Threat of Deepfakes Drives Two-Thirds of FinTechs to Boost Fraud Budgets
For every new fraud scheme that pops up, dozens of FinTechs are responding to quash it. Yet despite their expertise in cutting-edge technology, FinTechs are far from invulnerable to attacks themselves. A recent PYMNTS report found that FinTechs, on average, lose $51 million every year to fraud — an approximate median of $400,000 — or the equivalent of 1.7% of their annual revenue.
Fraud schemes are mutating alongside — and enabled by — technology. Stolen information is becoming more accessible and easily bought, with highly sophisticated criminal groups offering “fraud as a service” on the dark web. Against this backdrop, FinTech fraud is on the rise, having grown 13% in the past year. Moreover, FinTech companies were the most likely financial entities to report higher fraud losses last year.
The “FinTech Tracker®” explores the evolving FinTech fraud risks and the automated solutions that can protect FinTech profitability.
Around the FinTech Space
A new report on major fraud trends in financial services shows some interesting twists in the past year. Although overall fraud dropped to its lowest rate since 2014, affecting 65% of companies, 36% of financial institutions (FIs) experienced card fraud in 2022, up 26% from the previous year. Drilling down, 75% of all fraud losses to U.S. lenders resulted from phishing scams. Other financial services experienced that fraud technique at 66%. Moreover, 71% of FIs reported a security breach due to business email compromise (BEC), where fraudsters pose as trusted company executives or partners.
“Platform fraud,” a newly minted economic crime involving fraudulent activities on social media, eCommerce, enterprise and FinTech platforms, is making headlines in India. A recent PwC report found this fraud makes up more than half — 57% — of all fraud incidents in the country. More than one-quarter of Indian companies lost over $1 million to platform fraud. Forty-four percent of bad actors committed this fraud for financial gain.
For more on these and other stories, visit the Tracker’s News and Trends section.
Why FinTechs Are Leaning Into AI to Fight Changing Fraud Threats
As financial fraud changes in the digital age, the emerging picture is complex. On one hand, fraud in 2022 was at its lowest rate since 2014, affecting 65% of organizations. Signs also showed that companies were duly implementing measures to combat it. Forty-five percent of all U.S. financial service firms have fully integrated digital fraud prevention systems, up from 28% in 2020.
Nevertheless, fraud continues to spiral upward in new ways. FinTech fraud was up 13% in 2022. Threats such as identity fraud severely affect the sector, with nearly half of FinTechs impacted by use of fake documents. These findings suggest that while the financial industry is responding to the challenge, vigilance and adaptability will be vital to succeeding as fraudsters continue to seek — and find — loopholes in defenses at every turn.
As fraud schemes evolve, FinTechs are bearing the brunt of risks. Artificial intelligence (AI) and machine learning (ML) are key technologies FinTechs can use to combat fraud and lessen lost revenues.
To learn more about how AI and other technologies can help fight fraud and promote profitability, read the Tracker’s PYMNTS Intelligence.
About the Tracker
The “FinTech Tracker®,” a collaboration with Sezzle, examines the growing and changing fraud risks to FinTechs and the automated solutions that can protect FinTech profitability in the face of these threats.
The post Threat of Deepfakes Drives Two-Thirds of FinTechs to Boost Fraud Budgets first appeared on PYMNTS.com.