Both the number of cases of fraud and the amount stolen via it fell in the UK last year, but the country’s finance industry trade body acknowledges that the threat is not diminishing.
In its annual fraud report for 2023, UK Finance revealed that £1.17bn was stolen via fraud in 2023, down 4% on £1.21bn the year prior, with the number of cases also falling by 1% to 2.97 million.
The trade body shed further light on the numbers lost to unauthorised and authorised fraud. In the case of the former, losses fell 3% from £726.9m to £708.7m, and by 5% from £485.2m to £459.7m.
On the face of it, these declines look positive, marking the second consecutive year fraud cases and losses have fallen. However, the fall in total fraud is only marginal, and UK Finance noted in its report that the criminal threat UK consumers and payments providers face is not showing signs of abating significantly.
Recent years have also seen increases in technology, which have further compounded the risk of fraud – although in the case of artificial intelligence (AI), this is proving both a valuable tool for fraudsters and for the finance industry teams fighting them.
In a foreword to UK Finance’s report, Dan Holmes – Fraud Prevention Strategy and Subject Matter Expert at Feedzai – observes what he called a “perfect storm of factors” making fraud prevention more challenging for the British finance and payments sector.
He remarked: “The continued pressure to protect customers from scams, the refinement of new reimbursement regulations, publicly available scam reports, and the emergence of AI into fraud attacks were all significant drivers of change.
“This perfect storm of factors creates an inflexion point not seen for many years and is forcing the industry to rethink how they protect customers. Understanding user intent is critical, as is ensuring that technology deployed in previous years is still fit for purpose today.”
UK Finance asserts that 2023 saw some major changing trends in the perpetration of fraud, including some all time lows and all time highs. Card not received fraud is at its lowest since 1991, whilst remote purchase and internet banking are at the lowest since 2014, and authorised investment scam fraud since 2020.
In contrast, cases of lost and stolen fraud and card ID theft are at the highest since 1991, authorised purchase scams are at the highest since 2020, and authorised romance scams are at the highest since 2020.
Like other criminals, fraudsters will shift tactics when confronted with new prevention measures by victims, institutions and law enforcement. UK Finance observes that compromise of personal data and social engineering to take over accounts or trick consumers into making payments became more common in 2023.
AI, too, is making a big splash in fraud, as previously noted by Payment Expert. Feedzai’s Holmes points to the potential for AI to create images, scripts, videos and voices for fraudsters to use when targeting victims.
In a comment sent to Payment Expert, Andrew Foulds, Director, Global Clearing Solutions, Product Management, EMEA at Fiserv, shared his views on UK Finance’s findings.
“Fraudsters are becoming more sophisticated in their tactics, targeting the most vulnerable point in the transaction process: the payer,” he said.
“The 4% decline in fraud losses reported by UK Finance is a positive sign for consumers and financial institutions alike, and more can be done to stay ahead of fraudsters. With real-time payments on the rise, there is a pressing need to intercept fraud and money laundering before funds are settled.
“Although there is no silver bullet solution for financial institutions to eliminate fraud, a well-considered AML and fraud strategy that encompass activity across the payment chain is key. Collaboration and co-operation must be part of the solution, alongside real-time fraud detection processes that utilise capabilities like machine learning.
“Ultimately, innovation is crucial to prevent and intercept fraud as fraudsters evolve their tactics over time.”
The British financial sector, like many other economic segments, was significantly impacted by the pandemic. Fraudsters too had to evolve during this period, UK Finance notes, with the impact of COVID-19 still being felt in fraud perpetration and prevention years after the lockdowns ceased.
The years since COVID have seen a significant rise in mobile banking fraud according to the 2023 report, including for telephone banking. This largely falls in line with a physical-digital shift seen in UK banking and payments, whereby many have turned away from retail banks – which are increasingly shutting their doors – and to digital and mobile methods.
When discussing technology shifts, it is impossible not to re-raise the elephant in the room of AI, as discussed above and referenced by Feedzai. Regarding AI’s potential for voice cloning, UK Finance’s feedback suggests that this has not been a driver behind the rise in telephone banking losses.
Regardless, the association states that it, and the industry, intend to remain vigilant on how AI can impact the fraud landscape. The association asserts that “the implications of AI in the fraud landscape are being closely monitored across the industry”.
UK Finance’s report comes ahead of a significant regulatory change in UK payments regarding fraud. In October, the Payments Systems Regulator (PSR) will introduce new rules around authorised push payments (APP) fraud reimbursement, requiring receiving and sending payments firms to split the costs of reimbursing victims 50/50.
Responding to UK Finance’s report, the Lending Standards Board (LSB), issued its own statement. The LSB, which oversees the Contingent Reimbursement Model (CRM) Code, commented specifically on UK reimbursement rates.
Anna Roughley, LSB Head of Insight, comments: “The Contingent Reimbursement Model (CRM) Code has been instrumental in driving up reimbursement rates for Authorised Push Payment (APP) fraud and building a consistent approach to preventing and detecting scam across its signatory firms.
“Overall reimbursement rates for APP fraud have more than doubled since the Code was introduced, while the Financial Ombudsman Service has said it receives more complaints about APP fraud from non-Code firms – partly because Code signatories have better prevention measures in place.
“We’re proud of the role the Code has played in improving outcomes for people if they do fall victim to APP fraud – and in stopping people from becoming victims in the first place.”
UK Finances figures show that whilst the industry is keeping up with fraud prevention, as the decline in overall cases and losses show, this will continue to be a challenge.
The rise of new technologies like AI and the ability of fraudsters to shift tactics when faced with new prevention methods will make this a burden for UK payments to bear for the foreseeable future.
