Source: Finance derivative
Paul Marcantonio, Executive Director UK & Western Europe, ECOMMPAY
£4 million was stolen daily via fraudulent attacks in the first half of this year alone, showingthat, though the pandemic has given rise to payment innovations, it has also meant that fraudsters have had more ways of carrying out their attacks. The industry therefore needs to adapt to the latest most cutting edge technology if they wish to fix this issue.
Open Banking uses data in a convenient, safe and secure way, allowing consumers and businesses to better manage their finances as well as benefit from better payment solutions. Though opening up banking data may sound dauting, it may prove to be a key pieces of the solution towards fighting and preventing fraudulent attacks.
Less cash but more fraud
These unprecedented times have shown that consumers are willing to adopt newer payment technologies if it benefits their lives, with one in five (20%) consumers having used a digital wallet for the first time, or started using one regularly, in 2020. But the impact of fraud has been felt since well before the pandemic, with contactless fraud cases doubling within 10 months back in 2018.
There are a few different types of bank transfer frauds, which usually involve fraudsters impersonating an organisation to obtain sensitive banking details. Throughout this pandemic, authorised push payment (APP) fraud were some of the most prevalent. These usually take place in the form of fraudsters impersonating a bank, the NHS, solicitors, or even official bodies such as the HMRC, and have increased by 123% this year compared to the same period in 2020. Most fraudulent attempts were carried out through online purchase scams which saw customers purchasing items or services on a platform, never to receive them after having made the purchase.
With fraud cases being as apparent as ever during this pandemic, it’s no wonder that the banking body UK Finance has exclaimed that fraud in the UK now “poses national security threat”. Banks, fintech and consumers must therefore fight harder to find solutions to this problem.
Dealing with fraudulent attacks
The financial industry must constantly stay ahead of the game if it wishes to protect itself and its consumer base and as such, in 2019, many UK banks signed a voluntary code, to show that they would be tackling this issue. This code was made for banks to take the right steps in protecting their customers from fraudulent attacks reimburse victims where possible. The code has multiple rules which require banks to, provide effective warnings when APP scam risk is identified, identify high-risk payments and vulnerable customers, educate their customers on APP scams, act fast when scams are reported, and take measures to stop fraudsters from being able to open fake bank accounts, amongst other requirements.
By looking at cases from this year alone, it is clear however that this code, though a decent first step, is not helping. Payment regulators and financial institutions must look beyond simple solutions, such as the recent fraud hotline, which aims to connect potential victims with their bank’s fraud prevention service to get help as soon as they identify something is wrong. A better solution would therefore be to look for ways of protecting consumers before fraud attempts are committed, and to do, the industry needs to look at the latest technology being currently offered.
Why Open Banking can help
Many people have had concerns over Open Banking’s security since its inception in 2018, due to large amount of data that needs to be shared for it to work and therefore how it may cause consumers to become more vulnerable and open to attacks in the process. However this couldn’t be further from the truth as Open Banking brings about an added layer of security which could really be a key piece of the solution towards fighting payment fraud.
To use Open Banking for payments, banks must build Open Banking APIs in partnership with innovative fintech companies which ensure security from start to finish and beyond. All individual payments require a specific and unique authorisation token which cannot be replicated or used again, providing a great base layer for security. On top of that, recurring payment tokens, such as for direct debits or standing orders can be revoked as fast as possible if there is any suspicious activity being detected. Additionally, with Strong Customer Authentication (SCA) software being built into the system, allowing confirmation of payments using native bank applications, inputting card details is not always necessary. Applications like these usually have their own security systems in place such as Multi-Factor Authentication (MFA), which uses fingerprints or facial recognition to ensure security. Furthermore, Open Banking uses an additional two-step authentication protocol named 3D Secure 2.0, which makes sure that it is in fact the customer making the payment. The attacker would therefore have to beat both the banking authorisation and additional 3D Secure protocol, to then be met by a variety of different security measures.
Open Banking is a revolutionary payment system. However with only 14% of consumers completely understanding it currently and 48% having some level of confusion about it, it’s easy to understand why adoption of this new system has been so slow. With time however, we will see evidence of its wide-reaching benefits in the fight against fraud, which, with education from financial institutions and fintech, will ensure a more secure payment environment and journey for consumers.
