Eduardo Castro, Managing Director of ID & Fraud and Business Information at Experian
Amidst rising cyber-attacks, the rapid evolution of artificial intelligence (AI) technologies, and increasingly sophisticated consumer scams, the pressure on fraud teams is relentless.
Within this increasingly complex landscape that is constantly shifting and evolving, businesses face daily challenges to stay ahead of sophisticated fraud tactics while ensuring consumer trust and financial security.
To meet this growing challenge, financial companies must be equipped with the best knowledge, technologies, and resources to identify and combat fraud effectively. What should financial institutions be looking out for as they navigate fraud prevention in 2024, amid these evolving threats?
Rising consumer demand and business response
As the threat landscape becomes more complex, consumer expectations for security and seamless experiences have intensified. New insights from Experian show a 9.3% rise in fraud volumes in 2023, with third-party fraud being the most common. Moreover, 57% of businesses report that their fraud losses have increased in recent years.
In response, 70% of businesses anticipate an increase in their fraud management budgets in 2024. This growth is driven partly by the ongoing pressure from consumers who demand robust protection and a seamless digital journey.
Consumer behaviour is increasingly digital. The use of mobile wallets surged from 54% to 77%, retail apps usage climbed to 76% from 36%, and more than 80% of shoppers now use peer-to-peer payment apps.
Despite this digital adoption, consumers remain concerned about online fraud. Identity theft, phishing scams, and stolen credit card information are top concerns, with 66% of respondents worried about identity theft compared to 58% in 2022.
The role of AI in fraud prevention
AI technologies are pivotal in modern fraud prevention strategies. Businesses are increasingly investing in AI-powered protection measures. However, the uptake of machine learning and generative AI tools for fraud and financial crime protection remains modest. Investments are expected to ramp up significantly in 2024 as businesses recognise the need to stay ahead of fraudsters employing advanced AI techniques.
One notable trend is the growing reliance on physical and behavioural biometrics. Physical biometrics, such as facial recognition and fingerprint scans, are preferred by 84% of businesses to enhance security.
However, behavioural biometrics, which analyses patterns like typing speed and touch pressure, are underutilised despite their effectiveness. Only 25% of businesses currently invest in this technology, even though 79% express high confidence in its potential. It is easy to see why businesses understand its potential as by integrating behavioural biometrics, it could significantly reduce false positives and improve the accuracy of fraud detection systems. This is why making it is imperative to invest now to future-proof security measures.
Money mules and money laundering
Money muling and money laundering remain significant challenges. Money mules, individuals who transfer illegally obtained money on behalf of criminals, are critical nodes in financial crime networks. Our data shows that 42% of first-party current account fraud involves money muling. This activity is particularly concerning as it often involves younger adults with poor credit scores and low incomes, who may be unaware of the legal consequences and long-term impact on their financial future.
Money laundering losses are also on the rise. Almost two in three retail banks and 52% of businesses have seen increased money laundering losses. More than 53% of businesses plan to increase their Anti-Money Laundering (AML) budgets in 2024. Regulatory changes, such as the Payment Systems Regulator’s new rules on reimbursing victims of Authorised Push Payment (APP) scams, are driving these investments and driving the stronger anti-fraud measures and enhanced protections.
The future of fraud protection
The fight against fraud requires a unified approach. Integrating fraud and AML teams can enhance efficiency and effectiveness. Sharing data and coordinating responses across different fraud prevention and AML units can significantly improve an organisation’s ability to tackle financial crime. Effective fraud prevention also involves strengthening partnerships with industry stakeholders to address shared challenges.
Consumer education is crucial. Raising awareness about fraud types, can empower consumers to protect themselves. Businesses should also focus on maintaining a balance between security and user experience. Implementing frictionless security measures, such as multi-factor authentication and continuous user behaviour monitoring, can help achieve this balance.
As fraud tactics evolve, businesses must adapt their strategies. Investing in advanced technologies, educating consumers, and fostering collaboration among fraud prevention units are key to navigating the ever-changing landscape of financial crime. The only constant may be change, but with a proactive approach and ongoing vigilance, businesses can effectively safeguard against evolving threats and mitigate the impact of fraud on their operations.
