With the many recent innovations in the payments space, fraud continues to evolve, taking advantage of the improvements in consumer payment convenience. We're going to go over four areas in the payments space where fraud is being redefined in 2023.
Alternative payment options are those that rank behind debit card transactions, which are at the top of the payments space. Alternative payments aren't new. They include credit cards and real-time Person-to-Person (P2P) payments such as Venmo, Zelle, and Paypal. Mobile payment systems such as Apple Pay and Google Pay are included here as well. With the growth of these alternatives, fraudsters have a larger attack surface.
While debit cards sit at the top of the payment pinnacle, alternative payments are catching up fast. Credit cards saw record growth throughout 2022. More people using these payment methods means more opportunities for scammers.
The Second is buy now, pay later, or BNPL. It is still fairly new but growing fast. By the end of 2022, it had 60 million users. Given how new it is, many of the fraud exploits of BNPL have yet to be discovered. BNPL is extremely easy for customers to use. In fact, 50% of BNPL customers say they bought a major household item they didn't need. Financial institutions will need to find a way to ensure the security of BNPL without degrading its ease of use experience.
The third is P2P. P2P allows customers to send payments directly to each other. As the service has grown, it has also become vulnerable to scammers. Zelle is one such P2P service offered directly by banks. However, it has been in the spotlight recently due to the number of scammers posing as valid P2P customers. The result, in many cases, has been a loss of customer funds.
P2P transactions occur very fast. Banks must add more friction with the necessary checks to reduce fraud. Otherwise, these services could end up being very costly for financial institutions due to customer fraud reimbursements.
The last area is Web3 fraud. Web3 is composed of the blockchain, token economy, and decentralization. Using tokens, customers can purchase digital assets such as high-priced NFTs and gaming assets. You've probably guessed that this environment is ripe for fraudsters, and you would be correct.
From ripping off customers with fake purchases to an increasing number of chargebacks, merchants will need to find ways to better verify customer Web3 transactions. Enhanced KYC, AML, and compliance can certainly become assets in this space.