Each year, the UK economy loses over £1 billion to fraud. Figures by BDO reveal that in 2023 alone, fraud in the UK more than doubled reaching £2.3 billion. From card-not-present fraud to phishing and purchasing scams, the landscape of financial deception is vast and continually evolving. However, one insidious form of fraud that has seen a significant rise in recent years is Authorised Push Payment (APP) fraud, which accounted for over 40% of the total fraud losses in 2023 alone. In this article, we explore why APP fraud is such a big problem for UK businesses, the various types, and what businesses can do to prevent it.
Chapter 1 What is APP fraud?
Authorised Push Payment Fraud is one of the simplest, yet most effective tactics in a fraudster's book. It involves fraudsters tricking individuals or businesses into authorising a payment to them.
As the name implies, authorised push payments are:
- Authorised:The payer fully intends to send their money to a recipient via a bank transfer.
- Push payments:The payer initiates the payment, as opposed to a ‘pull’ payment, where funds are taken from the payer’s account by the recipient.
Unlike other forms of fraud, APP fraud hinges on the victim’s willingness to transfer funds, making it particularly challenging to detect and mitigate. Using the latest technology advancements like Artificial intelligence (AI), fraudsters typically employ sophisticated social engineering techniques to deceive victims, often posing as legitimate entities such as banks, utility companies, or even friends, family or your CEO. The essence of APP fraud lies in the manipulation of trust and urgency, compelling the victim to act quickly without adequate verification.
Chapter 1 Types of APP fraud
The term ‘APP fraud’ covers a broad spectrum of types of fraud, each of which exploits different vulnerabilities and scenarios. UK Finance has identified eight different categories of APP fraud, although, all authorised push payment scams involve convincing the target that they are a legitimate business or individual into initiating the payment. The most common are;
Chapter 1 Cost of APP fraud
In 2023 alone, the UK economy lost £2.3 billion to fraud, with APP fraud accounting for £459.7 million of this total, with the majority of the losses (£376.4 million) being borne by consumers. These figures are likely much higher, as many individuals and businesses do not report scams to authorities.
The number of reported fraud cases rose by 18% to 232,429, reaching a three-year high, and the incidence of high-value APP fraud cases over £50 million increased by 60% year-on-year in 2023. Despite these alarming statistics, many overlook the true impact of authorised push payment scams. Beyond the immediate financial losses, businesses are responsible for the cost of any recoveries. The disruption caused by these scams can lead to significant cash flow problems, and in a volatile economic climate, this can quickly jeopardise a business's operational stability and push it towards insolvency.
Research by UK Finance highlights the financial burden of these scams: the average initial loss for frauds under £25,000 was £24,574; for frauds between £25,000 and £100,000, the average loss rose to £37,741; and for frauds between £100,000 and £1 million, it was £166,752.
These hidden costs reveal the full extent of the financial burden associated with fraud and underscore the necessity of having a robust fraud prevention strategy in place.
Chapter 1 How to prevent authorised push payment fraud:
Authorised push payment scams are so successful because they capitalise on the victim's lack of knowledge of payments against them. As criminal gangs and fraudsters look to exploit trust by leveraging sophisticated social engineering techniques, APP fraud will remain a significant threat in today’s digital landscape.
The saying goes, prevention is better than cure! So understanding what APP fraud is and how it operates is the first step in protecting against it. But as fraudsters evolve their methods, awareness and education will be paramount. Staying vigilant and proactive is essential in the ongoing fight against APP fraud, and by fostering a culture of scepticism, verification, and security, businesses can collectively reduce the incidence and impact of this pervasive threat.
APP fraud has previously been an easy win for fraudsters and a significant challenge for banks, businesses, and consumers alike. The success of APP fraud lies within the fraudsters' ability to deceive the victim into believing they are engaging in legitimate transactions. Due to the abundance of readily available information online, fraudsters will often have credible research to back their claim if challenged, and more often than not without any doubts, many people will initiate the payment.
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Chapter 1 Digital payment security
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