The growing popularity of peer-to-peer (P2P) payment apps and services has led to an increase in credit card transactions, which has further accelerated with the introduction of real-time payments in the United States.
As this rapidly evolving payment landscape evolves, fraudsters are seeking new ways to exploit unsuspecting individuals, and push-payment authorized fraud (APP) has become a common element of their tactics.
According to a January 29th blog post by the Federal Reserve Bank of Atlanta, cases of APP fraud, where a criminal tricks a person or company into transferring funds to their account, require “changes to our educational programs, mitigation techniques, and consumer protection approaches.”
This is particularly significant because the Consumer Financial Protection Bureau’s (CFPB) Regulation E, which generally covers P2P or mobile payments and resolves disputes between consumers and banks, only applies to unauthorized payments.
“Regulations do not offer protection when an account holder is tricked into authorizing or mistakenly authorizes the sending of money to criminals,” Jessica Washington, Vice President of Retail Payment Risk at the Atlanta Bank’s Retail Payments Risk Forum, stated in the blog post.
In the United Kingdom, APP fraud also poses a significant challenge, surpassing other types of crimes in terms of frequency.
According to the latest data from the UK Payment Systems Regulator, APP fraud accounted for a staggering 40% of all fraud-related losses in 2022, with Trustee Savings Bank (TSB) alone refunding over 90% of the total value of APP fraud losses for that year. Nationwide, HSBC, and Barclays also refunded a portion of the funds, at 78%, 73%, and 70%, respectively.
Last year, Mastercard partnered with nine UK banks, including Lloyds Bank, NatWest, Monzo, and TSB, to combat fraud using the company’s artificial intelligence-powered fraud detection tool, enabling real-time detection of payment fraud and blocking the payment before it leaves the victim’s account.
TSB, one of the first banks to adopt Mastercard’s consumer fraud risk tool, reported an improvement in fraud detection just four months after implementation. The bank saw a significant increase in blocked fraud payments, estimating annual savings of nearly £100 million across the entire UK.
This success story aligns well with recent PYMNTS Intelligence research, which highlights that due to the increasing complexity of fraud, financial institutions are allocating resources to strengthen their fraud detection and management systems.
The study revealed that over 70% of financial institutions with assets of at least $5 billion used both artificial intelligence and machine learning-based solutions to combat fraud last year, up from 34% in 2022. Furthermore, the research results showed that nearly all companies with assets exceeding $100 billion utilized AI/ML technologies.
Other commonly used technologies include fraud prevention APIs, network-based multi-factor authentication, and adaptive authentication. Specifically, 90% of financial institutions use fraud prevention APIs, while 80% have implemented both adaptive authentication and network-based multi-factor authentication.
Promisingly, financial institutions leveraging these advanced technologies are “likely to experience a decrease in their overall fraud rate and are less likely to see an increase in their overall fraud rate,” as emphasized in the report.
FAQ section based on key topics and information presented in the article:
Q1: What are push-payment authorized fraud (APP) scams?
A1: Push-payment authorized fraud (APP) refers to fraud where a criminal tricks a person or company into transferring funds to their account.
Q2: What are the consequences of APP fraud?
A2: APP fraud can cause significant losses for victims, and financial regulations often do not provide protection in the case of such fraud.
Q3: Which countries face significant challenges with APP fraud?
A3: The United States and the United Kingdom are countries where APP fraud poses significant challenges.
Q4: What financial firms are taking action to combat APP fraud?
A4: Mastercard has partnered with UK banks such as Lloyds Bank, NatWest, Monzo, and TSB to utilize real-time payment fraud detection tools.
Q5: What technologies are used in combating fraud?
A5: Financial firms utilize technologies such as artificial intelligence (AI), machine learning (ML), fraud prevention APIs, network-based multi-factor authentication, and adaptive authentication.
Suggested related links to the main domain:
– Federal Reserve Bank of Atlanta
– Consumer Financial Protection Bureau (CFPB)
– Mastercard
Key term definitions and jargon used in the article:
– P2P: Peer-to-Peer Payments – a payment system that enables individuals to send funds to each other without the involvement of traditional financial intermediaries.
– Real-time payments: Payments that are processed and delivered instantly, allowing for quick fund transfers.
– Regulation E: A financial regulation from the Consumer Financial Protection Bureau (CFPB) in the United States that establishes rights and obligations related to electronic payments, including P2P transactions.
– Trustee Savings Bank (TSB): A UK bank that operates personal and business banking services.
The source of the article is from the blog karacasanime.com.ve