E-commerce sales are still surge of the pandemic – but where there are payments, there are payment frauds.
Where payment fraud used to involve riskier crimes like stealing a physical card or breaking into physical premises, cybercriminals can now take your account details from a computer on the other side of the world. According to a report by cybersecurity firm Gemini, 115m Details of stolen debit and credit cards were published on the dark web in 2020 – and that’s not the only way people’s money is at risk.
New Data from UK Finance found there was “a fraud epidemic” in the UK and losses from unauthorized payments, remote banking and check fraud amounted to more than £730m sterling in 2021.
But there are solutions, ranging from stricter security measures to identify that customers are who they say they are open bank, a potential solution for several key types of payment fraud.
What are the types of payment fraud and what can be done to prevent it?
1. Card-not-present fraud is the most common type of card fraud
Some payment frauds use stolen bank details, for example card details. The most common type of card fraud in the UK is cardless fraud, where fraudsters purchase products or services online using stolen card details.
“By far, the biggest problem in the UK when it comes to fraud remains unauthorized card transactions,” Jack Wilson, head of public policy at TrueLayer, told Sifted. “This is the type of fraud everyone will know when your card details are stolen, cloned or otherwise intercepted and then those details are used to make online payments without your knowledge. ”
Although card-not-present fraud initially targets the consumer, the charges are often passed on to the merchant when the customer realizes what has happened and requests a refund. In 2021, distance shopping fraud was valued at £412.5m — and caused immeasurable stress to customers.
“By far the biggest fraud problem in the UK remains unauthorized card transactions”
“Whenever there is an unauthorized transaction, the customer worries about that transaction and it causes them distress,” Wilson explains. “Even if they may eventually get a refund from their bank for an unauthorized transaction, it’s still something they have to deal with.”
As the cost of living rises, it couldn’t be more imperative that people are protected from having their money stolen. Regulators are exploring different ways to achieve this.
“It’s a big problem that’s being tackled with a big solution,” Wilson said. “Regulators have introduced what’s called Strong Customer Authentication (SCA), which means that when you pay by card, you’ll often be asked to step up security, by doing something like adding a password to single use in a customer journey or using a fingerprint.
However, the difficulties in rolling out these new rules have cost merchants £130 million since they came into force, according to a major card issuer. Retailers also have reported problems with UX and conversion.
In addition to SCA, the card industry is trying to combat card fraud through a range of other measures. Whereas £966.6 million frauds were reportedly stopped by banks and card companies, UK card losses still totaled £524.5 million in 2021.
2. It’s estimated that a third of chargebacks are fraudulent
Another type of fraud is confusingly called friendly fraud – or fake chargebacks – but it’s not very friendly, it’s where fraudsters manipulate a system put in place for security.
“In card payments, you get that extra protection when you use a card to buy something online, which is you can complain to the merchant if you don’t like what you got. , if there’s something wrong with your product or the service you received,” Wilson says. “If the merchant doesn’t fix that for you and you still think the merchant is wrong, then you can report to your card-issuing bank, this is called a chargeback.”
A study by YouGov and TrueLayer found that chargebacks cost merchants (with an average transaction value over £500) an average of £235,000. It is estimated for every pound sterling taken by someone committing a fraud, dealers lose £1.70.
“At the end of the day, the chargeback regime is really punitive for merchants, not just friendly fraud, where they’ve been charged when it’s not fair for them to be charged,” Wilson says. “But a chargeback in and of itself incurs costs that the card issuer imposes on the merchant.”
3. Account takeover fraud is on the rise
Another type of fraud occurs when fraudsters take over your account using phishing techniques or bots to trick you into giving your username and password before they change the details and block.
According to Experian, account takeover fraud has increased by more than a third during the last years.
Other deceptions include authorized push payment fraud where people are tricked into making a bank transfer, often by someone posing as an existing supplier.
“People have transferred their life savings to accounts they think are safe and have in fact transferred all that money to fraudsters.
“There is also a problem in the UK with bank transfers, the type of payment you make when you go to your online bank and enter the details manually,” says Wilson. “This type of payment is susceptible to what’s called the Authorized Payment Scam, which is APP for short.”
UK Finance has found UK banks and their lost customers £583.2 million to APP fraud in 2021, which continues to increase from the £479m lost in 2020.
“People have moved their life savings into accounts they think are safe and have actually transferred all that money to fraudsters,” Wilson says. “The inherent weakness of wire transfer scams is that the consumer manually enters their details, sort code and account number, and until recently there was no way to validate that the account belongs to the person you intend to pay.”
4. Over 6 million customers now use open banking
But all is not lost, there are several ways to fight e-commerce fraud around your bank details. One is confirmation of the beneficiary, where a bank will verify the name, sort code and account number of your intended beneficiary and notify you if they think it is a scam. Another is open banking.
“A stronger guarantee is open banking”
“A stronger guarantee is open bank because when you pay someone with open bank it uses the rails of an instant bank transfer, so the same rails that manual bank transfers use, but instead the consumer enter the name of the account holder, the account details, it will be the open banking provider who will enter these details.”
Not only does open banking pre-fill payment instructions, reducing the risk of human error and tricking customers into sending money to a fraudster, but open banking providers also integrate and demonstrate due diligence with traders.
The Open Banking Implementation Entity (OBIE) recently announcement that the UK has reached 6 million users and 5 million monthly open bank payments. The increase in successful payments is attributed in part to the inherent security of open banking.
“Open banking payments do not involve the sharing of any type of data that can be used to commit fraud,” Wilson says. “We are on a mission to encourage as many businesses and merchants as possible to embrace open banking payments, one of the reasons being the inherent security of this type of payment.”
Want to learn more about how open banking can prevent the UK’s £1 billion fraud problem? Read this and watch our Myths video here:
TrueLayer, global open banking platform for payments and data