Online Payment Fraud in the UK: Trends and Patterns

This Report is published on DatenCule Substack on 07-03-2024.

Contents

Introduction

Data Observations and Analysis

Conclusion

Data Sources

References

Introduction

The internet's role in facilitating the interface between technology and finance gave rise to digital payment systems. This kind of technological innovation in the payment industry provides the foundation for financial inclusion. However, despite the continuous progress and prospects for integrating individuals into the ubiquitous digital world and transforming the payment system towards digital payments, several significant issues remain to be addressed to establish a more tranquil, comprehensive, and enduring cashless community (1). Payment card fraud has increased due to the rise in the number of payment cards issued globally and the volume of transactions done with these cards because of e-commerce. Businesses, banks, financial institutions, and other system participants experience card-based payment losses in addition to cardholders (2).

Data Observations & Analysis:

Over the past four years, there has been a remarkable surge in global e-commerce losses due to payment fraud, escalating from $17.5 billion in 2020 to $48 billion by 2023. This substantial uptick underscores the increasing complexity and magnitude of online fraud and cybercrime activities.

These financial setbacks extend beyond individual consumers, adversely impacting merchants and financial institutions alike. Merchants face challenges, including chargebacks, revenue losses, and reputational harm resulting from fraudulent transactions. Similarly, financial institutions grapple with substantial costs associated with investigating and resolving fraudulent activities, compensating affected clients, and fortifying security measures to mitigate future risks.

As technology evolves, fraudsters gain increased access to both data and potential victims. With the growing amount of information stored online, cybercriminals exploit large-scale data breaches to acquire and utilize stolen personal data for their unlawful endeavors. Additionally, text messaging services and other mass communication platforms enable scammers to simultaneously target thousands of individuals. Through "spoofing" techniques, fraudsters manipulate caller IDs to mimic legitimate UK numbers or businesses, tricking victims into answering calls they might otherwise ignore. Furthermore, advancements in machine learning techniques and the emergence of sophisticated artificial intelligence, such as Chat GPT, enable fraudsters to refine and personalize their fraudulent activities with greater precision (3).

From 2013 to 2022, e-commerce-related scams have cost UK cardholders a staggering £2.853 trillion. The FCA finalised PS21/19 amendments to the UK strong customer authentication regime in November 2021, and the SCA rules went into effect in March 2022 (4). This may have contributed to a notable decrease in UK online payment scams. However, this does not imply that the threats or scams will be minimized. Emerging methods, such as the proliferation of fake cryptocurrencies or online Ponzi schemes, continue to pose potential risks.

In the UK, frauds and scams make up the single largest category of crimes, and they have been getting worse recently. Furthermore, the percentage of crimes in which the victim knowingly permits the transaction has been rising and now accounts for the majority of occurrences. The main problem nowadays is not a technological glitch or weakness, but rather that consumers are being tricked into sending money to criminals (5).To ensure that victims of Authorised Push Payment (APP) fraud receive a greater rate of compensation, the Payment Systems Regulator (PSR) has released new guidelines for banks and payment companies. It is anticipated that this approach will encourage more attempts to proactively stop these types of fraudulent acts from happening (6).

Conclusion

The creative payment market is very dynamic, always opening up fresh opportunities for development and entry into the market for a variety of companies from a variety of industries (such as Big Tech, telecoms, and finance), and it is no longer limited to banks. The current state of affairs has given rise to regulatory problems regarding the suitability and scope of government regulation of fresh and inventive payment systems, all the while preserving an equilibrium between security and usability and fostering innovation (7).

Data Sources

1. https://www.statista.com/statistics/1273177/ecommerce-payment-fraud-losses-globally/
2. https://www.finder.com/uk/credit-cards/online-shopping-fraud#:~:text=Quick%20overview,lost%20%C2%A31%2C486%20per%20scam.
3. https://www.gov.uk/government/publications/fraud-strategy/fraud-strategy-stopping-scams-and-protecting-the-public

References

1. https://www.mdpi.com/1999-5903/15/1/21
2. https://art.torvergata.it/retrieve/7caca3bf-e027-4a29-b3c5-2d1174f525f5/e9e42a_1f91449b6d074d468a71b7c1498ec311.pdf
3. https://www.gov.uk/government/publications/fraud-strategy/fraud-strategy-stopping-scams-and-protecting-the-public
4. https://lpscdn.linklaters.com/knowledge/-/media/digital-marketing-image-library/files/06_ckp/2021/november/payments-horizon-report-20221.ashx?rev=5609ada4-47b3-4551-85fd-d3c1e0c8c6ce&extension=pdf
5. https://assets.publishing.service.gov.uk/media/6557a1eb046ed400148b9b50/Future_of_Payments_Review_report.pdf
6. https://www.psr.org.uk/news-and-updates/latest-news/news/psr-confirms-new-requirements-for-app-fraud-reimbursement/
7. https://www.sciencedirect.com/science/article/abs/pii/S0275531922002410?via%3Dihub