Pay.UK Says Controlling UK’s Payments Fraud Epidemic Needs More than AI

Over £1.2 billion ($1.5 billion) in the U.K. was stolen through authorized and unauthorized financial fraud in 2022, according to a recently published UK Finance report. And while that amounts to an 8% drop compared to 2021 figures, there’s no debate that the battle to prevent fraud and keep criminals at bay is far from over.

According to Kate Frankish, anti-fraud lead at Pay.UK, — the recognized standards body for the U.K.’s national retail payment schemes — the reduction in fraud rates can be credited to the efforts made by financial institutions (FIs) and payment services providers (PSPs) that have spent millions of pounds modernizing their systems to better detect and prevent fraud. 

But it remains “a real balancing act,” Frankish told PYMNTS, “because what we don’t want to do as an industry is to slow down and stop valid payments, which only disrupts the payments chain.” 

This is where leveraging technology such as artificial intelligence (AI) and machine learning can play a massive role, she said, especially given that nearly 80% of authorized push payment (APP) fraud — one of the common scams in the country, in which fraudsters impersonate a payee and trick an individual or business into sending them an instant payment — cases start online, per the UK Finance report. 

“Some of the leaps and bounds in AI and machine learning have helped to spot patterns of fraud and money moving around not just in the U.K. but globally,” she noted. However, AI is “not one silver bullet” which is going to fix everything, she said, pointing to the need for each bank to tailor its fraud prevention strategy — whether fully manual, tech-based or a mix of both — based on its expertise.

“The key here is to use technology and [digital tools available] but to use them in a basket of different measures,” she explained, “and each bank has to hone their expertise in fraud and adopt different patterns of fraud prevention depending on how well established the bank is and where they’ve had [successful] controls in the past.” 

Going at Fraud With All Hands on Deck

At the government level, one of the measures that the U.K.’s Payment Systems Regulator (PSR) is adopting to stem the billion-pound rising tide of fraud is legislation that mandates that banks reimburse victims of APP fraud. 

And while refunding victims could assuage individuals’ concerns, experts have flagged a moral hazard risk, as the rules could make customers less inclined to take the necessary precautions when making payments, not to mention the impact these requirements could have on the journey to frictionless banking transactions.

While Frankish acknowledged these concerns, she said it’s all the more reason why putting in guardrails to prevent fraud before it happens should be the main goal. “As an industry, we have to work on how we can detect and prevent more fraud, so the actual reimbursement doesn’t have to happen,” she said, adding that “there’s an incentive for everybody to spend more money on trying to stop fraud before it happens.”

The fact that two-thirds of fraud starts on online sites while the other (18%) originates via telecommunications also points to the importance of ensuring different parts of the ecosystem, including online platforms and telcos, are brought together to drive the collaboration needed in the fight against fraud, she said.

“How do we work with these companies to make sure they have skin in the game and they’re taking responsibility to stop the scams starting in the first place? That is what we need to focus more on,” Frankish argued, adding that the incentives will remain skewed “until there’s regulation that has consequences for everyone involved in the chain.” 

For all PYMNTS EMEA coverage, subscribe to the daily EMEA Newsletter.