APP Frauds Are On The Rise, Here's How AI/ML Helping Financial Institutions

The introduction of real-time payments in the United States and across the world has led to a surge in payment scams. Fraudsters are seeking new ways to exploit unsuspecting individuals and credit-push scams, often referred to as authorized push payment (APP) fraud, have become one of the most preferred choices for criminals.

What is APP Fraud and Who Are the Victims?

Authorized push payment fraud has become a staple for criminals since the advent of real-time payment schemes. In the UK, Faster Payments was launched in 2008 and the launch of FedNow in the USA has made make real-time payment fraud a reality.

APP fraud occurs when fraudsters deceive consumers or employees of a business to illicit payments under pretenses to a bank account controlled by the criminals. These payments are made using real-time payment schemes, thus the victims cannot reverse a payment after they realize they have been scammed. The fraudsters use social engineering techniques and in some cases, they may even hack into email and other systems of businesses to set up their victims.

The Scale of APP Fraud

According to ACI’s Scamscope report published by payment software company ACI Worldwide and the research firm GlobalData, APP frauds are expected to exceed $3.03 billion in 2027, up from $1.94 billion in 2022.

The report suggests that the U.S. will witness more APP frauds than any of the other six countries reviewed by the firms. Following the US, Australia is estimated to see the second most number of APP frauds valued at $1.5 billion. Next is UK at $934.7 million, then Brazil at $635.6 million, India at $611.9 million and Saudi Arabia at $81.5 million, the report said.

Separately, in the UK alone, APP fraud constituted a staggering 40% of all fraud losses in 2022, according to the latest data from the country’s Payment Systems Regulator.

Here’s What Firms Are Doing To Fight APP Fraud

Last year, Mastercard collaborated with nine British banks including, Lloyds Bank, NatWest, Monzo, and TSB to fight fraud, according to a PYMNTS report. The banks leveraged the company’s AI-powered Consumer Fraud Risk tool to detect real-time payment scams and block fraudulent payments before money left the victims’ accounts.

TSB was an early adopter of Mastercard’s consumer fraud risk solution. It reported an improvement in fraud detection within just four months of implementation and a dramatic spike in the number of blocked scam payments. As per the report, TSB claimed to have saved £100 million across the U.K. annually.

Another PYMNTS Intelligence research revealed that more and more companies and financial institutions are reallocating resources towards strengthening their fraud detection and management systems due to the ncreasing sophistication of fraud.

According to the study, over 70% of FIs with assets of at least $5 billion were using both AI and machine learning (ML) solutions to combat fraud as of last year. This marked a 34% increase from 2022. Further, nearly all the firms and FIs with assets exceeding $100 billion were embracing AI/ML technologies, according to the study.

Other popular technologies being used were fraud prevention APIs, web-based multifactor authentication, and adaptive authentication. While about 90% of FIs leverage fraud prevention APIs, over 80% of FIs have implemented both adaptive authentication and web-based multifactor authentication measures to combat fraud.

The PYMNTS report highlighted that these FIs and firms using advanced technologies to combat fraud are “likelier” to see a decline in the overall fraud rate.