Fraud trends spilling into early 2024

When it comes to fraud, what’s old is new again—sprinkled with a growing variety of fresh new scams, particularly as AI becomes more mainstream. Fraud experts discuss how 2023 compared with prior years and what’s on the horizon for this year and beyond.

“During the COVID pandemic, organized crime rings really gave banks a break, as they were very heavily focused on defrauding all the stimulus programs that were so poorly protected,” says Julie Conroy, chief insights officer at Datos Insights in Boston. “But as the stimulus program dried up, 2022 and 2023 have seen a strong resurgence of all the traditional types of fraud.”

Account takeover is up, as is application fraud, both significant concerns as more countries move to faster payments, Conroy says. While the industry thought check fraud was finally under control, it came back in 2023, says Ken Allen, an industry consultant based in Nashville, Tennessee. “The same thing happened with ACH fraud—we thought it was a little bit more under control with a lot more different technology options for moving money around, but good old ACH fraud was also on the rise in 2023,” Allen says.

Fraud trends continued to increase in 2023 as compared to prior years as technologies evolve, says Anna Kooi, national financial services leader at Wipfli LLP, who is based in Chicago. “Automation advancements have made it easier for criminals to hack accounts and remain undetected,” Kooi says. “Many times, software and/or bots are being used for tasks that previously required human intervention. This allows for increased frequency, and fraudsters can cover more ground than they could historically.”

Payments are getting faster, and so is fraud

Also on the rise: new opportunities for fraud resulting from new digital payment platforms that allow consumers and businesses to make quicker and more efficient payments, Kooi says. In the latest NICE Actimize Fraud Insights report comparing the first half of 2022 to the first half of 2023, globally there was a 22% increase in payment fraud as societies move from cash to cashless payments.

With that, there was an 18% increase in total attempted events, as well as an 18% increase in dollar volume, “which is significant,” says Rob Rendell, global head of fraud market strategy and fraud prevention for the Hoboken, New Jersey–based company.

“It’s not sustainable, and institutions need to take a more proactive stance curbing fraud,” Rendell says. In the U.S., there was a 33% increase in deposit fraud—fraudsters depositing checks into accounts that are later returned for fraudulent reasons, according to the report. In addition, fraudsters are securing mailbox keys by robbing letter carriers and then stealing checks out of the corresponding mailboxes.

“Fraudsters alter the checks and then deposit them into accounts under fictitious names, depleting the funds when available,” he says. “The Postal Service has announced they will slowly be converting from old locks to electronic locks to curb this issue.”

Check alterations are becoming increasingly more difficult to spot, especially after original checks are scanned and then destroyed, says Brandon Koeser, director and financial services industry senior analyst with RSM US LLP, who is based in Minneapolis. Phishing attempts also saw a meaningful increase in 2023, as fraudsters took advantage of generative AI to create more “convincing and compelling” text messages and emails, Koeser says.

On real-time payment rails, it’s very hard for institutions to detect unauthorized push payment fraud—fraudsters tricking people into voluntarily sending money out of their account and to the fraudsters, Conroy says. Fraudsters will then very quickly hop that money several times, so tracking it, finding it and calling it back is next to impossible.

“In the U.K., there is a liability shift that will go into effect in October of 2024 where for most forms of scam fraud, the consumer will not have liability, and there will be shared liability with the sending and receiving bank,” she says. “I think a lot of countries across the globe are taking a very close look at what the U.K. is doing, with an eye to potentially emulating this.”

What do experts expect in 2024 and beyond?

Looking ahead, what was successful in 2023 will still be successful going forward, Koeser says.

“Fraudsters are growing increasingly more adept at adjusting processes to maximize their success and ultimately their financial gain,” he says. “Check fraud, card-related fraud and phishing attempts aren’t going away; they are only growing more pronounced.”

First-party fraud will also be a challenge, as this type of fraud generally increases in tougher economic times, with inflation issues and interest rates “rising the way they are, whether we’re in a recession or not,” Allen says.

As part of this, there will likely be a continued increase in first-party fraud via people voluntarily acting as mules for criminal networks for a share of the proceeds, he says. For example, in “shop from home” scams, fraud networks recruit and dupe individuals into purchasing goods and sending them to another location where they will get to keep one item or a percentage of the goods purchased.

“In reality, the funds being used are either the individual being scammed into buying goods for the fraudster with their own funds, or they provide them stolen payment or prepaid credentials—and thus they become a part of the fraud,” Allen says. Then, there’s AI. “Generative AI, including ChatGPT, is fueling the fire for fraud,” Rendell says. “We’re anticipating deep fakes, voice cloning and manipulation of photos, as generative AI will be leveraged by fraudsters to carry out their attacks. The level of sophistication will only grow as fraudsters look to leverage these sophisticated tools.”

AI-powered fraud is going to have an impact in 2024, as ChatGPT and open AI become even more mainstream, Allen says. Fraudsters can emulate voices easily, so actions like creating fake IDs and emulating a person via video or voice to fool biometrics tools are going to continue. Meanwhile, managing cybersecurity issues can be tricky as financial institutions continue to improve their customer experience this year, Kooi says. Balancing “friction” and “fraud mitigation” becomes even more challenging as the number of systems increases. “Improving experience while reducing risk is top of mind for many CEOs today,” she says. “The move to decrease friction is increasing the risk around cybersecurity and is putting demand on the financial institutions’ talent.

Lack of talent is driving recent mergers of equals due to CEO retirements.” In 2024, institutions should keep a watchful eye on payment modernization, like the updates to ISO 20022 and what’s happening within the U.K. financial industry with the liability shift, Rendell says.

Institutions should then make sure that they have good controls in place related to scams, and that they will be able to recover lost funds should a liability shift happen here in the U.S. “That way, they’re not caught off guard and they’re not having to scramble to put controls in place to appease regulators—and they’ll have an understanding of what they could be on the hook for legally,” he says.

Having a sound fraud posture is key as the types and forms of fraud continue to grow, Koeser says. “Proactively educating your people and your clients to combat fraud is only one step,” he says. “But also communicating effectively when you become aware of something that could lead to fraud will be key to minimizing your financial loss while maintaining customer peace of mind.”

Financial institutions should also find more ways to work together to curb both existing and new types of fraud, Conroy says. “We all need to figure out how to invest in technologies that help us get faster, more nimble and more collaborative in fighting fraud. All of these attack vectors are only going to continue to escalate,” she says.

Katie Kuehner-Hebert is a contributing writer for BAI.

A version of this article first appeared in the BAI Executive Report “Safeguarding Against Fraud.” Read more on fraud and related topics.