Emerging Markets: The New Frontier for Financial Fraud

In July 2023, publicly traded FinTechs had a market cap of $550 billion - double that of 2019. Despite a market slowdown in 2022, there were over 272 unicorns valued at $936 billion, up from $1 billion five years before. It’s no secret that there’s money in FinTech, and lots of it.

Given that FinTech verticals are expected to grow by 15% annually between 2022 and 2028, with much of that growth coming from developing markets, it’s worthwhile looking at how these markets are impacted by the latest fraud trends and threats in 2024. Why? Because as we know by now, fraud always follows the money.

Africa

• Africa is one of the biggest emerging FinTech markets most prone to digital identity fraud. 80% of fraud cases in Africa involve identity cards.
• Digital fraud is a significant concern. The main types of attack on this continent are phishing and online scams.
• Of all digital transactions made in the first half of 2023 by consumers in Kenya, 3.7% were suspected to be fraudulent attempts.

Asia-Pacific

• Asia has the highest average fraud rate at 9% compared to just 3.1% in Europe and 5.2% in North American markets.
• Document fraud is the most common type of identity fraud with two-thirds of all targeted documents in the world coming from Asian countries.
• Mobile apps are a common target, including neo-banks, mobile wallets, and BNPL platforms. Casino and betting apps are also popular targets.
• Main attack method is social engineering, where fraudsters impersonate FinTech officials to trick victims into disclosing their account details or OTPs.

India

• India has witnessed remarkable growth in FinTech, driving efforts to promote financial inclusivity and integrate underserved populations into the formal financial system. Though as a result, there has been a significant increase in cybercrimes, including phishing, malware attacks, and online scams.
• According to the Reserve Bank of India (RBI), bank fraud in India amounted to approximately $7.5 billion in 2021-22.  A popular vehicle is the United Payments Interface (UPI), is a QR-based mobile app. Because it is so prevalent, 55% of digital transaction fraud is associated with UPI.
• FinTech lending platforms are also very popular, and users are scammed into taking loans they never asked for or sharing OTPs for transactions they did not initiate.

Latin America

• In Latin America, 20% of e-commerce revenue is lost to fraud, with authorised push payments (APP) scams often used.
• More sophisticated attackers try to infect the user’s device with a “banking trojan” which steals the banking credentials of users.

The 2024 AFP® Payments Fraud and Control Survey Report documents that 80% of organisations across various industries were victims of payments fraud attacks/attempts in 2023. This is a 15%-point increase over the previous year, making it clear that the FinTech industry, with its rapid growth and innovation, has become a prime target. Some of the major emerging FinTech fraud trends that organisations will need to keep a close eye on include:

1. Evolving tactics and fraud detection tools to outwit and outsmart criminals

Fraudsters are constantly adapting their techniques to stay ahead of security measures. They’re now using AI to create “deepfakes,” highly realistic synthetic media (audio, video) for impersonation or social engineering attacks.

• According to a business.com study, more than 10% of companies have been targeted by deepfake fraud, with successful attacks costing up to 10% of annual profits.
• Internal data from Sumsub notes that deepfake fraud increased worldwide by more than 10 times from 2022 to 2023, with 88% of all identified deepfake cases occurring in the crypto sector, and 8% percent in FinTech.
• Only 5% have comprehensive deepfake prevention strategies.
• Phishing attacks are becoming more sophisticated, along with a rise in supply chain attacks targeting third party vendors to gain access to sensitive data or systems.

2. Growing complexity creates a growing attack surface

• FinTech's complex ecosystem, involving multiple interconnected systems and partners, introduces new vulnerabilities. API security is a risk when ensuring secure communication between different components of the FinTech platform.
• Third party risk management is also a worry, particularly in assessing and mitigating risks associated with external service providers.
• Data privacy continues to be a priority, as FinTech organisations have a regulatory obligation to protect sensitive customer data from unauthorised access or breaches. 

3. Regulatory challenges become more challenging

• The regulatory landscape for FinTechs is evolving as rapidly as the verticals advance, and compliance is complex.
• Need to adhere to regulations like the General Data Protection Regulation (GDPR), as well as comply with Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) obligations.
• Additionally, it is necessary for FinTechs to meet industry-specific security cyber standards and certifications for digital fraud prevention in FinTech.

These FinTech fraud trends for 2024 highlight the need for companies to stay informed about emerging threats, invest in robust fraud detection tools and security measures while maintaining strong compliance practices to protect their customers and businesses from fraud.

While robust fraud prevention best practices, such as Know Your Customer (KYC) measures, biometric identification, and liveness detection have been effective tools for FinTech companies in combating fraud, the battle is far from over.

As fast as technology advances, fraudsters are just as fast at leveraging technologies like AI and deepfakes to circumvent traditional defences. Stolen and synthetic identities, once formidable challenges, have become mere stepping stones for these criminals, who are now capable of crafting highly convincing deepfakes that can fool even the most astute biometric systems.

The global nature of fraud, coupled with the increasing complexity of attacks, demands a more holistic approach. To effectively detect, expose, and prevent fraud, FinTech companies must go beyond surface-level identity verification fraud detection tools.

By connecting the dots across various data points, it becomes possible to create a comprehensive view of a customer's identity, enabling FinTech organisations to identify anomalies and flag suspicious activity. This proactive approach not only protects against fraud but helps create a seamless experience for legitimate customers.

To effectively verify a person's identity and mitigate fraud, a comprehensive approach is necessary, which involves examining four key pillars:

1. Person: Is the individual who they claim to be? Are their provided details consistent with their claimed identity? Are there any signs of compromised personal information or suspicious device activity? Is a ‘selfie’ required to be taken by the client linked to another identity or social security number?
2. Accounts: How many accounts does the customer have? Which institutions are these accounts located? What is their credit activity history? Have any accounts been flagged for suspicious activity? Has the customer opened several similar accounts within a short time span?
3. Transactions: Do the customer's behaviours align with expected good customer behaviour or unpredictable patterns associated with fraudulent behaviour? Are there any unusual patterns or high-risk activities? Have any accounts, identity or device been blocked by other parties?
4. Devices: What devices are being used to access the customer's accounts? Have any of these devices been linked to fraud previously? Are there any signs of device tampering or the use of VPNs or proxies to mask their location?

By linking these four pillars and analysing their interrelationships, it becomes possible to distinguish between legitimate customers and fraudsters. Where legitimate customers will exhibit consistent patterns, fraudsters often attempt to conceal their tracks.

This ongoing battle between fraud prevention technology and fraudsters requires advanced real-time fraud monitoring techniques to identify and expose fraudulent activity. To effectively manage credit and identity risk, organisations need comprehensive, up-to-date data. Unlike credit risk, which is based on historical behaviour, fraud involves covert activities. Fraudsters often operate in cross-border syndicates, targeting multiple victims.

A single view of identity, coupled with shared fraud consortium data and advanced analytics are critical fraud detection tools. By analysing vast datasets across industries, organisations can identify suspicious patterns and mitigate risks. This enables them to conduct thorough assessments during onboarding and throughout the customer lifecycle, identifying potential red flags and mitigating fraud risks.

Ready to join the fight on fraud with trusted solutions for your business? Contact TransUnion® today to learn more about our scalable, robust, and comprehensive fraud detection and identity verification solutions. By leveraging our extensive datasets and cutting-edge technology, you can enhance customer experiences, reduce fraud losses, and drive business growth. Let TransUnion help you build trust and foster lasting relationships with your customers.