The Growing Challenge of APP Frauds and How Banks Can Stop It?

These days, fraudsters have several things working in their favor. Funds can move thanks to instant payment networks, and frauds are growing more plausible with?digital banking solutions?and the widespread use of?mobile wallets. Additionally, victims are frequently unwilling to speak about the scam. It makes sense why Authorized Push Payment frauds are increasing.

According to the most recent fraud statistics brought to light by UK Finance, losses from APP fraud increased by?39%?in 2021 compared to the same period in 2020. Over ￡1.3 billion was lost to fraud and scams in 2021, with illegal fraud being to ￡730.4 million and APP fraud amounting to ￡583.2 million, with impersonation scams accounting for roughly 40% of APP losses.

What is APP Fraud?

Although APP fraud is a relatively simple hoax, it is very powerful because of how it is executed. Fraudsters access a person's information, generally through a compromised email account, and then pretend to be a company that the owner of the compromised account has been doing business with. The fraudster will then request a payment be made to a bank account that is purportedly held by the actual business they are impersonating. If anyone receives such a request, it could seem like a red flag, but fraudsters are clever enough to wait until the best opportunity to strike before acting.

The typical method used by scammers is relatively low-tech. They mostly rely on social engineering, phishing emails, and other easy deceptions. Here are a few instances of these various techniques, all of which result in APP fraud:

Using Social Engineering

Falsely identifying themselves as one of the company's vendors, the fraudster calls the accounts payable department and persuades a staff member to modify the push payment account information. The fraudster ends up with the money the next time the business tries to pay that vendor.

Phishing

The scammer produces an email that appears to be an invoice from the target's preferred online retailer. The customer doesn't sift through it, misses the telltale signals that it isn't a legitimate invoice, and transfers money to the fraudster.

Investment Fraud

Investment fraud involves defrauding people into immediately investing their money in stocks, gold, cryptocurrency, or real estate, among other things. Using high-pressure techniques, scammers promise the victim a significant return on investment and that the agreement won't endure.

Bank Account Hijack

The scammer purchases a list of stolen usernames and passwords from the dark web and tests them on several mobile banking apps. The scammer transfers a sizable sum of money to their account after locating an unfortunate victim who consistently uses the same password on all websites.

The Fight Against Authorized Push Payment Fraud: What's Being Done?

Strong passwords, vigilant account monitoring, and the knowledge of the social engineering techniques fraudsters use are the most potent weapons against APP frauds. Push payments can be high-value targets for fraudsters. Therefore, merchants should take extra precautions to verify account information and regularly review it.

Issuers can utilize screening technologies that use machine learning and artificial intelligence to detect fraudulent transactions and request additional verification from the customer before moving through with the transaction. These methods are similar to those which are used to detect credit card fraud.

The Contingent Reimbursement Model Code, developed by the Lending Standards Board in the UK, aims to maintain consumer confidence in push payment systems by setting up a fund that can be used to compensate victims of APP fraud. Although participation in the code is entirely voluntary, several UK issuers have agreed to participate.

How Are Banks Combatting APP Frauds?

Secure Customer Engagement

The first step is to comprehend how customers typically interact with their banks. This requires establishing a " normal " baseline to identify suspicious transactions and then examining consumers' typical engagements across all accessible channels. Additionally, banks can explore the locations where consumers desire to send money and keep track of suspicious recipients or receiving banks. One such instance is to confirm the beneficiary's name. The more information banks gather, the more precisely they can determine the fraud risk. By applying machine learning, banks may use these vast data sets to develop detailed profiles and detect irregularities in real-time.

Inbound Monitoring

A vital tool for AML and compliance teams, monitoring the money flowing into the accounts can also effectively battle against APP fraud. The ability of fraudsters to act quickly and reap from their unjustified earnings will be curtailed by identifying accounts that have characteristics resembling those of mule accounts (such as multiple payments coming in followed by significant payments out in quick succession).

Customer Behavior

Another red flag is a noticeable difference in the customer's behavior. Digital banking sessions significantly longer than usual or where a consumer uses a web portal rather than their usual mobile app are examples of deviations. This is an indication that a fraudster is duping a victim.

Spread Awareness

In the end, it doesn't help to point the finger at the consumer for not comprehending the risk; yet communication can go far further than only issuing general cautions on the payments screen.

Customers can be questioned about the transactions they want to complete in real-time, with information related to that transaction, and through the channel of their choice. They can reconsider their purchase or conduct additional research by being given a "cooling off" time during which the payment is kept, receiving helpful advice, and being prompted with pertinent questions. It is possible to convince a worried parent seeking to transfer money to their son who they believe is in need to call them instead of relying solely on a WhatsApp chat to communicate about the issue.

End The Fraud Stigma With Panamax's Secure Digital Payments Experience

APP fraud is not a minor concern from a random individual. Rather, organized crime syndicates are employing extensive and increasingly sophisticated APP fraud strategies. In other words, scammers will simply become more active in their efforts. With the onus moving on banks to safeguard customers, the most effective defense is a combination of data and customer education.

MobiFin Elite is a comprehensive and secure?digital financial platform?that provides fintech solutions to a variety of user groups worldwide. The platform assists MNOs, MVNOs, mobile wallet operators, banks, financial institutions, and aggregators in developing their own personalized digital ecosystem. Its unique cutting-edge features, combined with its capacity to roll out mobile wallet services?across different transaction channels, enable it to accommodate a wide range of business use cases.

This article is originally published on?Panamax Inc.