2023 Sees Surge in High-Tech Fraud Schemes

2023 was a bumper year for fraudsters; Juniper Research released data highlighting the extent of that damage on e-commerce merchants, reaching over $48 billion globally in 2023, a sharp $2 billion increase on the figures from 2022.

The UK, which holds one of the largest e-commerce markets, was among the most popular targets. A shocking statistic from Germany is that 2 in three online retailers reported that there was a rise in fraudulent activities, and a massive 85% of e-retailers in Switzerland have been victims of fraud during 2022.

Several factors have contributed to excessively high fraud throughout 2023, and some methods have seen an increase.

ATO

Account Takeover is one of the most common forms of fraud that e-commerce stores face. The figure for the rise between the first and second half of 2022 showed a 131% rise.

A criminal gains access to customers' details through hacking leaked data or disgruntled employees. With a limited number of businesses running proper background checks on staff of all levels, in-house issues are prevalent, and they can be untraceable once the account takeover is in progress.

There are several methods that fraudsters will use in order to gain access to both customer and employee accounts, including Phishing and Malware. However, a more dangerous method is on the rise: Social Engineering.

A combination of AI and psychological manipulation means fraudsters can gain access to accounts through information given by employees or customers. The AI can be used to automate chats and create scripts for criminals' teams to use on the phone, via chatbots and emails.

ATO is preventable using a combination of high-end employee background checks via a private investigator, customer education, more robust security measures, mandatory multi-factor logins, and advanced fraud detection tools.

Synthetic Identity

Synthetic Identity is one of the fastest-growing risks in financial crime in the US, but it is on the rise globally, too. Synthetic Identities are created using pieces of information from a real person and combining it with false information. The combination of false and legitimate data creates a new identity.

Organizations are not in a position currently to be able to prevent synthetic identity fraud, and as such it accounts for 85% of all fraud right now, according to the McKinsey Institute.

The biggest threat with SIF (synthetic identity fraud) is that some of the details are real, and this can mean potentially real social security numbers, bank details, and more. For instance, the fake data might include a real address you can send things to, and the Social Security Number (SSN) might look real. But when you check, the SSN, name, and birthdate don't belong to any actual person.

One of the contributing factors to the rise in this type of crime is that the SSA implemented a new approach to SSN randomization. While it was supposed to offer higher safeguarding, it made fraud detection more difficult. For an institution to validate an SSN, they have to collect and submit a signature on an SSA consent form. Until this chance to electronic consent, identity verification takes too long.

Until security and systems catch up with this new cyber trend, a fraudster could keep the identity in use for up to a year.

Promotion Abuse

Companies often launch promotions to increase account take-up and customer loyalty. These promotion schemes can be subject to fraud. PayPal took action in 2022 and closed a vast 4.5 million accounts that had hacked their rewards and incentives programs.

In 2021, 52% of businesses had reported an increase in promotion abuse, and the cost was a substantial $89 billion. A perhaps surprising statistic was that 42% of the sellers who completed the interview allowed consumers to take advantage of their promotions in a way that was harmful to the company.

Promo Abuse and Promo Fraud differ slightly because abuse is when a customer acts in a way that would be considered 'bad.' Promo Fraud is where a large-scale operation is in place to use multiple accounts to take advantage of the promo. The latter uses a combination of new IP addresses and synthetic identities.

Both promo abuse and promo fraud saw a high increase in the pandemic due to so many retailers making the move online and often not having any defenses or fraud detection in place.

APP

Criminals pose as professional services or financial institutions and defraud people out of their money, APP - Authorized Push Payment. The person will typically send the money directly to the criminal. In 2022, UK Finance reported that there were 207,372 cases. While the person sending the money is the one who loses out, the criminal will be using a well-known name to do it and setting up a website, email address, and even financial accounts that look legitimate.

This is a considerable threat and risk to the companies, as the association and reputation will unfortunately be linked in customers' minds.

In 2023, The APP scams got more sophisticated and coincided with the popularity of things like online investment platforms and fundraising through charity websites. Debt collection scams and tech support scams are increasing in popularity with criminals and banking scams.

Insurance Fraud

The Association of British Insurers reported that insurance fraud cost the industry a whopping £1.1 billion in 2022. And during 2021, there were over 89,000 fraudulent claims - and there would potentially be a figure match of fraudulent claims that go undetected.

Experts at Fintech Global have linked the increase in insurance fraud to the increased cost of living; in London, UK, there has been a surge of 61% increased fraudulent insurance claims. While the initial cost to the insurance company is high, those who are committing insurance fraud can be slapped with up to 5 years without insurance services, as well as fines, charges, and being arrested.

The surge of online fraud extends beyond those methods mentioned above; the Ponzi scheme has been given a technological 'upgrade,' and it reaches across the globe. Look out notice issued against three Chinese nationals for online ponzi scam | Technology.

(Devdiscourse's journalists were not involved in the production of this article. The facts and opinions appearing in the article do not reflect the views of Devdiscourse and Devdiscourse does not claim any responsibility for the same.)