Payments Fraud: Taking Advantage of the Human in Us

Reed Luhtanen, Executive Director, FPC

We are our own worst enemy.

It’s been said of humans many times before, in different contexts, but one in which it has grown in applicability is in payments, and in particular payments fraud.

According to the latest research, payments fraud as a result of human exploitation, lost/stolen credentials or scams that coerce consumers into divulging or exposing personal information, are on the rise. The Javelin Strategy and Research 2022 Identity Fraud Study states that fraud via lost/stolen credentials alone increased nearly 80% over 2020. When combined with fraud due to scams as well, losses totaled $52 billion and affected 42 million U.S. adults.

While those numbers are staggering, they are not surprising. In fact, the Faster Payments Council’s recently released 2021 Faster Payments Fraud Survey and Report reveals similar findings. Based on a survey of financial institutions, businesses, consumer-based organizations, technology providers and others, the report concluded that half of the respondents experienced faster payments fraud, with 45% reporting account takeover/social engineering fraud where fraudsters predominantly gain access to account credentials by tricking consumers into revealing them. And another 27% fell victim to fraud through scams. Combined, more than 70% of responding organizations experienced fraud as a result of the manipulation of consumers. “Humans continue to be a weak point in the payments ecosystem,” the report concludes.

What’s unsettling is that this type of fraud not only impacts the payments system, but it can have real consequences for consumers as well. From having to create new credentials to even financial loss, the fallout from this type of fraud can be significant.

That’s why it is important that we continue to raise awareness about fraud and the types of fraud that consumers can fall victim to. The 2021 Faster Patments Fraud Survey and Report serves as a key resource to do just that. And educational tools developed by the FPC, the FTC, the Federal Reserve and other organizations aid in ensuring that consumers have the latest information and a means to report fraudulent activity. In addition, as an industry, we can leverage initiatives like Consumer Protection Week, which took place March 6-12 this year, to help arm consumers with information to protect and safeguard their financial well-being.

But the onus isn’t just on consumers. The institutions that help facilitate payments understand they have a responsibility as well to help combat fraud. The 2021 Faster Payments Fraud Survey and Report demonstrates that industry participants have measures in place and are enhancing them to address faster payments fraud and more sophisticated schemes and scams. According to the report, about half of the respondents reported that they adopted new technology controls for faster payments to complement those used for traditional payment methods. Of those that implemented new controls, 50% are increasing use of real-time decisioning and alerting, 40% are leveraging artificial intelligence and machine learning, and 30% are enhancing authentication techniques. In addition, respondents showed interest in applying techniques utilized by other markets, such as a registry of blocked or high-risk recipients, an industry-wide fraud mitigation solution and money mule detection product, and consumer appeals process for fraud victims, among others.

As consumers, we can be susceptible to fraud. Afterall, we are human. But we don’t have to be our own worst enemy. We can learn. We can grow. We can overcome. With continued education, resources, and the enhanced and innovative mitigation efforts utilized by payments ecosystem stakeholders, we can reduce payments fraud that takes advantage of the human in us.

To learn more about the 2021 Faster Payments Fraud Survey and Report, download it here. For consumer-focused resources on fraud prevention, visit the FTC’s Consumer Advice site and/or the Federal Reserve’s Consumer Help site.

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