Users Are Losing Faith In Payment Aggregating Apps Amid Rising Fraud Cases

Payment fraud has been on the rise since the advent of digital payment services. However, in the recent past, fraud incidents have skyrocketed, according to a PYMNTS Intelligence Research report. Consumer fears of data fraud have also increased, making them reluctant to use payment aggregating apps. The concern spans demographics, generations, and lifestyles, according to the study.

What are the common types of payment fraud?

There are multiple methods of payment fraud. One common form of fraud is phishing in which scammers create authentic-looking webpages of websites to steal personal or private information such as credit card, bank account, or login. Another common form of payment fraud is an advanced fee scam in which criminals target credit card users and ecommerce store owners by asking them for an advance fee in return for a credit card or cashback.

Merchant identity fraud is another troubling issue for businesses. In this, scammers set up a merchant account of a seemingly legitimate business. They then start charging customers’ credit cards or stolen credit cards and vanish before the cardholders can get the payments reversed. There are several other types of fraud that trouble customers and businesses equally.

The scale of payment frauds

Payment fraud incidents have risen 88% since December 2021, and about 11% of consumers who paid for groceries experienced payment fraud in the month of March 2023 alone, compared to 5.7% in December 2021, as per the research.

Payment fraud fear soars

While 45% of consumers who participated in the survey are afraid of data breaches, 34% feel more vulnerable to fraud. Further about 30% of people do not trust storing their personal information on a connected platform. Another 27% prefer to manage their credentials and payment information manually to minimize risks. Fear of bank fraud and data theft is also a top concern for consumers. Over 70% expressed that they are slightly concerned about security while making online bank transactions.

Businesses are losing customers to fraud concerns

As per the PYMNTS research, about 34% of the surveyed FinTech and Big Tech companies reported a loss of customers. Further over 25% of the firms admit that the existing solutions struggle to identify fraudulent transactions.

Financial institutions are targeted as well

According to a collaborative study by PYMNTS Intelligence and Hawk AI, about 43% of the financial institutions in the U.S. witnessed an increase in fraud cases between 2022 and 2023. Further, there was a 65% increase in fraud losses, from $2.3 million in 2022 to $3.8 million in 2023. These alarming numbers indicate that existing measures are not keeping pace with evolving fraud schemes, and firms must enhance their preventive measures to address this growing concern.

Here’s what financial institutions are doing to mitigate fraud

Financial institutions have increasingly deployed artificial intelligence and machine learning to build cyber defense strategies. As per the study, nearly 70% of financial institutions with over $5 billion worth of assets, leveraged machine learning or AI solutions last year. This marks a steep increase as compared to 34% in 2022.

The study also highlights that investment in AI solutions is indeed yielding positive results as it has led to a notable decline in overall fraud rates. However, these solutions may not be accessible to smaller business firms.

Ways small businesses can fight fraudulent payments

1. Keep a constant tab on the latest fraud trends.

2. Collaborate with a verified payment processor.

3. Use encryption for transactions and emails containing confidential information.

4. Run constant security checks with antivirus software.

5. Make customer verification/login mandatory for purchases.