Faster payments have plenty of benefits for businesses and consumers, but the technology has also opened the door to a new breed of fraud: authorized push payment (APP) fraud. Banks and their customers have taken a considerable financial beating due to APP fraud. As losses soar, FIs are struggling to get a handle on this increasingly sophisticated fraud scheme, which could mean a loss of customers to competitors who are more invested in protecting their customers.

During a recent PaymentsJournal podcast, Dave Scola, CEO of Form3 (US), and Tracy Kitten, Director of Fraud and Security at Javelin Strategy & Research, discussed the formidable challenges banks face to mitigate APP fraud, why inbound transaction processing could be the catalyst for confronting APP fraud, and how banks can be the key change-makers in curbing this fraud scheme.

PaymentsJournalFighting APP Fraud with AI and Collaboration: A Two-Pronged Strategy for FIsPaymentsJournal Fighting APP Fraud with AI and Collaboration: A Two-Pronged Strategy for FIsPaymentsJournaljQuery(document).ready(function ($){var settings_ap40036317 = { design_skin: "skin-wave" ,autoplay: "off",disable_volume:"default" ,loop:"off" ,cue: "on" ,embedded: "off" ,preload_method:"metadata" ,design_animateplaypause:"off" ,skinwave_dynamicwaves:"off" ,skinwave_enableSpectrum:"off" ,skinwave_enableReflect:"on",settings_backup_type:"full",playfrom:"default",soundcloud_apikey:"" ,skinwave_comments_enable:"off",settings_php_handler:window.ajaxurl,skinwave_wave_mode:"canvas",pcm_data_try_to_generate: "on","pcm_notice": "off","notice_no_media": "on",design_color_bg: "111111",design_color_highlight: "ef6b13",skinwave_wave_mode_canvas_waves_number: "3",skinwave_wave_mode_canvas_waves_padding: "1",skinwave_wave_mode_canvas_reflection_size: "0.25",skinwave_comments_playerid:"40036317",php_retriever:"https://www.paymentsjournal.com/wp-content/plugins/dzs-zoomsounds/soundcloudretriever.php" }; try{ dzsap_init(".ap_idx_433935_29",settings_ap40036317); }catch(err){ console.warn("cannot init player", err); } });

Banks Battle to Stay Ahead of APP Fraud

APP fraud is a scheme by which a criminal deceives a consumer or a business into sending funds to a fraudulent account. These bad actors target their victims to part with their money through social engineering or impersonating a real person or an existing company.

Banks face tremendous pressure to stop these malicious attacks. The problem is that these increasingly sophisticated attacks are rapidly outpacing the FIs’ ability to detect and mitigate such fraud.

“What makes it challenging is that most of the bank systems that are in play today have been geared towards monitoring the sender rather than monitoring the receiver,” Scola said.

“That puts a lot more onus on the banks to shift their position and start to look at the receiving end of that transaction, which is a change in posture for the industry as a whole.”

APP fraud is essentially a two-fold problem, according to Kitten. It has a technical component and a social engineering component, making it an incredibly complex fraud tactic to overcome.

“There is obviously a technology piece that plays a role here, but there’s also a human element, a psychological piece that’s a big part of this,” Kitten said.

“I think part of what makes resolving the scam issue so challenging, because as you know from the FI’s perspective, these are legitimate transactions. These are transactions that the users are actually authorizing.

“These are authorized push payments,