Although payment fraud is a ubiquitous global issue, a recent article in Finextra noted that “Americans lost more than $10 billion to fraud in 2023, with investment scams accounting for nearly half of the losses, Federal Trade Commission data shows.”

Unfortunately, this trend is anticipated to persist and possibly accelerate over the next few years as reports of scam-related losses increase. Here, we take a look at the Authorized Push Payment (APP) fraud landscape and predictions for its future trajectory.

US-based payments app Zelle initiates refunds for imposter scams

In summer of 2023, after a swathe of Zelle customers lost a combined total of $440 million to impostor scams, banks and credit unions using the payment app began the process of reimbursing the customers who fell victim to these fraud schemes.

The introduction of Zelle’s refund policy for what they call “qualifying imposter scams” suggests that thousands of customers who have been scammed while suffering in silence may now seek reimbursement for the money they lost.

While the exact number of successful claims remains unknown due to Zelle’s “qualifying” criteria, the introduction of this refund mechanism is expected to result in a notable increase in reported cases.

As Zelle begins its initial phase of refunds, an increase in scam reports is expected — this is reminiscent of the trend observed in the UK over the last five years following the introduction of a voluntary reimbursement code in 2019. During this time, the UK has grappled with a consistent annual increase in the number of reported cases of APP fraud, reaching an 8% increase in reported scam payments in 2022 compared to 2021.

While the heightened awareness of potential refunds may contribute to this uptick, the estimated 90% of unreported scams suggests that there’s significant potential for increased reporting from previously silent victims who have now become aware of the opportunity for refunds.

The road ahead: What does the future hold for fraud-related refund trends?

The rollout of refunds for specific scams or payment types is likely to trigger further changes and an increase in future reimbursement activities. This is especially true as questions regarding refund disparities — for example, “Why can Zelle refund me, but FedNow can’t?” — start to be asked.

As FedNow continues to expand its roster of financial institutions, volumes of payment will also increase, along with reports of fraud and the pressure to introduce a refund policy for APP payment scams.

There’s also ample evidence to suggest that organizations worldwide are analyzing the emerging approaches to fraud-related refunds to learn from any potential shortcomings. This is particularly evident with Zelle, where the initial adoption of a receiving liability approach contrasts with the UK’s plans to introduce a 50/50 liability structure in October 2024.

Australia is taking a proactive stance on the issue, by including Telecommunications and Digital Communications in their regulation consultation. While the Australian approach doesn’t focus specifically on reimbursement, it will raise consumer awareness about the importance of reporting scams to all relevant entities. This includes Telecommunications and Digital Communications since they will be responsible for assisting in whichever ways they can and potentially offering reimbursement if customer expectations are not met.

Can cross-collaboration help mitigate the rising tide of payment fraud?

Perhaps the biggest impending change that will impact the fraud and scam landscape, is the newly announced agreement between the UK government and leading tech companies to “take additional action to block and remove fraudulent content”.
The companies involved are used frequently in scams in the US and the UK, including Facebook, which has been linked to 77% of purchase scams by one UK bank and also restated in the UK Home Affairs Select Committee on fraud.  While these measures are likely to be directed at UK users and fraud initially, extending them beyond borders to include the US would appear to be a straightforward possibility. The number of accounts Meta states they have closed for fraud prevention is staggeringly high, at over 800 million in just Q3 2023.  This highlights that Meta are taking some action, but also the size of the problem is huge and needs at least some automated, if not embedded controls to limit account set up and marketplace postings that could be applied worldwide.

In the long term, the worldwide focus and ongoing insight is likely to represent a significant step forward in reducing payment fraud and scams. However, in the short term — particularly in the US — I believe it will raise awareness of the issue and act as an additional factor that will drive an increase in the number of fraud reports.

This leaves us with a question: As scam reporting surges in the US, will banks be able to hold off on issuing immediate refunds and secure support from both legislators and tech firms to use AI and data sharing to prevent fraud collaboratively?


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