AUSTIN, Texas–The new “Global Banking Fraud Index 2023” offers some insights into the biggest banking fraud trends of the past 12 months, according to its publisher.
SEON,which provides an online fraud and financial crime prevention platform, said the analysis offers information on specific methods, locations and actions being deployed against financial institutions, as well as the overall impact that fraud is having on the banking sector.
“…The number of monthly fraud attacks on banks earning more than $10 million in annual revenue has shown a consistent increase year-on-year,” stated SEON in releasing its findings. “Likewise, the report highlights that 84% of companies with revenues of $1 billion or more have had more than 100 payment accounts targeted by fraud in the past year. Despite this, only 65% of companies experienced fraud in 2023, which is the lowest rate since 2014.”
Banking Fraud Trends 2023
The company noted the “sea of changes the banking world is experiencing in the shift towards digitization” is reflected in fraud patterns, but said analog attacks also remain prevalent. It cited JPMorgan’s annual payments fraud survey, which showed that, on the digital side, card-related fraud types rose by an alarming 10% over 2022, with businesses overall showing lower volumes of digital fraud.
“However, those attacks ultimately got away with more money,” SEON stated.
Analog Threats
“Meanwhile, on the analog side, the report shows that the volume of business email-related attacks that targeted poor awareness training and process management was on an obvious rise, with 71% of fintechs reporting they had a BEC breach in the past year. Also prevalent was authorized push payment (APP) fraud as a result of successful phishing scams on legit account holders.”
The Key Findings
SEON said key findings from the report show that in terms of the raw data from surveyed financial services, the most notable outliers revolve around:
- The prevalence of business email compromise as a huge security flaw
- The rise of neobanks and other digital banking platforms
- The increase in social engineering scams that lead to BEC and APP fraud
- The expense of anti-money laundering (AML) compliance and the understandably large number of institutions still on the path to meeting it
- The continuing problem of flawed account opening processes
- The unique identity validation challenges offered by Buy Now Pay Later (BNPL)
Rising Types of Fraud
“As mentioned previously, pervasive banking fraud threats that did quantifiable damage to bottom lines can be thought of in two ways: the low-tech and the high-tech,” SEON said. “In reality, successful scams often involve a mixture of the two. Notably, 2023 sees the medium-tech fraud exploits that plagued fintechs in previous years becoming more approachable for fraud teams. LexisNexis reports that, for the first time, US lenders actually saw a 1% drop in automated bot attacks. These attacks, which execute credential stuffing or rapid transactions, are becoming easier to detect as fraud technology becomes more advanced.
“The statistics suggest that companies are also finally getting around to implementing those solutions, with 45% of all US financial services reporting they had fully integrated digital fraud prevention solutions in 2022, up from 28% in 2020,” SEON continued.
Low-Tech Fraud 2023
According to SEON, as the standard for state-of-the-art fraud prevention measures goes up, fraudsters are hardly being discouraged from crime; instead, they’re looking for new channels with fewer safeguards.
“Low-tech scams – those that rely on con artistry, scams, and phishing techniques – are on the rise, and the resulting BEC and APP fraud can be damaging beyond simple revenue flow,” SEON said, noting such scams include business email compromise (BEC) and phishing.
High-Tech Fraud 2023
“While some fraudsters take to the ground level to scam away their illicit money, others choose to fly over the technology,” SEON said. “More fintechs and banks are doing a better job of not only implementing but also investing resources into better fraud detection software.
SEON’s own data found that scaled fraudsters hit a ceiling when attempting to circumvent modern fraud prevention tools. At a certain point, it is no longer cost- or time-effective for a fraudster to invest the time and energy needed to beat solutions like SEON that employ device fingerprinting and password hash scrutiny, at least at scale.
“Similarly, legacy digital security implementations like one-time passwords or two-factor authentication sent over SMS were previously seen as foolproof,” SEON continued. “Then they were just ‘good enough.’ Now, though, they’re looking positively outdated, with some independent security analysts now downgrading banks that rely on those methods which have been proven fallible in the face of highly sophisticated ploys like SIM swapping and man-in-the-middle (MitM) attacks. Fraudsters not willing to take to the streets to carry out their crimes have to find a way to get themselves over these hurdles in order to pick the best, highest-hanging fruits.”
The Unique Challenge of BNPL Fraud
According to SEON, the success of Buy Now Pay Later (BNPL) across ecommerce channels has inevitably led to the microlending model being accepted by banks for various transactions. As of July 2022, more than two-thirds of U.S. banks and credit lenders either accepted BNPL transactions or planned to within the next 18 months, the company noted.
“BNPL offers customers a unique way of democratizing financing and spending, but it comes with a unique set of challenges,” SEON said. “These challenges will surely scale in the coming years, as Apple and Mastercard are currently rolling out their own BNPL products: Apple Pay Later and Mastercard Installments.
“Compared to other regulated lenders, BNPLs and other real-time payment providers are less likely to introduce friction that would lead to even a single road bump in the customer journey to checkout,” the analysis continued “About 20% more BNPL lenders reported that they were ‘extremely focused’ on optimizing risk in the customer journey than other financial services. Accordingly, partnering banks report that common methods of fraud prevention are harder to implement, as BNPLs may be able to provide less transactional data with which to assess risk. As well, compliance strictness may be lacking, both exposing the bank to its own compliance issues and damaging the ability to assess risk when the lenders loosen risk thresholds to cut down on false positives.”
Costs of Fraud
The number of monthly fraud attacks on banks earning more than $10 million in annual revenue has shown a consistent increase year-on-year, SEON said. In 2022, all U.S. retail services, including banks, saw a 4.2% uptick in the overall cost of fraud per dollar. Fraud losses across bank payments totaled nearly $1.6 billion during that time.
For the full report, go here.
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