Fraud Trends to Watch in 2023

By mid-2022, the number of recorded fraud cases in the UK reached the 1.4 million mark. While this represents a decrease, and banks managed to stop £583.9 million of fraudulent transactions from occurring, the figure is still worryingly high. 

Here are just a few of the fraud trends to remain aware of in 2023 and beyond: 

1. Synthetic Identity Fraud Will Increase

Deep fakes, videos where faces and bodies are digitally altered to appear to be someone else, may be used to game virtual onboarding procedures at financial institutions. Deep fakes are already being used in phishing scams and identity fraud cases and becoming more convincing. Newer technologies such as biometric verification and liveness detection must be deployed to detect deep fakes and ensure that the person presenting identification online is who they claim to be. Liveness detection that analyses facial expressions, speech patterns, and even heartbeat can curb synthetic identity fraud. 

2. There Will Be a Push For Real-time Identification and Credit Checks

Credit card applications are being processed and approved much faster, providing customers with near-instant access to their funds. To perform their due diligence, service and credit providers must implement solutions that can verify customers’ identity, creditworthiness, and fraud risk in near-real-time. There should be a balance between rapid onboarding and KYC and authentication checks for these instant credit issuers, especially for virtual credit cards and Buy Now Pay Later (BNPL) products. 

‍

‍

3. Super Apps May Undermine Risk Management Efforts

Super apps are mobile/web applications providing multiple services to a large user base, including financial transaction processing, payment, retail transactions and ride-hailing. An app like WeChat, which boasts 1.24 billion users worldwide, is the perfect example of an all-encompassing super app, especially in countries like China, where most of its user base resides. 

These apps provide new opportunities for fraud, including creating multiple fake accounts to make fraudulent purchases. Financial institutions may find it difficult to trace the origin of fraudulent transactions committed on these apps as they generate large amounts of data that are difficult to monitor or analyse. These super apps create vulnerabilities in the larger financial system, too, as security breaches may comprise the financial data of hundreds of millions of users. 

4. Authorized Push Payment (APP) Fraud Will Remain Concerning

Authorized Push Payment or APP fraud refers to scams where fraudsters trick victims into making authorised bank transfers to them. Research shows that APP fraud increased 30% last year, and as the cost-of-living crisis persists, this trend will likely escalate even more as stressed consumers fall for promises of easy returns on their “investments”. New legislation by the UK’s Payment Systems Regulator intends to hold paying and receiving banks responsible for APP fraud-related losses in 2023. Accordingly, financial institutions should invest in fraud-detection solutions to prevent penalties and losses. 

5. Utility Scams Will Rise

Energy costs will remain of concern to financially-constrained consumers in 2023, and fraudsters will likely target consumers with fake messages offering to reduce the cost of their bills to gain access to Personally Identifiable Information or PII. Utility companies must invest in identity solutions to validate new client onboarding requests to ensure that transactions are genuine. 

6. Growing Acceptance of Digital ID solutions

The Government has been a firm proponent of the use of digital identity solutions. These digital IDs can improve user experiences, increase security and improve online authentication. There will likely be a significant push for private and public institutions to accept digital IDs and meet the new due diligence requirements that will invariably follow. As with any new technology, potential risks and new attack surfaces will likely be exposed if organizations are not vigilant and well-prepared for the new digital economy. 

7. Russian Sanctions Will Drive New Need For Advanced Screening Solutions

As the Russia-Ukraine conflict continues with no signs of slowing down, new sanctions will be introduced. Frustrated governments and regulatory bodies will likely tighten sanctions requirements and introduce even heftier penalties for sanctions violations. Businesses must manage their risk exposures carefully through risk assessments, gap analyses and the introduction of artificial intelligence-based screening solutions to avoid devastating financial penalties and reputational damage. 

8. Major Legislative Changes On The Cards For Crypto 

2022 was a disastrous year for the crypto industry and its investors, and it’s likely that there will be a wave of regulations on the cards for the sector. In Europe, the Markets in Crypto Assets (MiCA) bill will attempt to regulate cryptocurrency markets with controls designed to prevent money laundering and environmental damage. The US’s Lummis-Gillibrand bill also introduced a proposed regulatory framework for digital assets, and while it has a way to go before being passed into law, it will gain more support in 2023. Cryptocurrency businesses must take note of the current regulatory climate and start making preparations to comply with the proposed frameworks if they hope to avoid future penalties and restrictions. 

Final Thoughts

If 2022 taught us anything, it’s that proactive risk management is key for financial firms. Fraud is increasing rapidly, and regulatory bodies and governments are taking the paying and receiving banks to task for not taking better measures to protect their customers. 

This presents a significant challenge as virtual identities, super apps and mainstream adoption of cryptocurrencies introduce new hurdles, threats and risks to financial institutions. Fortunately, technology providers are introducing new innovations and improvements that can support organizations in their effort to comply with sanctions, protect consumers and prevent money laundering and fraud. If you would like to know more about effective Sanctions and AML screening, get in touch with our team at sanctions.io.

‍