APP Scams Rise as Adoption of Real-Time Payments GrowsACI Worldwide's Jackie Barwell on Fast Payment Transactions, Scams, Mule Accounts
As countries across the globe adopted real-time payments at breakneck speed over the past year, experts said authorized push payments fraud sharply increased. APP scams nearly doubled year-over-year compared to other types of fraud.
About 195 billion real-time payment transactions were recorded globally in 2022 - a year-over-year growth of 63%. At the same time, the availability of real-time transactions leaves banks and financial intermediaries vulnerable to attacks, especially APP scams. Authorized push payment scams grew 92% in many countries in 2022 - from 14% to 26.9% of all types of fraud, according to a report ACI Worldwide released today.
An ample supply of mule accounts and the instant-clearing capabilities of real-time payment apps are making a strong business case for fraudsters. But as fraud detection systems become more sophisticated, banks are a harder target, so fraudsters have turned to a more vulnerable and unprotected victim - the banks' customers.
“The payment industry is usually focused on a particular area more closely and that pushes the fraud to another avenue," said Jackie Barwell, director of fraud product management at ACI Worldwide and co-author of the report. "Or it could be that there's new fraud prevention capability at play within the banking arena itself that has closed the door of opportunity to the fraudster, thereby pushing that fraudster to another avenue that's a little less troublesome.”
The report, which focuses on the United States, United Kingdom, India, Brazil and Australia, found that traditional fraud techniques such as card details stolen in person and identity theft had decreased across the board. "In every single one of these countries, APP fraud has increased exponentially, whereas all other types of fraud have decreased. The one other area of fraud that has also increased in every geography is digital wallet hack, and this is utilized mainly for mule account activity,”" Barwell said. According to the report, digital wallet hacks accounted for 7.9% of all fraud.
India is leading the real-time payments market in the world, majorly driven by the government’s push for the adoption of digital payments. Unified Payment Interface facilitates payment through QR codes, virtual IDs and mobile numbers. Consequently, APP scams in India have grown from 13.7% of fraud in 2021 to 25% in 2022. "We expect APP scams to double from $330 million in 2021 to $612 million in 2026 in India," Barwell said.
In the U.K., which last week came out with legislation to reimburse customers affected by APP scams, losses from APP scams are expected to double to $1.5 billion by 2026.
Real-time payments still form a small portion of the overall U.S. payment mix, but APP scams grew 151% in 2022, from 7.4% to 18.6% of all fraud. With the launch of FedNow in July, the share of real-time payments is expected to increase.
Brazil, which is second to India in real-time payment adoption, experienced a 137% increase in APP scams, from 12% to 28.5% of fraud incidents.
Australia suffered a loss of $3.1 billion in APP scams in 2022 as real-time payments more than doubled during this period.
Addressing the APP Problem
Banks have historically focused on preventing money from going out fraudulently, but that is changing. "This is based on the premise that the bank must have my permission before debiting money from my account. And the focus is still there, and of course it needs to be there. But banks do not often pay attention to where the money is coming from in my account," Barwell said.
To spot APP scams, it is important to focus on both the sending and receiving activity of funds and create strong profiles of behavior. "This will help identify mule accounts or track development of any account being utilized by fraudsters as a mule account," Barwell said.
She also said it's important to expand the AML technology capabilities already present in the banking environment to other departments and create profiles that facilitate mature fraud detection capabilities.
"We need to feed these behavior patterns into AI modules that can allow for the prediction of changes in behaviors of existing accounts that have been opened legitimately but suddenly take on the appearance of mule account overnight," she said. "There are so many elements to understanding behavior patterns beyond card, online banking or just real-time payments. Banks need to have that holistic view and turn the profiling knowledge into AI to keep up with the speed of real-time payments."