With over 150+ back-to-back sessions across three days, Money20/20 Europe drew one of the biggest crowds of leaders across the fintech ecosystem in the region and beyond. If you were unable to attend or want a quick recap, check out this summary and its practical implications you can take back to your team, including how to prepare for the rise in AI fraud, safely capitalize on the demand for instant payments, and prepare for the rise in payment costs.
Top Three Fraud Trends in Fintech
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AI fraud is on the rise
With this year’s theme being “Human X Machine”, AI was no doubt a hot topic across all sessions, but none so prevalent as in the area of fraud prevention. This comes as no surprise as the fintech and payment sector is battling a $1 trillion cyber-fueled Fraud Economy that is leveraging generative AI, the dark web, and social media to accelerate the pace and sophistication of fraud.
During a session on fintech growth best practices, an audience member raised a question about how the industry is addressing the surge in fraud and sharing trends. The panelists acknowledged that they currently depend on “peer communities” and “payment services” to exchange insights and trends. This acknowledgment highlighted a notable disparity between the progress made in fraud techniques versus fraud prevention in the fintech sector.
This gap is particularly concerning given that account takeovers are increasing at an alarming rate of 354% a year and directly impacting a fintech’s ability to generate net profit—a key challenge as noted in a recent Mckinsey report: Fintechs: A new paradigm of growth:
“In a liquidity-constrained environment, fintechs and their investors are emphasizing profitability, not just growth in customer adoption numbers or total revenues.”
Below are key data points and practical takeaways fintech leaders can derive to stay ahead of this curve:
- $61 billion is generated annually from the trading of stolen account data in the cyber-fueled Fraud Economy, making business and even regional specific fraud insight sorely obsolete.
- 52% of businesses in EMEA see the rise in synthetic identities as the main challenge in customer verification, forcing companies to go beyond traditional checks to identify fraudsters.
- 61% of fintech and banking reported more fraud attempts from consumer accounts last year, highlighting a growing need to detect anomalies in consumer behavior to protect against payment fraud and account takeovers.
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Rising demand for instant payments
Another hot topic at this year’s event was the rise in instant payments. Instant payments spanning ACH, digital wallets, crypto, and other forms of currency are becoming the new differentiator as they attempt to meet consumer demand for convenience and fast-tracked through recent regulations like ISO 20022.
According this McKinsey report on the next payments era: “The increase in electronic payments transaction volumes has consistently outpaced payments revenue growth (17% versus 6%) over the past five years.”
This is especially poignant for the SEPA region as instant payments are projected to rise to 45% of the total credit transfer volume by 2027 and a far higher share of account-to-account (A2A) payments, including transfers done through Automated Clearing House (ACH), real-time gross settlement (RTGS), and instant payments as shown below:
However, this expansion does not come without risk, especially for payment types in which consumers do not have a proper outlet to recover from account takeovers.
Without the ability to properly protect the consumer, businesses may risk losing one of the hardest assets to recover: consumer trust. Consumer trust has a direct impact on customer lifetime value as nearly 50% of consumers reported they would switch companies due to lack of trust.
Therefore, while fintechs may be held less directly liable for losses due to fraud, the burden does increase to safeguard the entire consumer lifecycle.
So how can fintech and other payment providers safely capitalize on the rise in instant payments while maintaining consumer trust? According to McKinsey’s report on the future of the payments industry, fraud and risk leaders will play a significant role in this effort:
“For the risk function, this new dynamic offers an opportunity to play an expanded role, moving beyond threat management to serve also as an enabler of and engine for growth.”
In this evolving landscape, relying solely on traditional risk markers like IP addresses is no longer adequate. Security and fraud teams must collaborate closely to bolster defenses both at the network and consumer levels. AI presents an opportunity to bridge this gap by enabling risk mitigation teams to identify and mitigate emerging threats by analyzing distinct consumer behavior patterns across all new and emerging types well in advance of any interaction.
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The rise in payment fees is impacting fintech’s bottomline
The rise in alternative payment methods may be even more appealing as payment processing fees may rise up to $502 million a year to merchant costs. This is in addition to Visa and Mastercard’s recent increase in cross-border interchange fees for debit cards by 0.1% and credit cards by 0.35%.
The last key takeaway from the event is the impact of these increases. In an article by The Economic Times, they noted the real-life examples of how certain fintech businesses are grappling with a noticeable reduction in their bottom line: Paytm, owned by One 97 Communications, reported processing charges of Rs 2,565 crore till December-end, up almost 18% from Rs 2,177 crore a year back.
Top Strategies for Fighting Fintech Fraud
Protect consumer trust by safeguarding the entire customer journey
To help address these evolving fraud challenges, fintech and other payment providers must pay close attention to driving efficiency across their entire revenue ecosystem—from customer acquisition and customer lifetime value to chargebacks. Fraud impacts each of these key performance indicators, and it’s no surprise why it was a major theme across the entire event.
To minimize revenue leakage across the customer lifecycle, businesses must address risk threats beyond the point of payment transaction. This includes:
- Stopping illegitimate activity from occurring upstream with AI-powered, real-time risk analysis and prevention at the point of account creation and login.
- Fortify consumer accounts mid-stream with powerful in-session behavior detection and interventions to identify and prevent account takeovers.
- Expedite chargeback case resolutions downstream with streamlined insights to quickly assess the validity of a chargeback and pre-populated templates that accelerated case submissions.
Leverage AI to combat fraud
Sift is at the forefront of leveraging AI to combat fraud in the fintech and payments industry. Recently, SIft released its latest innovation, RiskWatch, which leverages AI to empower simplified, smarter fraud decisioning by empowering fraud and risk teams to easily set target block/manual review/3DS thresholds that adjust automatically in response to shifts in risk and market demand, and grow securely. In doing so, fintech and payment services can simplify growth objectives and alleviate the pressure on fraud teams to continuously adjust automations strategies. Learn more about RiskWatch.
Book a live demo of Sift’s award winning, user-first platform of data-backed risk solutions to learn how you can leverage AI to combat fraud.