Payments fraud 2023:
Deep fakes abound as fraudsters capitalize on uncertain economic times

It would be a welcome development if fraud and financial crimes were predictable, static or even diminishing in importance as we look at the trends shaping business payments in 2023. But it’s not the case. We’re living in the age of the deep fake. Fraudsters can create images of world leaders and put words in their mouths that aren’t true. They can fake identities as corporate CEOs, international lovers or mortgage brokers. In short, the fraud landscape will be treacherous this year for three reasons: the aforementioned technology twisted for illegal purposes, new fraud vectors, and macroeconomic factors that can push once law-abiding citizens into criminal activity.

Let’s first take the expected increases in digital fraud stemming from new technologies. Artificial intelligence and machine learning have created data analytics opportunities that, on the one hand, can help identify and prevent fraudulent activities. But on the other hand, it has resulted in an exhaustive list of impersonation scams like authorized push payments (APP) fraud, business email compromise (BEC), and account takeover. Fraud rings are using advanced AI technology to improve their ability to stay one step ahead of investigators and make it more challenging to distinguish authentic individuals from synthetic individuals. Some have found their way into the entertainment category—where everyone from actors to business and world leaders are placed into videos that use AI and impersonation to pull off what might appear to be legitimate content.  But when you consider that identity theft topped the US Federal Trade Commission (FTC) fraud reports contributing to 24% of all fraud, and that computer misuse in the UK driven by unauthorized access to personal information increased by 89% (to 1.6 million offences) in 2022, it’s not at all funny. Expect digital fraud to overtake card fraud in 2023.

One of the reasons for that is the disturbing ability of fraudsters to organize. Take insider fraud threats, for example. If we had to identify the most concerning area of fraud, this would be it. The work-from-home culture has changed the insider risk threat landscape. In its 2022 Fraudscape report, CIFAS explicitly flagged an increasing concern about “the rise in insider threat as a service”, which is not a SaaS-based positive application as the name suggests. Instead, it described the trend in which employees are actively recruited through social media by fraud rings to carry out internal fraud (data leakage, financial theft). Fraud and financial crimes don’t occur in a bubble. External factors heavily influence it. The more banks and businesses understand the extent of these dynamics and key factors, the better they will be able to prepare for them.

My colleague, Bottomline’s global VP Omri Kletter, astutely points out that these developments will accelerate thanks to three economic and geopolitical factors: cost-of-living spikes, malign foreign policy strategies that have made digital fraud a big business, and changes in the overall payments environment. Those cost-of-living increases, Kletter says, map directly to a rise in insider fraud.

“There is no doubt that economic uncertainty and the cost-of-living crisis will have an impact,” Kletter says. “We must prepare ourselves ahead of that impact, which makes people more vulnerable to taking actions that facilitate fraud. We’ll likely see an increasing number of well-developed mule networks, new accounts and existing accounts dragged into fraudulent activities such as APP fraud and business email compromise. Employees under more stress and financial pressure will create a higher risk for businesses. Companies should regularly revisit all employees responsible for activities that require internal controls, close any gaps, and tighten any loose procedures.”

How to fight the good fight? If we had to pick one word to define the right strategy this year, it would be “holistic.” To maintain their reputation and seal any leaky buckets, banks and business must continuously review their entire payments process, acknowledge new fraud risks including collusion between internal staff and external bad actors, and justify the adoption of fraud prevention tools and technology where needed. There is a general concern that some financial crime areas (such as insider fraud) are underreported or not reported at all and don’t get management’s attention. Make sure your technology and processes are up to speed. Educate your teams. Because you can bet your bottom dollar that fraudsters are hard at work scouting for any potential weaknesses and gaps.