Embedded Finance Tracker® Series Report

Fast Finance and the Fight Against Fraud

October 2023

Banking’s digital tapestry weaves a complex narrative. Are the threads of its defense as tight as innovation’s allure?

PYMNTS
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In the last year, fraud has surged at an unsettling pace. Few have been spared. However, technology-savvy youth and the financially strapped have disproportionately borne the brunt. Even reputed stalwarts of banking have not been left unscathed. This is a wake-up call for the financial industry to strengthen its guard and innovate its defenses.

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As businesses continue to lean more heavily into their use of digital B2B channels, especially ones for payments, the recurring dual narrative of convenience and vulnerability highlight a key challenge of digital transformation: navigating innovation while mitigating potentially very costly risk.

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Digital fraud can be shockingly crafty. To counter this aptitude, FIs and banks are redrafting long-standing industry narratives about security. By adopting multifaceted strategies, banks are signaling commitment not only to counter fraud — but also to outpace it.

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    The digital underworld seemingly operates with one guiding principle: Move fast and break stuff — specifically stuff that offers a payday.

    One consequence is that financial institutions (FIs) and banks are frequently left scrambling rather than leading. With the rapidly growing use of digital channels to transact, consumer and business banking clientele are uneasy. As these challenges mount, sparks of innovation — and collaboration — offer a glimpse into the playbook of FIs fighting back.

    Echoes in the Digital Vault: The Alarming Resonance of Fraud

    In the last year, fraud has surged at an unsettling pace. Few have been spared. However, technology-savvy youth and the financially strapped have disproportionately borne the brunt. Even reputed stalwarts of banking have not been left unscathed. This is a wake-up call for the financial industry to strengthen its guard and innovate its defenses.

    Youngsters and the overextended are stung by fraud.

    This year’s prime targets for consumer fraud? Young sprouts and those with pockets turned inside out. A substantial 47% of retail banking consumers under 40 experienced some form of banking fraud. Those tiptoeing on financial thin ice were not spared either — half of those “financially overextended” fell prey too.

    Are banks in Europe fortresses or houses of cards?

    47%

    Share of retail banking consumers under 40 who experienced some form of banking fraud in 2023

    Fort or facade? Europe’s banks might be teetering. Seventy-eight percent encountered third-party breaches in the past year, and 84% were victim to fourth-party breaches. The unmistakable takeaway? Europe’s FIs must up their defenses or brace for a potential digital plunder.

    A Kansas bank’s collapse was not market play, but scammer’s prey.

    A downfall with a twist: Heartland Tri-State Bank’s unexpected collapse in July was not market mischief but scammer’s craft. This unsettling tale from America’s heartland should send shivers down banking’s spine — and a warning: The vault may be locked, but always double-check the door.

    The B2B Dilemma: Balancing Innovation and Intrusion

    As businesses continue to lean more heavily into their use of digital B2B channels, especially ones for payments, the recurring dual narrative of convenience and vulnerability highlight a challenge of digital transformation: navigating innovation while mitigating potentially costly risk.

    21,832

    Number of complaints about business email compromise (BEC) scams the FBI received in 2022

    Are B2B card payments a digital convenience or a costly trap?

    Banking executives take note: Businesses increasingly embrace credit cards to make B2B payments, yet there is a catch. Thirty-six percent of U.S. firms ensnared by payments fraud trace it back to card transactions. This turns out to be costly, with 24% of affected firms shouldering losses above $100,000. Companies are forced to weigh the risk: Is swiping the card swiping their security too?

    Speed surges while safeguards stumble.

    B2B payments in the U.S. are in the fast lane, but potholes are aplenty. While real-time payments are zooming ahead, 24% of FIs have seen a surge in small business authorized push payment (APP) fraud via these payment channels. As the adage goes, “haste makes waste” — and the waste could be in the millions. The mantra? Swift but secure.

    Digital deception is delivered directly to the inbox.

    The threat is no longer at the gate. It’s in the inbox. The FBI logged nearly 22,000 complaints of business email compromise (BEC) scams in 2022, with fraudulent invoices and cunning impersonations racking up losses in the billions. This peculiar technique goes beyond rogue emails to shake the very foundations of B2B trust — a sharp cry to rethink, not retreat, digital payments defenses.

    Waves of Defense: The Digital Tide Against Fraud

    Digital fraud can be shockingly crafty. To counter this aptitude, FIs and banks are redrafting long-standing industry narratives about security. By adopting multifaceted strategies, banks are signaling commitment not only to counter fraud — but also to outpace it.

    Spanish banks lock arms against fraud.

    Spanish banks unite in a game-changing alliance against fraud. Banco Santander, BBVA and CaixaBank ditch rivalry for unity to unveil their joint venture “FrauDfense,” an intra-industry mechanism for pooling insights and empowering a collective response. In the face of rampant fraud, teamwork might just be the best weapon.

    Thailand’s SET issues a technology-savvy challenge to scammers.

    By mobilizing the country’s heavyweights of the financial sphere, the Stock Exchange of Thailand (SET) goes on the offensive against scammers. Rallying the expertise of the country’s Securities and Exchange Commission (SEC) and the Thai Bankers’ Association, SET has unveiled a two-tiered strategy of educating consumers and deploying cutting-edge technology to mitigate risks. The consortium is sounding the alarm against scammers.

    100M British pounds

    Estimated funds that could be saved from fraud in the U.K. if Mastercard’s artificial intelligence (AI) solution is widely adopted

    Partnership deals a winning hand against scammers.

    Mastercard just dealt a royal flush against fraud in the U.K. In a strategic play with nine major banks, the company’s AI-powered Consumer Fraud Risk platform — the product of a five-year partnership — is predicting fraud moves before they even happen. The company estimates that widespread adoption could cut scammer paydays by 100 million pounds across the U.K. Fraudsters beware: The odds just got stacked against you.

    Digital Trust Is in the Balance

    FIs and banks are foundational economic infrastructure, yet their viability hinges on their reliability and the trust placed in them. The bank failures of 2023 have been a stark reminder of this. As the financial industry tightens its embrace of digital, it promises unmatched convenience but also delivers newfound vulnerabilities that challenge the core of its reliability. The moment calls for these institutions to close the divide between the vast potential of eBanking and the emergent risks that threaten it.

    PYMNTS Intelligence prescribes the following actionable roadmap.

    • Educate the most susceptible: Directly target high-risk consumer groups and industries with educational campaigns on the types of fraud each segment is most likely to encounter. Also aim to understand the ways in which current campaigns miss the mark.
    • Reassess the security wall, not just the door: Go beyond front-end checks. Periodically audit all digital defenses, including both third-party affiliations and internal safeguards.
    • Standardize security standards across industries: Collaborate with industry leaders to establish inter-industry digital security standards, including those for layered digital security systems. These standards should account for technology integrations and initially emphasize real-time payments and email platforms.
    • Collaborate to build collective defenses: Harness the power of intra-industry alliances, as witnessed with FrauDfense. Aggregating and sharing resources and intelligence are powerful strategies not only for mitigating and countering fraud but also for supercharging the collective learning curve toward that end.
    • Nurture partnerships with technology leaders: Partner with premier FinTechs to help ensure robust management of security, payments and compliance. Doing so allows FIs to focus on core offerings.

    As the saying goes, “a new day, a new dollar” — and this is not far from the truth. The digital evolution of finance is reshaping how consumers and businesses alike transact, and this disruption means high stakes for security and trust. FIs must adapt, innovate and collaborate to navigate the challenges ahead.

    About

    Galileo is a leading financial technology company whose platform, open API technology and proven expertise enable FinTechs and emerging and established brands to create differentiated financial solutions that expand the financial frontier. Galileo removes the complexity from payments and financial services innovation by providing flexible, open API building blocks and a secure, scalable, future-proof platform. Trusted by digital banking heavyweights, early-stage innovators and enterprise clients alike, Galileo supports issuing physical and virtual payment cards, mobile push provisioning and more, across industries and geographies. Headquartered in Salt Lake City, Galileo has offices in Mexico City, New York City, San Francisco and Seattle. Learn more at galileo-ft.com.

    PYMNTS INTELLIGENCE

    PYMNTS Intelligence is a leading global data and analytics platform that uses proprietary data and methods to provide actionable insights on what’s now and what’s next in payments, commerce and the digital economy. Its team of data scientists include leading economists, econometricians, survey experts, financial analysts and marketing scientists with deep experience in the application of data to the issues that define the future of the digital transformation of the global economy. This multi-lingual team has conducted original data collection and analysis in more than three dozen global markets for some of the world’s leading publicly traded and privately held firms.

    The PYMNTS Intelligence team that produced this Tracker:
    Managing Director: Aitor Ortiz
    Senior Writer: Randall Brown

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