Fintechs become magnets for payment fraud

Financial technology firms have become favored targets for sophisticated and often automated payment fraud. The Q1 2022 Digital Trust & Safety Index, just published by the fraud prevention firm Sift, reveaed the payment fraud attack rate for fintechs ballooned 70 percent over the same period in 2021. That's the biggest jump for any vertical on the Sift network, the firm reported.

The massive increase in fraud attempts correlates with even more massive growth—121 percent year over year—in fintech transaction volumes on Sift's network, making the sector an attractive target for cyber crooks.

The Digital Trust & Safety Index is derived from Sift's global network of over 34,000 websites and apps, plus a survey of over 1,000 consumers.

Nearly half of those consumers (49 percent) indicated they had fallen victim to payment fraud within the past three years. Of those victims, 77 percent had credit card or other payment information on file with a merchant used for unauthorized purchases. Nearly one-third (33 percent) identified financial services sites as the riskiest.

"Many brands fail to realize that the damage of payment fraud goes beyond the initial financial impact," said Jane Lee, trust and safety architect at Sift. "The vast majority of consumers report abandoning brands after they experience fraud on a business's website or app, diminishing customer lifetime value and driving up acquisition costs." What's more, Lee said, potential customers who see unauthorized charges from a particular company on their bank statements "will forever associate that brand with fraud."

Alternative payment methods hard hit

According to Sift's analysis, blocked attacks were aimed primarily aimed at alternative payments, including digital wallets (which saw a 200 percent year-over-year jump in fraud) and buy now, pay later (54 percent). Payments service providers and cryptocurrency exchanges were also big targets, registering increases in attacks of 169 percent (PSPs) and 140 percent (crypto exchanges).

Year-over-year growth in attempted payment fraud across the entire Sift global network was 23 percent, which the firm correlated with growth in average daily transaction volumes across every vertical.

Cybercrooks are leveraging sophisticated, automated and distributed strategies across different merchants and verticals simultaneously, committing account takeover, financial fraud and multi-tiered scams "at inhuman speed and scale," Sift said in a report detailing payment fraud trends.

In its report, Sift examines techniques employed by organized fraud rings, concluding that the most sophisticated and damaging attacks leverage shared tactics and technologies. These fraudsters aren't as concerned about what kind of merchant they target, as long as there are profits to be made, Sift noted.

Tackling the fraud economy

Sift also launched a new Fraud Intelligence Center (sift.com/fraud-center) to help trust and safety teams better understand trends in the fraud economy.

The center will leverage data from Sift's global network, which the firm said records 70 billion events a month. It will feature the latest data, trends and expert analysis to help merchants, fintechs and other online businesses fight back against fraudsters.

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