ADDRESSING THE B2B OPPORTUNITY Fraud-as-a-service (FaaS) and furious: five fraud trends for financial institutions

B2B digital payments enable businesses to send money faster and more securely than paper processing. For this reason, businesses are increasingly shifting to digital payments to send money to other organizations.

Clive Cornelius and Edward Galvin

As of 2022, 64% of all companies were making over half of their payments electronically.¹

While digital payments are secure, there is still concern about digital payments fraud. Visa blocked $30 billion in attempted fraudulent transactions between January –June 2023.² And, according to 2023 Javelin research, 90% of surveyed businesses are expecting an increase in digital payments fraud this year.³

In 2022 64 % of all companies were making over half of their payments electronically.¹

In 2022

64%

of all companies were making over half of their payments electronically.¹

Fraud concern $ 30 B blocked in attempted fraudulent transactions by Visa, January – June 2023.²

Fraud concern

$30B

blocked in attempted fraudulent transactions by Visa, January – June 2023.²

Going up! 90 % of surveyed businesses expect an increase in digital payments fraud this year.³

Going up!

90%

of surveyed businesses expect an increase in digital payments fraud this year.³

Typically, financial institutions (FIs) are the ones assessing and responding to each incident (for example, managing related chargebacks when it comes to cards).

To help mitigate these risks, here are five digital payment fraud trends to be aware of.

Fraud trend 1: Fraud-as-a-service (FaaS)

While legitimate vendors sell Software-as-a-Service (SaaS) online, fraudsters package their skills as Fraud-as-a-Service (FaaS) on the dark web. And the emergence of new technology opens up opportunities for more sophisticated forms of fraud to bad actors without technical skills.

FIs can help by implementing fraud mitigation technology, understanding the potential for organizational (internal) fraud, and verifying payment beneficiaries. But it’s also important to raise employee awareness, while deploying increasingly proactive measures to stress test internal controls and security protocols.³

Fraud trend 2: Friendly fraud

Friendly fraud occurs when a cardholder claims a purchase on their transaction statement isn’t legitimate – often because they forget they made the purchase, or occasionally when someone known to them has used the card without their initial permission. Meanwhile, chargeback fraud occurs when someone is fully aware they made a purchase but claims they didn’t – which triggers an onerous chargeback process for FIs. FIs should be aware of the risk of friendly fraud, which accounted for up to 75% of chargebacks in 2022.⁴

Regardless of whether it’s true fraud or friendly fraud, it feeds into poor customer experiences and generates bad data, causing an increase in false declines. FIs and merchants can fight friendly fraud by reducing transaction confusion, for example, by including rich transaction details (including merchant name and logo) in banking apps.

Fraud trend 3: AI and identity-based intelligence

As social engineering has become a key tactic, with fraudsters posing as legitimate customers defrauding FIs and businesses, AI applications are important for fraud and risk management. To meet the ever-evolving threat of fraud, Visa has invested $10 billion over the last five years alone in AI and fraud prevention.⁵

For example, Visa Deep Authorization uses transaction risk-scoring to help FIs manage card-not-present transactions, and our Advanced Authorization and Risk Manager has expanded to non-Visa card payments.⁶ Meanwhile, real-time Visa Account-to-Account Payment Protection helps mitigate fraud in instant transactions – including risk-scoring for money moving between accounts and digital wallets.

Fraud trend 4: Geo-political influences

Varying laws, regulations, and payment instrument preferences in different global regions also impact the prevalence of fraud. For example, 40% of businesses still use paper checks, despite them being the main culprits in fraud – with over 60% of organizations subject to fraud by check, compared to under 10% by virtual cards.⁷

Despite the U.S. processing a higher volume of checks than any other nation, U.S. corporates do have the option to opt out of electronic/image checks.

Fraud trend 5: Network tokenization

Network tokenization is a key fraud prevention tool for card payments, enabling FIs to replace sensitive card details with secure digital tokens.

These services enhance digital payment experiences while protecting card users’ personal information from fraudsters, enabling virtual card solutions with payments via contactless, QR, and Bluetooth. Payment methods are protected via tools such as token vaults which store tokens and domain restrictions securely, link them to a cardholder’s Primary Account Number (PAN) for payment processing, and deliver them to connected devices and apps to make payments.⁸

Tokenization transactions are rising rapidly – in 2022, Visa created more than 5 billion tokens and more than 10 billion by mid-2024. Tokenization has driven a 30% reduction in fraud online vs. PAN alone, alongside a 4% uplift in authorization.⁹

Conclusion

Being fully aware of key fraud trends helps financial institutions drive customer value by fighting cybercrime, protecting clients, and defending hard-won trust. Next up in our 5 in 5 series, we’ll explore exactly how financial institutions can work with merchants, acquirers, fintechs, and other stakeholders across the payment ecosystem to combat fraud and capitalize on smooth and secure customer experiences.