On June 26, 2024, a webinar featuring Cameron Church, Director of Market Planning for Asia-Pacific (APAC) at LexisNexis Risk Solutions, presented insights into the rising costs and complexity of fraud in the APAC region, highlighting how heightened digitalization has amplified fraudulent activities and emphasizing that fraudsters are leveraging sophisticated tools and tactics to deceive individuals.
The webinar detailed findings from a study conducted by Forrester Consulting between July and August 2023, surveying over 1,800 senior decision-makers globally, with more than 380 respondents from Australia, Hong Kong, India, Indonesia, and Japan.
The study revealed that the true cost of fraud in APAC is significant, with every fraudulent transaction costing 3.95 times the lost transaction value on average. The cost varies by sector, with retail experiencing a multiplier of 3.07, while financial services face a staggering 4.59 times the lost value.
Digital channels have become the main route for fraud. The COVID-19 pandemic accelerated digitalization, particularly in Southeast and South Asia, where the rise of super-apps has further expanded the digital landscape.
“The large majority of fraud has been seen across the digital channels. We are seeing 51% of fraud in digital channels alone, while the remainder occur across non-digital channels,” Church said. “Digitalization throughout the COVID pandemic and beyond has accelerated that, although the APAC region has always had strong digital [adoption] … with the rise of super-apps … across Southeast Asia and South Asia [especially].”
The study revealed that new payment methods, such as digital wallets, payment apps, and buy now, pay later (BNPL) schemes, constitute 26% of all fraud cases. Almost half of all fraud involves debit and credit cards, while 8% occurs through cryptocurrencies. Traditional payment methods like cash and non-digital transactions account for only 19%.
Scams remain a significant challenge in the financial services sector, evolving alongside increasing digitalization. Synthetic identity fraud is prevalent in both retail and financial services, where falsified identities are used to perform fraud and access services. Finally, first-party and third-party fraud, including account takeovers, continue to plague industries and communities as digital payments become more common.
The study revealed that fraud can occur at various touchpoints in the customer journey. However, account creation is a particularly critical vulnerability since it lacks the physical interaction necessary to verify identities accurately.
“Creating accounts, accessing accounts as well as making a purchase or sending funds are probably the three key touchpoints there,” Church said.
“But the creation of those accounts is where the bulk of their fraud is occurring. This is the front door and where we are first introduced to customers, and since we are not able to get a first physical interaction, it is challenging to understand who this person is, if it is genuinely that person who is entering these credentials, or if it is a case of friendly fraud or not.”
The study showed that staying current and defending against sophisticated frauds is a primary challenge for APAC organizations. Another crucial concern is balancing fraud prevention efforts with maintaining a smooth customer experience. In the financial services industry, consumer privacy is a major issue due to the use and sharing of data. While many services and tools are available to help businesses manage and deal with fraud, it remains challenging to balance these tools with the customer experience and privacy requirements.
One of the major emerging trends highlighted by Church is the difficulty in distinguishing between legitimate human transactions and malicious bot transactions.
“[Malicious bot transactions] have been around for a while but they have started to become more and more prevalent, especially with the rise of bot farms, etc,” Church said.
“Some of the feedbacks we got from the survey suggested that card testing is a big challenge, where folks are using stolen credit card information … to perform a small transaction to validate that the stolen card details are still accurate. They would then be able to continue [using the card] or sell it to another fraudster to perform other fraudulent transactions.
“These types of malicious transactions are very challenging and fraudsters are quite adaptive and smart in performing these transactions in bulk and using bots. Leveraging bots is becoming more and more of an issue as we are seeing across all of the major sectors.”
Church emphasized the importance of using different technologies at various points in time to stay effective, noting that using a broad spectrum of solutions reduces the cost of fraud significantly.
Balancing effectiveness, customer experience and technology
Church concluded the webinar with several key recommendations for organizations. First, he emphasized the importance of balancing fraud management effectiveness with maintaining a positive customer experience and providing customer education.
“Customers are part of the transaction so they are equally as important to protect,” he said. “[Educating them] will help you reduce your fraud losses but also help these customers in their future transactions … Customer education across industries is important.”
Secondly, adopting a risk-based, data-driven approach to fraud management was highlighted. “Leveraging multiple pieces of technology to be able to identify patterns of anomalies in customer behavior and different levels of measures of risk mitigations for different levels of risks, will also help improve customer experience because … every customer is getting their own unique experience based on their previous transactions, which will boost customer returning as well,” Church said.
Finally, organizations are encouraged to work with vendors that utilize emerging technologies and to regularly update security protocols and prevention tools.
“Fraud is an evolving thing,” Church said.
“The way that fraud is being perpetrated has changed and will continue to change, so it’s extremely important to stay on top of new technologies available that will be used to help mitigate these types of frauds … The moment you stay stagnant … you are more likely to see fraud rates increase over time.”
The webinar is available on-demand. Watch the replay at this link to gain further insights.
Featured image credit: edited from freepik