuss your requirements.