During times of economic uncertainty, markets tend to see a rise in fraud as changes in consumers’ circumstances lead to changing financial behaviour. For example, identity fraud in the UK increased by 21% in 2022, with 90% of fraud incidents originating online. With inflation still rising, it’s likely this trend will continue into 2023.
However, today’s consumers are also more digitally savvy than ever before and, as a consequence, they are more aware of the risks they’re exposed to. Additionally, more businesses are beginning to explore and deploy advanced authentication technologies to protect customers – and to help them protect themselves.
1. Authorised Push Payment (APP) Fraud
Authorised Push Payment (or APP) Fraud is a scam involving a fraudster tricking victims into willingly making authorised bank transfers to them. According to UK Finance*, APP fraud was up 30% in the first half of 2022 compared to the same period in 2020 (although this figure is down slightly vs. the all-time high recorded during the COVID-19 pandemic).
As the cost-of-living crisis persists, we expect to see APP fraud accelerate significantly this year: with scammers finding new ways to ‘socially engineer’ and defraud their victims with fake emails, websites and social media posts. And stressed consumers are, of course, more vulnerable with promises of easy return on their “investments” as well.
Within the APP landscape, certain types of fraud are growing especially rapidly. Losses related to romance scams, for example, are up by 31% for the first half of 2022 vs. the same period last year, while ‘purchase scams’ – where consumers are conned into paying for goods they believe to be genuine – are happening with greater frequency than ever, now accounting for 56% of all APP scams. Crypto and investment related scams are also driving further increases in APP fraud as people seek to cover some of the extended cost of living and look to use alternative income sources to settle credit being used to bridge the gap in their income.
As APP fraud is set to boom in 2023, new legislation from the UK’s Payment Systems Regulator seeks to make both paying and receiving banks responsible for related losses (on a 50/50 basis). With the risk of higher losses creeping onto banks’ balance sheets, Experian expects to see major investments in solutions that detect and prevent potentially fraudulent customers and transactions based on rich data and real-time analytics. Longer term, we expect to see more scrutiny and control for account opening – ensuring that bad actors and mules are not given accounts that can be used to commit fraud.
2. Utility Scams
Utility fraud will rise significantly in 2023
Consumers’ concerns about energy costs and supply risks are making them particularly vulnerable to ‘utilities’ scams. As a result, we expect to see a rapid increase in this kind of fraud throughout 2023 as fraudsters prey on basic human needs.
As we step into 2023 fraudsters could begin targeting consumers with fake messages about how they can save money on their bills, encouraging them to make payments or give up their Personally Identifiable Information (PII) for use in other scams. We may even see fake news about interruptions to energy supplies, encouraging consumers to contact a fraudster by phone and give their details or to make a payment to avoid supply disruption.
To mitigate the growing risk of utility fraud, organisations are ramping up their efforts to educate customers about what genuine communications look like and how they can identify attempted fraud. Another key due diligence activity centres on auditing all existing customer communications to ensure that these cannot be copied by fraudsters or easily modified to support fraud activities.
In addition to these activities, utilities companies continue to invest in data-driven identity solutions that validate new client onboarding requests, and to verify that existing clients are genuine customers. These kinds of technologies help to ensure that customer transactions are genuine and that no one is accessing utilities or interacting with the organisation under false pretences.
3. Cluster Fraud
Multi-dimensional scams aimed at maximising revenues from each victim will proliferate in 2023
Fraudsters now have access to a wealth of rich Personally Identifiable Information (PII) about consumers from social networks and from data stolen or compromised during breaches, which is available on the dark web. Consumer data can then be used for identity theft, which is set to peak in Q1 of 2023. The market has already seen 21% growth in identity theft in the last 12 months, tipping the scales at losses of £2.7 billion.
The ready availability of consumer data allows fraudsters to mount multi-dimensional scams that increase revenues from each individual victim.
For example, during this kind of scheme a fraudster may pose as a professional, personal or romantic contact and use the same set of data to present a victim with a ‘too good to be true’ crypto investment. At the same time, the victim can be targeted with a dating scam, a utility scam or fake communications from a bank or other financial institution.
Our data shows that losses from the constituent fraud elements of these kinds of schemes are growing rapidly. Losses from scams involving fake trading platforms, for example, have increased by 19% in the last 12 months. At the same time, losses related to crypto scams are up by around 50%, and this figure is expected to increase by a further 30 to 40 percent during 2023*.
The good news is that police forces in many regions are now taking a proactive approach to help consumers protect themselves against these kinds of multi-dimensional fraud attacks. This is based on feedback from local communities to understand local fraud trends, and communications and public consultation to educate consumers about the dangers.
4. First Party Fraud
First party fraud will continue to increase
Up to 20 million UK consumers currently find themselves in financial stress due to a range of factors including rising interest rates, inflation, and high food and energy costs. Across the last three quarters, we have seen the proportion of fraud detected as a first party derivative triple in loans and double in cards. We expect the continued growth in 1st party mortgage, credit and loan fraud during 2023, peaking initially at the end of March.
Some consumers may be tempted to give a misleading or incomplete view of their financial situation for a number of reasons, whether they need to re-mortgage their home to meet their obligations, wish to consolidate spiralling credit card debts with a personal loan, or to fulfil their ambitions to move into a larger property.
To protect their businesses and customers, institutions need solutions that support real-time, granular analysis of customers’ income and outgoings to identify material inaccuracies in consumer and business credit applications. These kinds of solutions can help to reduce the negative impacts of 1st-party fraud as the cost-of-living crisis intensifies.
The ability to understand changing fraud risks across the portfolio is also a critical requirement for businesses. So that first-party fraud, mule accounts and other types of fraud can be identified and addressed on an ongoing basis to minimise risk and losses.
Find out how to safeguard your operation with frictionless fraud-checking solutions that combine data, analytics and technology to combat this growing threat.Discover our fraud prevention solutions
5. Digital IDs
Reusable digital IDs will play an even greater role in online authentication – but they must be protected
The UK Government believes Digital ID solutions will unlock improved user experience in the digital world, increase security and boost economic growth. Under the UK Government’s ‘Trust Framework’, consumers need to demonstrate their eligibility to work, rent and access a wide range of government services. At the same time, the number of online sites and services that require authentication – either for onboarding or purchasing certain goods and services – continues to increase exponentially.
To meet the need for accurate, seamless online identity and authentication, we are seeing rapid growth in reusable digital IDs – both for accessing private and public sector services and for meeting due diligence requirements around eligibility.
But because the process of creating reusable digital identities is still relatively new for consumers, there is still some level of uncertainty around it. Many consumers, for example, will create reusable IDs to demonstrate their eligibility to work or rent in the UK, possibly without realising that the process was far more than a one-time verification.
We anticipate a growth in creation of digital IDs throughout 2023, across both public and private sectors. However, it’s important ensure that an appropriate cybersecurity framework exists to protect them. If not properly looked after and secured, these digital identities – which are not directly owned by consumers – could potentially create attack surfaces and vectors that can be exploited by fraudsters.
6. Instant Credit Issuing
‘Instant’ access credit products are changing the fraud landscape – requiring new measures to protect institutions and retailers
In the past, applications for credit cards and other products typically took days, if not weeks, giving institutions an opportunity to conduct in-depth customer checks and balances. However, a new generation of credit products, from Buy Now Pay Later (BNPL) to virtual credit products where customers receive near-instant access to funds, require real-time decisioning to minimise fraud risks.
The leading retailers advise consumers to make one or more small purchases with their new credit line before buying expensive items such as phones or tablets. At the same time, retailers and other service providers are implementing data-driven solutions that can check customers’ identity and credit worthiness in real time, helping them to deliver credit via virtual cards, phone pay services, and other media more quickly.
However, a comprehensive and holistic view is needed to ensure compliance and minimise potential risks associated with instant credit issuing. A full view of risk in this context includes an appropriate balance between rapid onboarding processes and appropriate strong authentication checks and compliance with know your customer (KYC) requirements. These kinds of checks and balances need to be applied across all kinds of ‘instant credit’ products, including BNPL and virtual credit cards.
How Experian can help
Experian provides rich data and real-time decisioning solutions that support customer identification and authentication. We are also developing new tools that allow institutions and retailers to identify potentially fraudulent customers and transactions in real time. In the last 12 months, we have helped our clients in the UK prevent in excess of £1.8 billion in fraud.
If you would like more information about Experian’s identity and fraud capabilities, or to discuss anything in this article, please get in touch.
*2022 Half Year Fraud Update, UK Finance