Imagining a world less economically interconnected than our current one is challenging. Yet three decades ago, global interactions were markedly different—companies engaged in significantly fewer cross-border payments and were predominantly focused on domestic endeavors.
Fast forward to today’s borderless global economy reliant on international supply chains, remote workforces and API-first tech stacks, and the siloed business models of yesteryear have nearly completed their relegation to obsolescence.
With a persistent desire to increase the speed of processes across organizations and government agendas worldwide, there is a modern imperative to streamline cross-border payments to improve efficacy. However, fraud is the primary challenge contributing friction to the objective at hand.
Two Aspects to Improve: Speed & Security
The surge in cross-border payments, driven by trade, capital, and migration flows, is only expected to climb—with a reported $190 trillion in 2023 projected to reach $290 trillion by 2030.
With such expected growth comes a need to improve the efficiency and speed of cross-border payments, as evidenced by conversations led by the European Union in recent times.
In October 2022, the European Commission introduced a legislative proposal aimed at enabling citizens with bank accounts in the European Economic Area to execute instant euro payments. Earlier this month, the legislation was officially passed, with banks and payment service providers now mandated to allow EU citizens and businesses to conduct nearly instantaneous credit transfers.
Despite significant growth, cross-border payments remain expensive and sluggish with fees averaging 1.5% for corporations, 6.3% for remittances, and a timeframe that can take up to several days for payments to complete. Reducing the cost, speeding up the process and enhancing the accessibility of cross-border payments would yield significant advantages, particularly in emerging and developing economies.
The critical challenge for companies engaged in this field is to devise strategies that effectively balance the two aspects of speed and security; to serve customers’ ideal desires of near-instantaneous payments that are completely secure.
The Cross-Border Payments Fraud Problem
Unfortunately, this is easier said than done. While only representing 11% of total card payment transactions, cross-border payments accounted for 63% of card fraud. Fraudsters are particularly drawn to cross-border payments because they can easily steal funds, often as a result of weak security measures.
Most notably, the physical distance between the fraudsters and their victims significantly lowers the chances of the perpetrators being caught. Since victims have limited options for recourse after being defrauded, cross-border payments are frequently seen as the easiest opportunity for fraudsters to execute scams.
How Fraud Undermines Trust
Increasing fraud rates have the potential to erode trust in the security of cross-border payments, and a loss of faith in the security of these payments could lead to an eventual decline, diminishing the future viability of businesses dependent on an international marketplace.
Victims of cross-border payment fraud are ensnared by an array of sophisticated tactics. In Account Takeover (ATO) fraud, perpetrators gain unauthorized access to victims’ banking or digital wallet accounts, manipulating them for illicit transactions. Even within the broader fraud threat landscape, account takeovers are a growing problem, with an estimated 22% of adults in the US falling victim to this type of fraud in 2022.
Another popular method is chargeback fraud, which involves deceitful transaction reversals, while stolen card fraud sees the unauthorized use of credit or debit card details for fraudulent purchases or withdrawals. While sometimes referred to as ‘friendly fraud,’ chargeback fraud can be far from pleasant and is growing at a rate of around 41% a year.
Cross-border payments are also susceptible to fraudsters looking to commit money laundering. Money laundering intricately disguises the origins of illicit funds, complicating efforts to trace them back to criminal activities. Once again, this is a huge fraud problem generally. In fact, anti-money laundering fines were up 50% last year alone.
Other forms of fraud affecting the cross-border payment process include BIN attacks, triangulation fraud, and Authorized Push Payment (APP). Together, these tactics not only inflict financial losses but can also severely damage victims’ credit history and erode trust in digital financial transactions across the board.
New Ways to Address Old Problems
The answer in addressing fraud in cross-border payments is to get proactive and stop the issue before it occurs. Unfortunately, traditional risk technologies have been expensive to develop, slow to implement, complex and ultimately, unable to keep pace with evolving fraud trends.
Thankfully, new solutions are now coming to the fore that offer significant improvements.
Artificial intelligence (AI) advancements have opened new avenues to address these challenges.
Through advanced digital footprinting and the power of machine learning, modern fraud prevention solutions that leverage AI can find the tell-tale signs of fraud that humans tend to miss and help to stop it in its tracks.
For companies, the ability to enrich data is key to this effort. Without always realizing it, users regularly leave behind digital footprints on the sites they visit. By analyzing this information, solutions like ours can unlock the likelihood of an individual being fraudulent while simultaneously making other critical determinations around online accounts.
Fraud prevention solutions that leverage AI have the potential to impart considerable new trust across the cross-border payment space. Whether it’s leveraging behavioral analysis techniques to spot anomalies in user behaviors that indicate account takeovers or utilizing transaction monitoring to spot any unusual transfers of funds, the technology could be transformative.
Maintaining Trust
In the context of cross-border money transfers, trust is paramount. Without maintaining this trust, the entire system risks being compromised. Embracing and integrating advanced technologies is not just about safeguarding funds; it is a crucial step in ensuring the integrity and reliability of the global financial system. Thus, adopting solutions utilizing AI, machine learning, and other state-of-the-art tools, represents more than technological progress. More than ever, it’s increasingly vital for companies and individuals undertaking this essential process to recognize their role in combating the growing threat of fraud.
