Global Fraud Risks and Trends: Insights from Merchant Risk Council experts

Merchant Risk Council (MRC) is a global membership organisation that brings together all payments ecosystem participants to tackle fraud and payments issues. Its expert members have a view into the challenges of issuers, acquirers, merchants, Payment Service Providers (PSPs) and payment networks.?

I sit on the European advisory board at MRC and have the privilege of hearing first-hand the insights of these experts and I thought I would share that privilege with the wider community. Below I've collected these gifts of knowledge from my board colleagues.??

Kay Sebastian Dallmann - Riverty?

“The share of consumers expressing worry about their financial situation is increasing. Throughout the last year we are experiencing an interference of the corona situation and the war in Ukraine. Both events will continue to affect consumers and merchants alike in the new year. The situation creates an ecosystem in which we need to be aware of two themes: watch out for criminal behavior e.g. fraudsters trying to capture identities with “fake” offers (e.g. an offer for new energy supply at low costs) and secondly a mindful and more tailored approach on payments and collection for consumers. Being in a position to stretch payment periods and transparent communication on the payment status will become very important to give consumer some piece of mind. Having this orchestration capabilities on the payments and collection side will ultimately protect the consumer whilst helping merchants in protecting a differentiated brand perception.”?

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Amanda Mickleburgh - ACI?

Contextualised commerce - buying whilst doing something is increasingly prevalent and captures a share-of-wallet before the consumer even consciously decides they're 'going shopping' It could be the dress/shoes/bag that you've just seen being worn by the actor or presenter on a movie or programme on TV, buying the items being worn/used or profiled on social media, buying household goods via Alexa, ordering a new coffee via the QR code on a poster to pick up at the local coffee house down the road, however this 'marketeers dream' of an opportunity needs supporting by the payment experience.....?

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..... Enter Real-time Payments - to bolster the notion of contextualised commerce as well as e-commerce, meeting the demands of the consumer and their preferred way to shop and pay is vital. Great for merchants, due to its immediacy of settled funds and lower cost, but great for the consumer too as cleared funds can be received faster e.g.? faster immediate refunds, earned loyalty payment, credit provision etc ...however this also means fraud and risk needs to be at the forefront......?

..... Growth in Digital Identity - proving that the consumer is who they say they are. With Account Takeover and synthetic identities being increasingly prevalent (in part driven by the astronomical rise in APP fraud) Utilising a multi-layered approach to fraud prevention is essential,? BUT so is proving a consumers digital identity, to ensure revenue is optimised but friction & false positives are minimised. Underpinned by AI and aligned to the growth in immediate payments, digital identity will become will be ever more important. Aligned to this is the need to harmonise connectivity for merchants, so they can quickly and easily adapt to the rapid demands in payment types/channels/geos and risk management......?

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Enter.....Payment and Fraud orchestration - the ability to connect once via a single API and then curate merchants' payment journeys to many acquirers; alternative payments? and third party fraud providers and utilise the multiple data signals in a consolidated over-arching payment & fraud strategy.? Orchestration and the ability to DO something with the vast array of data signals is key to meeting the demand of fast, frictionless but secure commerce and ensuring revenue is optimised but costs and fraud are kept under control.??

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Lastly,??

Greater Regulation - will likely slow BNPL... but not the demand for it..... as the economic challenges continue to restrict consumers' ability to gain credit, coupled with the continued increase in repayment defaults, as we go into 2023 is likely to drive further regulatory considerations.?

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Ben Duffy - JPMorgan?

Globally, the way we shop, work, travel, socialize and access services - among many other facets of daily life - has been overturned during the past three years.??

During 2022 this has resulted in a reshaping of the payments industry so after 2 years of survival mode businesses from every industry were looking to thrive - and looking towards sustainable growth with payments rapidly emerging as a critical enabler of that long-term growth.?

To support this the acceleration of digital projects is now a necessity, not a choice, and this will continue into 2023 as consumers and businesses alike have become increasingly aware of the conveniences and opportunities that digital services can provide.?

Post pandemic, and especially in 2022, we have seen the rise of subscriptions, where an increasing number of companies are migrating into either direct-to-consumer or subscription-based models, with payments becoming not only critical levers to enable those pivots but also key to helping ensure operational efficiency once the pivots are made. The question now being, ‘How do I facilitate a better experience for my customers – without sacrificing the efficiency of my back office, when we now have many more transactions than before going through our system?'?

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We have also seen the continued challenges around SCA as the UK market has gone fully live this year and fully expect these to extend into 2023 and beyond as the ecosystem develops.??

2023 is also likely to be the year when Open Banking gathers further momentum, over and above 2022, along with the more steady growth for BNPL or Card instalment solutions. With the move to mobile we also expect more mobile-optimised customer journeys and the standard inclusion of digital wallets as a payment option.???

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Rising risk in instant and open payments?

As a board member, I've been increasingly hearing members of the MRC community around the world discussing challenges in preventing fraud in eCommerce and physical Point of Sale environments when it is conducted using new payment types such as instant payments, or new payment instruments such as QR codes.??

With the lines between physical and digital payments blurring and the "C" in CP & CNP standing now for Consumer instead of Card it is imperative that operationally, organisations are aligned across their whole business. With distribution, customer contact, fraud teams historically being disparate entities, it is more important than ever that they break down these silo's and work together to understand consumer behaviour so as to better identify those unscrupulous characters looking to take advantage of; unfamiliarity with payment types, processes, outside influences such as the cost of living crisis, couriers being hit by cyber-attacks, or supply chain concerns.?

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Collaborating to stop fraud in commerce?

There is (rightly) a lot of focus on scam prevention in the account to account payments space right now, but this welcome spotlight on global fraud prevention should also illuminate the continued challenges of preventing fraud in purchasing environments.?

What is interesting is that for both commerce and interbank transfers, there is a need for greater collaboration to tackle fraud effectively. We must consider the whole payments ecosystem as we work to outsmart the criminals.??