The Rising Threat of Authorized Push Payment Fraud: What You Should Know

Internet use and online activities like shopping and transactions have become a daily norm for nearly 5.45 billion Internet users worldwide. While this surge in users offers greater revenue opportunities, it also increases fraud attacks. Among these, authorized push payment (APP) fraud has emerged as a particularly sophisticated threat.

APP fraud occurs when a fraudster tricks the victim into willingly transferring money under false pretenses. These APP scams are projected to cost businesses in the US about $3.03 billion by 2027, making them a serious risk for e-commerce, banking and finance, fintech, and insurance industries.

What Is Authorized Push Payment Fraud?

This form of fraud occurs when a victim willingly transfers money to fraudsters after being misled by them. Fraudsters do this by impersonating a professional—such as a banker or a supplier—and convincing the victim to deposit funds.

Besides impersonation, these criminals also use social engineering and forged documentation techniques as their hunting tools. They might introduce new schemes with limited-time discounts to create a sense of urgency, which reduces the decision-making time.

APP fraud is different from traditional frauds like phishing, identity theft, card fraud, etc., because of the voluntary nature of APP scams. Phishing, identity theft, card fraud, etc., incorporate hacking into systems and steal sensitive information along with money.    

There are multiple types of APP fraud schemes, including:

Invoice Scams

Scammers pose as company representatives and send fake or phony invoices to the victim. They may act like business vendors and send fake invoices that look like official invoices to defraud the company or as employees asking for fund reclamation.

Technical Support Scams

This is where scammers claim to offer technical support to fix computer or software problems that don’t exist. They instill panic in their victims, pressuring them to make payments for services they don’t actually need.

Investment Scams

This involves manipulating people by promising huge returns on small investments. These scams can involve investing a few dollars in stocks, bonds, or currencies or thousands of dollars in real estate.

Why Should Businesses Worry About APP Fraud?

The rise of authorized push payment (APP) fraud is a serious financial threat to businesses. Scammers have started resorting to sophisticated techniques, leveraging psychological tactics to appear trustworthy toward victims.

Increased digitization has also increased the risk of APP fraud because more transaction opportunities, such as online and mobile banking, have been adopted. Furthermore, technology advancements like AI and machine learning further enable scammers to create convincing schemes, making detection more difficult.

Moreover, insufficient security measures within organizations heighten the risk of fraud incidents due to outdated security protocols that scammers can easily exploit.

To safeguard against significant losses, businesses should prioritize educating themselves about the risks of APP fraud, such as:

Financial Risks

Financial risk is the most significant and impactful of all APP fraud risks. Businesses must worry about APP scams because fraudulent customer transactions can lead to lawsuits and potential refunds. These have the potential to directly strain resources and impact profitability.

HSBC bank was held liable to fully refund €30,000 after a customer fell for an invoice-type APP scam. The customer took the case to the Financial Ombudsman Service (FOS), which held HSBC responsible for not detecting and preventing the fraud.

Legal Challenges

Failing to protect customer data can lead to legal repercussions. Organizations may face fines, lawsuits, and regulatory penalties, which can further cause financial issues.

One notable APP fraud lawsuit involved Barclays Bank, where Mrs. Fiona Philip and her husband were tricked into transferring £700,000 to fraudsters in the UAE. The Philip family took Barclays to court, claiming that they owed a duty to inform them in case of fraud suspicion. However, the UK Supreme Court decided in favor of Barclays, as the bank had taken Mrs Philip's approval before proceeding with the transactions.

Although Barclays won this case, it's an example for other businesses to protect their customers and themselves from authorized push payment fraud.

Reputational Damage

Due to APP scams, businesses may face lasting damage to their reputation and credibility. Such incidents expose vulnerabilities within the company, which can erode customer trust and lead to dissatisfaction.

One such case happened with Lloyds Banking Group. Fraudsters impersonating Lloyds bank employees scammed a customer into sending £213,000. The bank initially declined responsibility but reimbursed the customer later after coming under the media spotlight.  

Operational Disruption

APP fraud incidents can significantly disrupt business operations, resulting in delays in core services as well as increased workloads for employees. When a fraud attack occurs, businesses often need to divert resources to investigate and address the incident, resulting in inefficiencies in their core functions.

Regulatory and Compliance Challenges

Companies establish strong internal processes to manage claims efficiently while adhering to compliance standards. This includes managing technical expenses and effective customer service. Organizations also collaborate with banking partners to reduce financial risk due to fraud claims.

Combat the Growing Threat of APP Scams with Fraud.net

As businesses globally move towards more convenient payment options, they inadvertently create vulnerabilities that criminals can exploit. Losses to APP fraud are expected to rise to $6.82 billion by 2027 in 6 countries alone, including the US, UK, Australia, Brazil, India, and Saudi Arabia.

In these dire times, businesses should invest in payment fraud solutions that secure digital transactions, all while prioritizing ease and speed. When selecting an APP fraud prevention solution, choose a provider with a multi-layered approach that leaves no potential weak points.

With eight years of industry experience, Fraud.net stands out as a trusted partner for businesses seeking to combat various forms of fraud. Book a meeting with Fraud.net today to explore tailored solutions designed to protect your business from evolving threats.