Fraud predictions: Fintech, AI and Retail

As we move seamlessly into 2024 it is an unfortunate fact that fraud across the payments industry will continue to grow as the industry continues to innovate and mature, but what are the main trends that are likely to emerge this year?

Fraud predictions: Fintech, AI and Retail

When it comes to all thing’s fraud in 2024, I expect social engineering will take a giant leap forward.

A lot of consumer technology (Apple Pay, for example) is prioritising highly secure and personalised experiences, relying on biometrics and specific device features, says Doriel Abrahams, head of risk, Forter.

A few years ago, this would be a homerun for consumers and a major deterrent for fraudsters.

But with the popularity of generative AI (shout out to ChatGPT and FraudGPT), fraudsters can now make their social engineering scams even more convincing at an unheard of scale.

So, while consumer tech may be getting more secure, fraudsters are also getting more cunning.

RDC + ATO

Another phenomenon I expect will surge in 2024 is the usage of remote desktop control (RDC) to commit fraud.

This is where a fraudster takes over a victim’s device and operates as the victim – changing their passwords, purchasing airline tickets, applying for new credit cards.

When you think about it, it’s the high-tech version of social engineering.  We’ve always seen RDC attacks, but they’ve popped up more regularly this year and I suspect it’s just the tip of the iceberg.

A similarly damaging trend is account takeovers (ATOs) where a bad actor gains access and takes over an online account using stolen or hacked credentials.

This is especially troubling for online merchants who then must discern a legitimate account used by a trustworthy customer from a legitimate account that’s been hijacked by a bad actor.

Because they’re so tricky to catch, and because we’re already seeing an upward trend in ATOs this year, I predict we’ll see a rise in ATOs in 2024.

Cards and Merchants

We will start to see the fruits of issuer modernisation projects that have been years in the making. For years (decades, really) issuers have talked about modernising their tech stacks, and now we are finally seeing them get major portions of those projects over the finish line, continues Jeff Hallenbeck, head of financial partnerships, Forter.

For example, industry-leading financial institutions (FIs) have embraced cloud infrastructure, benefiting from its speed and scale. This opens up a host of new use cases in the payments space, such as data sharing, closed loop processing, and new digital banking features.

The merchants that quickly adopt and adapt to these innovations will end up on top.

Competition will be more available to merchants than ever before.

The credit card competition act legislation looms large in 2024, and if it passes will affect how consumers, merchants and issuers all interact with daily card processing.

Even if that legislation doesn’t pass though, we will see the commoditisation of traditional payment processing continue to accelerate, and a rise in usage of alternate networks to process card transactions.

For merchants, cheaper processing and more routing choices means higher profit margins, which in turn begs the question: How will/should they share that with the consumer?

I predict that by the end of 2024 we will see merchants start to get creative with new incentives for their customers, as they have more margin to do so at the point of transaction.

The move to payment orchestration will create a need for smart, centralised payment enablement services.

It is no secret that more and more merchants are heading towards a multiple-payment provider strategy, but with that will come a need for better central enablement services such as tokenisation, risk, and authentication.

The build-or-buy decision for merchants in this space will heat up dramatically in 2024 as their payment architecture is more mature, but also more complex than ever before.

Digitally assisted in-store transactions will skyrocket.

Merchants have been investing heavily in digital engagement strategies over the past several years, and customers are becoming more used to engaging and purchasing via mobile apps.

In 2024, merchants will continue to reward customer loyalty via digital engagement, and we will continue to see e-commerce payments take the place of traditional card-present transactions.

In the risk space, these transactions present a unique challenge for merchants, as the fraud liability will sit with them unlike card-present transactions.

Merchants will need to step up their risk assessment game, and risk services will need to be able to navigate the fine line between online and in-person customer identity verification.

Bots and GenAI

Traditionally, bots have been synonymous with malicious activity, infiltrating websites to steal inventory, test stolen credit cards or execute credential stuffing attacks.

However, in recent years, particularly in 2023, a new trend is emerging: powered by GenAI tools, new types of bots come equipped with user-friendly features, such as shopping on behalf of consumers, gathering information, comparing flight prices and more, says Eran Vanounou, chief technology officer.

Think of an Alexa-like experience for each and every smart device you own – TV, fridge, closet, cat litter box.

Soon, all of these devices will be able to purchase what they need automatically, using the consumer’s credentials and payment info, and they will have permission from the user to do so, hence “good bots.”

The impending challenge for fraud managers lies in distinguishing between good and bad bots. Considerable effort has been invested in developing tools and models to differentiate human activity from bot activity.

Yet, the advent of GenAI introduces a significant twist, making it crucial to discern not just between human and bot but between good and bad bots.

Those who can navigate this distinction will undoubtedly lead the way in digital commerce.

GenAI is set to play a pivotal role in how fraud experts manage and analyse vast amounts of data.

It will enable them to swiftly and meaningfully consume and interact with data by posing questions in their own natural language.

This presents a golden opportunity for fraud managers aiming to broaden their spheres of influence, as they gain access to information that was previously trapped under unnecessarily complicated data structures.