A recent whitepaper released by Resistant AI discussed why authorised push payment fraud (APP) is the greatest threat to FinTechs today.
Authorised push payment (APP) fraud, a financial scam where a criminal cons individuals or businesses into sending money to an illegitimate bank account, is becoming a major concern. This mechanism manipulates account holders into authorising payments that end up in fraudsters’ pockets instead of the intended recipient.
The growth of APP fraud has been alarming, and it’s now the go-to method for a wide array of scams. Globally, APP fraud represents 75% of all digital banking fraud in dollar value. The losses in the US, UK, and India are expected to double, reaching $5.25bn by 2026 with a 21% compound annual growth rate across the period.
Victims of APP fraud are usually considered responsible for the losses unless their account information has been compromised. Some US banks even argue that victims are “recruited” into the fraud, allowing them to avoid reimbursement. However, this approach can lead to severe brand damage, and a chilling 72% of victims close their accounts after the fraud occurs. Consequently, most institutions opt to voluntarily reimburse 80% of the time.
The situation might change if regulations, like those proposed in the UK, become the international norm. Such regulations would mandate consumer reimbursement, making financial services across the board feel the pinch.
Many blame FinTechs for the surge in APP fraud, though the industry refutes this responsibility. The consequences are piling up and becoming a significant threat to emerging FinTech companies. If deemed high risk, they may be treated as outcasts and be cut off from the system, unable to transact.
Convenience, a vital value proposition for FinTechs, is also under threat. While many North Americans link their bank accounts to FinTech services, trust remains low at 14%. Traditional banks are seizing this opportunity to quash new competitors by labeling them as high-risk.
A particular concern is the thriving of APP fraud on synthetic money mules. These are accounts created using real, stolen, or forged documentation, enabling large-scale forgeries. Low cost and high scalability make this method a perfect fit for digital fraudsters.
Despite these challenges, FinTechs may be best suited to tackle the APP fraud problem. With innovation in convenient, low-friction digital onboardings, they are well-positioned to employ sophisticated technological countermeasures against fraud.
You can download the full whitepaper here.
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