“Sharp and aggressive” hike in payments fraud expected during pre-Christmas trading
BR-DGE strategic partnerships lead Tom Voaden said: The implementation of PSD2 and Secure Customer Authentication (SCA) has been a stand out milestone for the payment and fintech community over the past few years. For the most part, it has been a resounding success with studies showing that nearly three-quarters of retailers have seen a drop in fraud in the months post-implementation.
Getting to this pivotal moment wasn’t easy, however the payment sector should be proud of the success this initiative has achieved whilst noting a complex road ahead remains for countering payment fraud.
It is clear however that some sectors have struggled more than others to adapt and implement SCA, and it hasn’t completely eliminated online card fraud, with fraudsters working to adapt their techniques accordingly. As we approach the busy end of year trading period for online retailers and merchants, it would be wrong to think this work was a “job done”. Below are three areas to look out for in the months ahead when it comes to countering online payment fraud.
Will SCA be enough to protect consumers this Christmas?
Last year, UK Finance found that fraud losses on UK-issued cards totalled £524.5m. For payment fraudsters, the peak retail sales period in the run up to Christmas is the busiest period of the year and where a significant portion of this illegal activity will take place. This year, SCA will help minimise the capabilities of fraudsters, but it would be wrong for consumers and merchants not to be vigilant when it comes to the full spectrum of fraud activity. For merchants, fraud tools still remain a vital part of a fraud prevention and protection toolkit.
Recent figures from UK Finance show that whilst remote banking fraud was down by 36% year-on-year in H1 2022, payment card fraud was up by 4%. It is clear that the sector hasn’t fully conquered the payment fraud issue, and it will remain an ever-present threat to merchants and consumers. For merchants looking to optimise their fraud and risk tools before the busy Christmas period, time is running out to onboard the best technology and add enhanced layers of security to protect consumers. Best in class fraud tools are typically available via merchants existing payment providers or at speed via orchestration platforms.
It is clear that card and payment fraud will continue to play a role in the busy pre-Christmas trading period. SCA alone won’t be enough to protect consumers and merchants this year, and retailers should look to other mechanisms to fight fraud.
Will network tokenisation come of age in 2023?
Another hot topic emerging in payment fraud is network tokenisation and its capabilities. Network tokenisation replaces sensitive Primary Account Numbers (PAN) information with tokens; a 16 digit value that can be used only by the merchant that collected the card. Network tokenisation limits fraud by replacing sensitive account information with a token that can only be traced back to the original account with a master key.
Visa, Mastercard, and Amex are innovators in this space with Visa surpassing 4 billion tokens issued in August this year across 800,000 merchants. Visa has seen fraud rate reductions of 28% via network tokenisation, highlighting the opportunity here to clamp down on payment fraud with this technology. However, whilst positive inroads have been made, we remain only in the foothills of what is possible. In the future, network tokenisation has the ability to further clamp down on data fraud and mass data breaches.
Greater education is needed for merchants in this area. Many merchants are not aware of network tokenisation and how it can help their business counter payment fraud. This is ever more important as the impact of payment fraud is becoming more severe for consumers and businesses.
Will Open Banking be a powerful tool to tackle payment fraud?
The ongoing payment fraud challenges faced by the industry may also turn heads towards Open Banking, as this challenge has encouraged market players to look at new technologies to counter this damaging activity. Data is becoming more important in the fight against fraud, and Open Banking has a significant role to play in giving merchants and banks more information about consumers.
Leveraging years of data, there is a clear opportunity for banks and merchants to make more informed decisions when identifying fraud and adding extra layers of security when unusual activity is taking place. The opportunity to utilise artificial intelligence and Open Banking to find these instances of fraud, further highlights the potential for innovation in this space.
However, there remains an adoption gap in Open Banking. A recent report from the Open Banking Implementation Entity estimated that 10 – 11% of digitally-enabled consumers and small businesses used the payment method during March 2022, up from 6-7% in March 2021. Before Open Banking can realise its full potential in countering fraud, more merchants and consumers need to adopt this technology.
Whilst great strides have been made in recent years to counter online payment fraud, many merchants and retailers remain exposed to the capabilities of fraudsters. SCA and PSD2 was a gamechanger for the payment industry but there remains a question of “what next?”. Open Banking, Network Tokenisation, and innovative fraud prevention tools are highly effective for clamping down on fraud but are not yet the norm for merchants, particularly SMEs. The Christmas trading period will bring a sharp and aggressive hike in payments fraud, merchants and consumers need to be ready for this.