These Are the Biggest Fraud Risks Banks Will Face in 2024

Executive Summary

Experian’s annual Future of Fraud Forecast highlights fraud trends impacting consumers, businesses, and the financial services industry. While presenting the findings in a recent webinar, Kathleen Peters, chief innovation officer, and Mike Thibodeaux, vice president of fraud and identity solutions, noted that fraud is becoming a growing problem for both businesses and consumers — and 2024 will bring not only an increase in volume but an increase in the types of attacks. Gen AI will enable new and creative attack methods, even for DIYers. More consumers are looking to in-person interactions to reduce digital risk. Experian also anticipates a surge in identity fraud and retailers being hit with empty returns.

Key Takeaways:

• 70% of businesses report that fraud losses have increased in recent years and over half of consumers feel they are more of a fraud target than a year ago
• APP/ P2P transaction-based fraud is the most common, representing 41% of all attacks. Criminals like it because it is fast, hard to trace, and hard to recover.
• While consumers want to feel safe, they also want convenience and don’t like overzealous security measures. Half (51%) of consumers who opened an account within the last six months considered abandoning the process.
• Gen AI will be one of the greatest drivers of fraud in 2024, making it easier to orchestrate and offering opportunities for do-it-yourself fraudsters to create complex attacks.

The Current Landscape

Fraud is on the rise and is impacting consumers, businesses, and banks.

Fraud trends are driven by macro economics: Experian notes fraud trends are driven by macroeconomic conditions. In periods of economic uncertainty or downturns, criminals often emerge to take advantage of financially stressed consumers. While GDP is growing, Experian sources noted people are still worried about interest rates, inflation, and the coming resumption of student loan payments. As people fall into more desperate situations, they are more likely to fall victim to fraud.

Consumer fraud concerns: Consumer concern about fraud continues to rise — and 64% of consumers now say they are concerned or somewhat concerned about online security. Experian notes growing media coverage has raised greater awareness about fraud in all age groups. The top four consumer fraud categories include identity theft, credit card information being stolen, online privacy, and phishing. Concern about security tends to increase with age, with the youngest age group (18-24) being least concerned about security and the oldest age group (55-69) being most concerned. The highest percentage of concern was with 85% of those ages 55-69 who said they were concerned about identity theft.

Are Businesses Prepared? While fraud is on the rise, businesses may not be fully prepared. Three-quarters of businesses surveyed said they are confident in their abilities to protect against all types of fraud. However, less than half (45%) reported they fully understand the impact that fraud is having on their business.

“The speed and complexity of fraud attacks due to new technology and sophisticated fraudsters is leaving both businesses and consumers at risk in 2024.”

— Kathleen Peters, Experian Decision Analytics

Types of fraud: U.S. businesses continued to be impacted by several types of fraud, with APP/P2P fraud (41%) being the most common. This includes transaction-based fraud and real-time payments through platforms like Zelle, Venmo, and CashPay. These platforms are often valuable targets for fraudsters because transactions move fast and are hard to trace or recover.

With more app-based payments and digital “pay now” capabilities, Experian believes APP/P2P fraud will rise further in the coming years. Other common types of fraud include transactional payment fraud (38%) and account takeover fraud (33%). Experian believes that the highest rated categories may even be underreported as consumers who fall victim may not even realized it or be shameful about admitting it.

Negative account opening experience: While consumers want to feel protected and safe online, they also want convenience and can be deterred by overzealous security. Customers have little patience with time-consuming and frustrating account opening experiences.

Approximately half (51%) of consumers who opened an account within the last six months considered abandoning the process. Meanwhile, 37% of consumers took their business elsewhere due to a negative experience. The most likely to do so were in the 25–39-year-old group, where 54% of them switched financial institutions due to a negative account opening experience.

Fraud Predictions for Banking

Experian has released these predictions for the past several years. In 2023, some of the common themes included fake texts from the boss, fake job postings and mule schemes, “Frankenstein” shoppers, social media shopping fraud and P2P payment problems. This year is expected to bring tried and true fraud tactics along with some new ones.

The danger of gen AI: Despite its benefits as an emerging technology, generative AI has also become an enabler for fraudsters, specifically by making it more accessible to do-it-yourselfers. Experian predicts a rapid rise in Gen AI use to enact fraud with deepfake content through emails, voice, and video. In one recent case, criminals orchestrated a deepfake video conference with executives that swindled $25 million from a finance company.

Experian believes criminals will also use Gen AI to create code to setup scam websites and perpetuate online attacks. With stolen identities, fraudsters can also create fake identities on social media then interact with profiles that look like real consumers. This could dramatically increase the number of fraud attacks in the coming year again.

Branches are cool again: While consumers have quickly migrated to digital lending solutions, many still seek in-person experiences to open new accounts or get financial advice. Part of this is because some view in-person experiences as safer and a way to reduce online security risks. However, even when confirming identities at a branch, there can be human error or oversight.

Another Experian report found that 85% of consumers report physical biometrics as the most trusted and secure authentication method. However, less than a third (32%) of businesses use biometrics to detect and protect against fraud. Experian forecasts that lenders will introduce more digital identity verification steps, such as physical biometrics, at branches for in-person account openings to protect legitimate customers and mitigate losses.

A surge in synthetic identity fraud: While many fraudsters created synthetic identities during the pandemic, they quickly found easier ways to steal funds through various aid programs. However, the identities they created now have several years of history, making it easier to evade detection. Experian predict fraudsters may go back to using these dormant accounts to steal funds over the next year and create new identities using AI. As a result, businesses will have to closely collaborate with their fraud-prevention partners to review current portfolios for synthetic identity accounts.

Fraudsters will expand into cause-related and investment deception: Malicious acts are now looking more to new methods that strike an emotional response from victims. Some are looking to social media giveaways, GoFundMe campaigns and investment opportunities with cause-related asks and generous offers to gain access to consumers’ personal information. Experian believes these deceptive campaigns will surge in 2024 and the coming years.

How Companies and Banks can Respond

While the Experian webinar and slide deck dug into the trends, it was quite short on solutions.

One method that the report recommends: To safeguard customers, companies and financial institutions should consider multilayered fraud prevention solutions that “fight AI with AI.” As there is no “silver bullet” solution to prevent or stop every type of fraud, organizations should bring them all together in a layered platform.

Companies can also improve their security posture through functional organization, data and analytics centralization, platform and technology rationalization and the customer experience.

Reference source: The Financial Brand

Compiled by the DTSVN author group - Digital transformation solutions for the Finance and Banking industry.

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