Releasing its Payment Intelligence Report 2022, Fraugster has reported that a total of £2.1bn in AML fines were handed out to over 80 institutions last year, an increase from 24 fined firms in 2020.
The payment intelligence firm outlined the figures as one of many key findings in its first payment intelligence report. The report aims to provide insight into key compliance, fraud risks and revenue uplift trends within the market.
Credit card fraud was found to be the most common method of fraud last year (88,354 cases), with debit card (69,937), payment app service (69,753), and gift card frauds (64,638) following as the next most popular methods.
Synthetic identity fraud saw a large leap in usage in 2021, with Fraugster finding a 109% increase in the fraud tactic. Other notable fraud types such as gift card fraud (70%), account takeover attacks (52%), bot attacks (41%), and friendly fraud (21%) all saw increases.
Shipping fraud was highlighted as being the sole fraud type which saw a decrease, falling 49.2% in 2021.
The BNPL sector was of particular interest to Fraugster in its report, as the firm acknowledged the ‘skyrocketing user growth, but at what cost?’.
Bad debt (debt that cannot be recovered) amounting for credit cards sat at a 5.3% increase, whereas bad debt for BNPL services was higher at 9.55%.
Over recent years BNPL has grown exponentially as more customers shift towards the instalment-based payment model. According to Fraugster’s research, 18-24 year-olds usage of BNPL service providers dominated all other age ranges at 62% YoY. 25-34 years (28%), 35-44 (21%), and 45-55 (26%) made up the rest of the findings.
Fraugster stated: “A number of BNPL providers have reported an increase in bad debts as they pursue ambitious user acquisition targets, expansion into new markets and a low friction signup experience.
“It is likely that missing data about a customer’s true credit risk is impeding the accuracy of credit risk decisions, as are differences in risk profiling in new regions where credit risk engines are not yet trained, or simply do not have access to the necessary data points required to make an accurate credit decision.”
The BNPL sector has taken a hit since the turn of the year, with many of its major players such as Klarna, Affirm and Zip having experienced a substantial decline in valuation due to investors growing wary and macroeconomic conditions.
When concluding its report on future trends of the market, Fraugster emphasised it will look to embrace Web3 functionalities such as the Metaverse and cryptocurrencies.
Whilst noting that Web3 will become ‘the future of our digital economy’, the intelligence firm highlighted that the metaverse could become a ground for fraudsters who look to test ‘stolen financial instruments’, whilst also outlining that cryptocurrencies provide ‘little to no purchase protection’.
Other key findings in the report can be found here.
