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Authorized Push Payment fraud, also known as APP fraud or APP scams, involves a fraudster persuading a victim to willingly deposit funds to their account or to the account of a complicit third party, also known as a money mule. This type of fraud often includes social engineering of the victim using fake investment schemes, impersonation scams, purchase scams or other schemes. Social engineering clouds victims’ judgments and encourages them to make payments willingly to one or more money mules, with funds eventually reaching fraudsters’ accounts. This type of fraud has become more attractive to criminals since the advent of real-time payment systems, which are now a reality worldwide.
Fraud fueled by real-time payments
Authorized push payment fraud is becoming more prevalent, and it is imperative that you know how to detect and prevent it to safeguard your organization.Real-time payment systems, such as Faster Payments in the United Kingdom (UK), PIX in Brazil, the New Payments Platform in Australia, and FedNow in the USA, make real-time payment fraud a reality.
APP fraud is notoriously difficult for banks to prevent because the victim is sending the money themselves, and steps that banks take to authenticate customers are ineffective, as the customer will pass identity checks. The victims cannot reverse a payment once they realize they have been conned, as payments made using real-time payment schemes are irrevocable.APP fraud is particularly prevalent in countries where banks have an infrastructure that facilitates fast or immediate transfers, like the UK.
Reimbursment is vital to victims
Some common types of authorized push payment fraud include attacks on individuals like romance scams, family emergency swindles, targeting property transactions, and intercepting supplier payments. To protect against APP fraud, it is important to employ layered fraud protection across all products and channels used to manage real-time payments. But that alone is not enough.Reimbursement is vital in reversing the financial distress caused by APP scams, but it cannot reverse the emotional distress these scams cause. Prevention, detection, and awareness measures must be moved up on the agenda for banks, non-traditional lenders, PSPs (Payment Service Providers), and customers alike to ensure that the customer is protected at every stage of the payment journey.
Effective alerts are a key focus area for preventing customers from falling victim to APP scams. An effective warning is one that is dynamic and tailored to the customer’s payment journey. Recent research indicates that minor changes to notifications across banking apps can have the potential to drastically reduce the number of individuals that fall victim to APP fraud. The biggest effects were achieved when a combination of risk-based and Call to Action (CTA) warnings were implemented over a period of time.
A collective effort across the banking industry and beyond is crucial to protect customers and tackle the fight against APP fraud. Banks, non-traditional lenders, and PSPs can raise awareness to educate their customers on the signs and risks of APP scams, and work with industry oversight bodies to commit to voluntary standards and codes to ensure good customer outcomes. Online forums, social media platforms, and influential voices also have a role to play in raising awareness of and preventing scams. Customers can also help by being vigilant and reading and acting upon warnings and information presented to them.
Authorized push payment fraud prevention
To effectively combat authorized push payment fraud, financial institutions must implement a range of measures, including:
- Direct communication with consumers.
- Enhanced transaction monitoring.
- Effective risk mitigation and management.
- Improved employee education.
- Public awareness campaigns.
In response to this growing threat, banks have introduced various checks and balances, such as the Confirmation of Payee (CoP) service in the UK, which cross-references bank details with the account holder’s name when processing online payments.Banks are also leveraging sophisticated fraud prevention software stacks, incorporating machine learning and contextual data to identify and flag suspicious transactions. By utilizing AI technologies, financial institutions can process data points faster and enhance their fraud detection capabilities, mitigating identity risk and safeguarding customer accounts.
Clear communication with customers is essential in the fight against APP fraud. Higher-risk companies now include warnings in their communications, advising customers not to act on messages that request payment into new bank accounts.Financial institutions can also offer cool-off periods before payments are sent, increase due diligence around payment destinations, and monitor accounts that regularly receive high-value payments. Additionally, financial institutions can play a crucial role in educating their customers and promoting awareness around this increasingly common type of fraud. By combining these approaches with robust fraud prevention software, the public can fight against this type of fraudulent attack.
Taking the next steps with the right partner
At Experian, we offer rich data sources, advanced analytics capabilities, and the consultancy services needed to rapidly adopt data analytics solutions that mitigate fraud risks.Our solutions are used by PSPs of all types and sizes – including some of the largest banks – to identify potentially fraudulent customers and transactions, and to ensure that action is taken in real time to prevent fraudulent payments being made.
