Preventing authorised fraud: the delicate balancing act of managing risk and customer experience

The UK is facing an epidemic of fraud. Financial institutions understand the gravity of the situation and are adapting to protect their customers while maintaining competitiveness in the market

A surge in social engineering scams, where victims are tricked into sending funds to fraudsters’ accounts, is escalating. Banks and other payment providers face the perfect storm caused by the speed in which funds can be transferred and consumer demands for fast, frictionless payments. This has proven to be a fertile ground
for criminals.

Such is the extent of these authorised push payment (APP) scams in the UK that they led to £583m in losses in 2021, according to UK Finance, a 40% increase compared with 2020. The trade association states that the country faces an “epidemic of fraud” and more action needs to be taken as cybercriminals quickly adapt their methods to suit shifting consumer lifestyles and behaviour.

Nearly 196,000 cases of APP fraud were reported in the UK last year in what UK Finance is calling a “national security threat.”

“There’s a very short time window - a matter of seconds - in which a bank or payment provider has to decide whether a transaction is genuine and either accept or decline. The reason why APP fraud is so hard to identify is because the victim initiates the transaction. The level of sophistication being employed for social engineering scams is now astounding, and the volume of attempts is on an unprecedented scale,” explains Freddy Arthur, fraud strategy leader, EMEA, at NICE Actimize, a global market leader in financial crime and compliance solutions.

Through its Financial Services and Markets Bill, the UK government is working on legislation that makes banks and other payment providers responsible for reimbursing APP scam losses. Its aim is to ensure customers who are victims of fraud through no fault of their own are not left paying for it. Consequently, businesses will have to do more to protect their customers from this new wave of fraud.

This is not just an epidemic of fraud—it is an assault and an attack on our societal norms

“There’s a lot of pressure on banks to get on top of this issue. Yet our relationship with our devices, banks and businesses from which we buy has evolved significantly, catalysed by the pandemic,” says Arthur. “We’ve all automated and subcontracted whom and what we trust, with a key focus on technology. At the same time, we increasingly believe what we see on social media and the internet.”

Arthur sees a widening gap between the growing amount of fraud and the ability to combat it. He says: “This creates an incredible opportunity for cybercriminals who aren’t just engaging the younger generation, the digital natives, and Gen Z. Everyone is encountering these criminals. Regardless of digital fluency, British consumers are falling victims to these sophisticated scams at an alarming rate. This is not just an epidemic of fraud—it is an assault and an attack on our societal norms.”

At the same time, financial institutions are in a race to create the optimal customer experience, one that provides instant gratification to the purchaser and frictionless payments for businesses that want to facilitate sales, potentially disregarding possible risk in the face of competitive differentiation. It is not enough to be frictionless, businesses must provide a ‘friction right’ experience. It is an extremely fine balance between risk, trust and seamless authentication where expectations from all players have risen, along with the shift in liability to ensure the customer is being protected.

“We’ve seen banking operations teams double or even triple in number over the past three years to deal with the spiralling fraud associated with the exponential growth in digital transactions. The number of fraud alerts has spiked. It takes a lot of time to validate scams where victims have been socially engineered to make the payments themselves,” explains Arthur.

“We’ve also seen a proliferation in point solutions by financial service providers to continually address new and emerging threats. It’s critical to have a holistic view of risk or intelligent fraud prevention. This is why we use machine learning and AI to analyse billions of data points globally to scan transaction behaviours and spot anomalies.”

Hundreds of key indicators - data gathered along every customer journey across a vast portfolio – can now be measured. These key indicators, embedded within advanced machine learning, can detect the known and unknown risks and evaluate anomalous behaviour for real-time decision-making.

“We have some of the largest pools of data worldwide and collective intelligence gathered from the largest global financial institutions. The combination of these sources enables our solutions to adapt to new and emerging threats,” says Arthur. “To get ahead of this fraud epidemic, it’s important to use a solution from a trusted provider. NICE Actimize is trusted because of our global expertise and ongoing innovation.”

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