As cross-border payments fuel an increasingly globalized economy, concerns about fraud in these transactions have also grown.
Although cross-border payments make up just 11% of total card payment transactions, they account for 63% of card-related fraud. This issue is particularly acute in the UK, where losses due to authorized push payment (APP) scams reached £239 million in the first half of 2023, according to UK Finance. One in three UK cross-border payment users reported falling victim to APP fraud, in which individuals are tricked into sending money to criminals.
With international payments, the physical distance between the fraudsters and their victims significantly reduces the chances of criminals being caught, leaving victims with limited options for recourse after being defrauded. In response to these risks, the UK’s Payments Association released a white paper exploring how governments and financial institutions can work to deter fraud in the cross-border payments space.
Tony Craddock, Director General of The Payments Association, said that the lack of cohesive international standards for Know Your Customer and anti-money laundering protocols allows criminals to exploit regulatory inconsistencies. The research highlights Australia’s approach as a model: a collaborative framework among banks, law enforcement, and technology providers has led to improved fraud detection.
Taking Protective Steps
Many financial institutions are not fully prepared to handle the complexity and speed of cross-border payments, particularly when it comes to information sharing.
“Financial institutions that share risk signals and historical data across the payments ecosystem are in a much better position to identify and block criminal activity,” said Suzanne Sando, Senior Analyst of Fraud and Security at Javelin Strategy & Research. “Instead of solely relying on in-house data, access to a consortium offers a rich historical data pool to better detect and handle risky transactions, providing visibility into critical datapoints that may have otherwise not been available.”
Another promising solution recommended by the Payments Association is tokenization. Tokenization involves creating digital tokens, often on a blockchain, to represent financial assets. This approach is gaining traction as a way to increase the speed and security of cross-border payments, which is crucial when it comes to reducing fraud and ensuring transaction integrity on a global scale. Several organizations are exploring tokenization for these benefits, with private banks including, UBS, JPMorgan Chase, and Citi making significant dents in this arena.
There’s also the global communications standard ISO 20022, which establishes a common language for sending and exchanging payment data. Its enriched data allows for more precise fraud controls for cross-border payments, which are expected to strengthen further as ISO 20022 adoption grows, enhancing security and trust in global transactions.