By Ian Johnson, MD of Europe at Marqeta

We are going through very unusual times, with most of the country having lived under state-imposed lockdown in the last few months. Against this backdrop, fraudsters are unfortunately thriving, and we have seen numerous warnings and scams being conducted by people who want to take advantage of the situation. Action Fraud has received more than 16,352 reports of COVID-19-related scams, reporting that consumers have lost more than £16 million to ecommerce fraud as of June. This means people need to be on guard more than ever.

What’s more, recent Marqeta research found that one-in-five survey respondents had fallen victim to fraud in the last 12 months. This could be because consumers are often insulated from the consequences of fraud; just 43% of UK respondents think it is the banks’ responsibility to protect consumers from fraud, but 92% of people who had been defrauded had been able to get fraudulent transactions removed from their account. For consumers, this means the stakes are lower if they do fall victim to fraudsters. For banks, it means they are often carrying the financial burden.

Fraud is a sunk cost for banks, so ultimately, more needs to be done to identify and prevent fraudulent transactions from taking place. However, this is no simple task. In the past, banks have struggled to spot fraudulent activity, because they had very little real-time data and context into the payment decisions being made. Decisions on whether a transaction is likely to be fraudulent were often made retrospectively, using out of date information, after the payment has gone through. What’s clear today is that consumers want a more proactive approach, with research showing that 70% of consumers feel banks could be more accurate when it comes to predicting fraud.

Overcoming fraud fatigue

Currently, while many people are aware of fraud and are taking some steps to protect themselves, there is still a significant portion that are not. This could be because consumers are unclear on who is responsible for fraud protection, but it could also be because they are tired of the risk of fraud and think they can’t do much to stop it. This is reflected in the research; while 96% of consumers were concerned about fraud, more than two fifths (42%) said they accept fraud as a cost of living in an increasingly digital economy, and more than a third (35%) accept being a victim of fraudulent transactions is ‘inevitable’.

This passive attitude to fraud means consumers aren’t taking enough steps to protect themselves. More than half (52%) of consumers admitted they could be better at protecting personal financial fraud; 14% lose their card at least once a year, but only 23% cancel their card immediately when this happens. For the rest, it can be too late – 82% of fraud victims had money stolen within an hour of losing their card. This means it’s vital for banks to be proactive, monitoring accounts for suspicious activity so they can respond quickly in the event of fraud.

Attitudes to fraud still behind the times

Despite people becoming increasingly tech-savvy, when it comes to fraud and security, consumers are often creatures of habit who prefer a more traditional approach. For example, 80% of people believe a physical card is more secure than a mobile wallet, even though, logically, what are you more likely to notice has gone missing, a card or your phone? This misconception is stopping people from moving to more secure payment methods, with 53% saying the risk of fraud makes them less likely to try out new digital forms of payment.

It’s critical that banks continue to educate consumers about more secure, digital offerings. Now is a perfect time to do this, as it’s clear that social distancing measures taken as a result of COVID-19 have pushed many people to try new digital payments such as contactless and mobile payments. As consumers adopt new payment methods, it’s important that banks make sure any misconceptions around security are cleared up – this will help to build consumer confidence.

Solving fraud before it happens

Today, as the payments landscape transforms and fraud continues to plague consumers, it is essential that banks are able to stop fraud before it happens. Not only will this enable banks to save millions of pounds, but it will also result in a better customer experience.

To improve fraud detection, banks should consider deploying cards that “think”, assessing the contextual data of a transaction – the who, what, when, where and why –  in real-time and putting controls in place that attempt to block suspicious transactions during the payment process rather than after the fact. Cards that think need to be underpinned by modern payment platforms that use data analytics and rules to enable improved fraud detection and security. Not only will this significantly reduce the bank’s costs to compensate customers, it will encourage greater customer loyalty in a competitive banking landscape