Rising payment fraud wave threatens consumers, retailers, and the payment sector as Black Friday approaches reports digital identity company, Signicat .

With consumers gearing up for unbeatable deals and retailers and fintechs prepare for record-breaking sales, the scope of fraudulent payment activities is greater than ever. Market data reveals a concerning rise in various forms of payment fraud, presenting a significant challenge to the security of financial transactions during the holiday shopping season, which starts with the well-known Black Friday.

In an era where digital payments and online shopping have become integral parts of consumer behaviour, cybercriminals are exploiting vulnerabilities in payment systems. The evolving threat landscape underscores the need for a nuanced understanding of payment fraud as we approach the year’s busiest shopping day.

Signicat insights

Pan-European digital identity solutions provider, Signicat delves into key insights, offering a comprehensive overview of the current state of payment fraud and highlight technological advancements aimed at frustrating fraudsters’ efforts. With Black Friday on the horizon, the call for closer supervision and proactive measures to ensure secure transactions becomes more pressing than ever.

Increasing losses from online payment fraud

Payment fraud has a profound and dual impact on end customers and companies, creating a complex web of consequences through the financial ecosystem. For end-customers, becoming a falling victim to payment fraud not only jeopardises their financial well-being but also erodes trust in digital payment systems. Stolen credit card information or unauthorised transactions can lead to financial losses, identity theft, and a pervasive sense of vulnerability. Moreover, the time and effort required to rectify fraudulent activities often result in a significant inconvenience for consumers.

According to data published by Juniper Research in 2020, it was estimated that the losses incurred by the retail sector due to fraudulent transactions would exceed 188 billion euros ($206 billion) between 2021 and 2025, with online shopping being the main cause of fraud. A new report published by the same firm indicates that the estimated losses associated with fraud between 2023 and 2028 amount to €330 billion ($362 billion), with more than €34 billion in 2023 and €83 billion in 2028.

“With fraud on the rise, providing security and compliance at every stage of the journey is a major challenge that companies face. This goes for instance for transactions like payments in many businesses including the financial sector, fintech, digital marketplaces and retailers. During peak shopping times such as Black Friday or the Christmas holidays, the number of transactions heavily increases, so the seriousness of any attacks on consumers or businesses will also increase in this period,” said Asger Hattel, CEO of Signicat, a leading provider of Digital Identity solutions. “We see that our customers, especially BNPLs or payment companies, are no longer just focused on compliance but are constantly seeking to increase the level of transaction security and to build trust with the end user,” he added.

Education and Technology: Vital allies

On the other side, companies face multifaceted challenges when fraud infiltrates their payment systems. Beyond the direct financial losses incurred from reimbursing affected customers and investigating fraudulent incidents, businesses have to deal with reputational damage. A high-profile payment fraud incident can erode customer trust, potentially causing long-term harm to a company’s brand and customer loyalty. Moreover, companies must invest substantial resources in implementing and continually upgrading security measures, diverting funds that could otherwise be allocated to innovation and growth initiatives. The symbiotic relationship between end-customers and companies underscores the urgent need for robust and adaptive measures to combat payment fraud, fostering an environment where both parties can engage in secure and trustful financial transactions.

Not surprisingly, consulting firms around the world are recommending the adoption of technologies such as fraud prevention platforms based on machine learning or artificial intelligence, as they can effectively combat phishing by detecting fraudulent patterns and being impossible to manipulate.

Signicat stresses the importance of modernising and securing certain processes with the latest technological advances over which fraudsters have no control, such as second-factor authentication by facial biometrics. “Many companies in the financial sector rely on their systems or password-based two-factor authentication measures to protect their customers. At Signicat, we believe that the future is likely to be more passwordless and that authentication by facial biometrics or electronic IDs, which are much more difficult for fraudsters to corrupt, will be increasingly adopted,” added Hattel. Similarly, Signicat points out the importance of educating and informing end-consumers about the attacks they can suffer and how to detect them.

The future has a Wallet flavour

“For the EU’s European Digital Identity Wallet initiative, where four large-scale pilots are run to showcase opportunities, payment is one of the most important use cases. The EU Wallet will undoubtedly be key to fighting fraud at European level when it is in place. The identity proofing on which the wallets will be based gives unparalleled security to both end users and the companies relying on use of the wallets,” said Jon Ølnes, Tribe Lead and Thought Leader at Signicat.

Online verification of identity during a transaction takes several forms. Verification can be both a persistent level of assurance, offered by various governmental identification systems, and on-the-fly verification, using identification networks and data orchestration-based services. eWallet types of systems can also provide verified statements that could be used to definitively identify a user, concludes Juniper Research in its report “Combatting Online Payment Fraud”.

Undoubtedly, digital identity solutions are the key to stopping fraud. A recent study commissioned from Forrester Consulting on the Total Economic Impact (TEI) of Signicat showed that Signicat digital identity solutions allow to achieve a 75% reduced fraud cost resulting from a fraud rate reduction. This is certainly encouraging for the market and highlights the importance of relying on technological solutions that comply with both local and global regulatory requirements.

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