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Financial swindling is increasing at a global level, with certain country exceptions, though new machine-learning technologies are proving key in the fight against fraud. Bill Lumley reports.

A cluster of recently published reports reveals financial fraud to be on the rise globally, raising pressure on financial services organisations to respond by implementing defensive systems.

One such response was made by Indian digital payments processor Paytm Labs, which last month launched Pi, its new anti-fraud system. The machine learning (ML)-powered fraud management system was developed to address the fact that existing systems were too slow.

Fraud in figures

PwC’s 2022 Global Economic Crime and Fraud Survey says the rate of fraud is growing globally, with external threats on the rise, exacerbated by a volatile risk landscape. Forty-six percent of the organisations surveyed experienced fraud or other economic crimes in the past two years. 

In the UK, the total value of alleged fraud reaching UK Crown Courts in the first half of 2022 was £532.6m, an increase of 288% compared with the same period last year, according to the latest KPMG Fraud Barometer update.

Meanwhile, a September report by PYMNTS – “The State of Fraud and Financial Crime in the US” – says the frequency and intensity of fraud attacks on financial institutions are rising so sharply that these institutions are too cautious to innovate.

Meanwhile, in the UK, the latest UK Finance Annual Fraud Report reveals fraud losses on UK-issued cards totalled £524.5m in 2021, a 7% fall from £574.2m in 2020. At the same time, total spending on all debit and credit cards reached £838bn in 2021, with 22.9 billion transactions made during the year. Overall card fraud losses as a proportion of the amount spent on cards during 2021 was £0.063 per £100 spent.

A piece of the Pi

Paytm Labs’ anti-fraud platform Pi handles five billion rule evaluations and 500 million decisions every day. Designed for fintechs, banks and e-commerce marketplaces, the platform’s first client was PayPay, a payment wallet launched in 2018, with Paytm as a technology partner. Pi is also deployed in each of Paytm’s subsidiary businesses including Paytm Bank and Paytm Lending.

Toshihiro Nomura, head of risk at PayPay, says that since deploying Pi, the payment app has reduced instances of fraud to “less than 0.0005%”, which Mr Nomura says is “far below” the industry average. A recent Statista report shows that the amount of money lost to online banking fraud in Japan fell for the second year running to Y820m ($5.7m) after reaching Y2.52bn in 2019.

Chase Petrey, chief operating officer of Pi by Paytm, says: “We launched our offering to the broader marketplace just over a month ago and we are close to deploying additional clients by the end of the year.” 

He says the decision to develop the system was driven in part by a desire to work out how to handle the disconnect between managing risk or preventing fraud losses and achieving business growth. 

“We solved this by creating continuous risk monitoring across the customer lifecycle, based on user behaviours,” he says. “We use ML to automatically readjust users up and down risk tiers based on new data inputs. This allows us to optimise for growth by serving different experiences to different users. This is something no one else on the market is offering.”

Fraud fightback

While fraud globally is on the rise, trends in the UK are generally moving in a more positive direction. UK Finance’s Annual Fraud Report says banks and card companies prevented £1.4bn in unauthorised fraud in the UK last year. This represents incidents that were detected and prevented by firms and is equivalent to £0.653 in every £1 of attempted fraud being averted.

According to the report, the number of confirmed cases of card fraud reported during 2021 fell only slightly – by 20,000 – from the 2.84 million reported in 2020. And the average case value for card fraud has fallen from £339 in 2016 to just under £186 in 2021. This demonstrates that cases are being spotted and stopped by card issuers more promptly, meaning that organised criminals must commit more frauds to steal the same amount of money.

Not all of the news is good, however. UK Finance members reported a total of 195,996 incidents of a newer form of fraud – authorised push payment (APP) scams – in 2021, with gross losses of £583.2m, compared with £420.7m in 2020.

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