BNPL and NFT: How to Use Them Securely and Avoid Friction

Fraud Trends 2022 – A Deep Dive

Stuart Mann

Jun 27, 2022

Accertify’s recent webinar and latest eBook highlighted some of the major fraud trends shaping this year. It also suggested technologies available to help identify and mitigate these emerging threats. This blog takes a deeper dive into some of the key areas of focus.

A question of loyalty

Loyalty points can have real cash value for a criminal. There is minimal data communication between the airline and customer and the chances of getting caught are much lower than other forms of fraud. In addition, the items exchanged are often untraceable, which makes them more appealing to a fraudster.

During the pandemic, the number of accrued loyalty points soared thanks to inactivity. The global loyalty management market is projected1 to grow from $4.43bn in 2021 to $18.22bn in 2028 as companies seek to redeem brand loyalty lost during the pandemic.

Secure (and friction-free) customers

PSD2 (2nd Payment Service Directive) SCA is a set of rules from the European Banking Authority’s (EBA) put in place to help protect customers from fraud while they are shopping online.

This has been mandatory across Europe since January 2021. However, in the UK, under new SCA requirements, card issuers will now decline all non-compliant transactions. Authentication can cause friction, which is something most merchants seek to avoid. Merchants want to maximize revenues and customer satisfaction across their websites and apps.

According to Barclays data2, 43,000 transactions a day, worth £3.64m, were declined at the point of sale in February. A high percentage of merchants seek to balance customer experience with fraud losses, just six in ten are effective at reducing both customer friction and fraud risk.

This card payment authentication friction, thanks to PSD2, could well lead to a rise in alternative payment methods to convert sales. And with every increased payment method, comes a whole new raft of ways to commit fraud. There is an added risk that increased payment scrutiny will lead criminals to find new ways to attack businesses “beyond the payment”.

Non-Fungible Tokens (NFT) and the Metaverse

A non-fungible token (NFT) is a non-interchangeable data unit such as a photo, video or audio file stored on a blockchain. As NFTs become more mainstream, unaddressed vulnerabilities could well allow fraudsters to prosper.

Investment in the tokens is growing, with the market estimated3 at $40bn in 2021. However, not everyone knows what to buy and where to invest and criminals are taking advantage of a lack of experience and education from investors who aren’t taking the necessary precautions before sinking their money into the latest trend. Many works created are plagiarized or fake collections, with one platform4 flagging 90,000 potential NFT fakes in three months. There are also many reported instances of fraudsters posing as OpenSea employees to gain access to assets and private keys.

From October 2020 to March 2021, Americans lost a reported5 $80m on cryptocurrency scams (and consumers reported losing more than $2m to Elon Musk impersonators alone). By 2026, according to Gartner6, 25% of people will spend at least one hour a day in the Metaverse for work, shopping, education, social and/or entertainment reasons. Currently there is little KYC (Know Your Customer) taking place on certain Metaverse platforms and minimal regulatory measures. This makes the Metaverse an exciting place for fraudsters to have some fun.

Buy-Now, Pay-Later (BNPL) and increased scrutiny

Buy-now, pay-later (BNPL) financial options are on the increase.

Research from Afterpay suggests that the BNPL options were more popular than personal loans last year and the service has grown 300%7 in the US since 2019. Moreover, many larger companies are making the move into this form of payment. BNPL is not without its risks. Scammers are able to use identities to procure items (which they then sell, sometimes at inflated prices) and leave the victims to foot the bill. Moreover, BNPL platforms often have less stringent security protocols in place so they can be easier to penetrate.

Privacy laws

According to Gartner predictions8 by the end of 2023 modern privacy laws will cover the personal information of 75%8 of the world’s consumers. This should be good news for consumers, but it could make it harder to track and access data belonging to criminals.

A new legal duty is to be added to the UK’s Online Safety Bill9 requiring the largest and most popular social media platforms and search engines to prevent paid-for fraudulent adverts appearing on their services.

However, these increased privacy laws might also lead to cyber criminals taking more extreme measures, such as causing human harm using operational technology malware.

Accertify has a comprehensive platform to address today’s threats with the agility to detect what comes tomorrow. With a simple API integration and real-time machine learning based risk decisions, our seamless approach makes it simpler to protect your organization while delivering an excellent customer experience.

Sources:

  1. https://www.marketsandmarkets.com/Market-Reports/loyalty-management-market-172873907.html?gclid=Cj0KCQjwma6TBhDIARIsAOKuANzpYhNYf5pHo5JNCmxzMEJTdoLAt3_YBNlUeGosfQtdAAXgQObxxcwaAoiREALw_wcB
  2. https://www.finextra.com/newsarticle/39859/online-retailers-warned-of-lost-sales-as-sca-comes-into-effect
  3. https://www.bloomberg.com/news/articles/2022-01-06/nft-market-surpassed-40-billion-in-2021-new-estimate-shows
  4. https://www.reuters.com/article/usa-tech-art-idUKL8N2TM0VV
  5. https://www.ftc.gov/news-events/news/press-releases/2021/05/ftc-data-shows-huge-spike-cryptocurrency-investment-scams
  6. https://www.intelligentcio.com/apac/2022/02/22/gartner-predicts-25-of-people-will-spend-at-least-one-hour-per-day-in-the-metaverse-by-2026/
  7. https://www.mckinsey.com/industries/financial-services/our-insights/buy-now-pay-later-five-business-models-to-compete
  8. https://www.gartner.com/en/articles/the-top-8-cybersecurity-predictions-for-2021-2022
  9. https://www.gov.uk/government/news/major-law-changes-to-protect-people-from-scam-adverts-online