As fraud threats continue to evolve, and with authorised push payment fraud (APP) reimbursement rules on the horizon, the imperative for banks and building societies to step up fraud detection and prevention measures has never been greater. 

Earlier this month, Financial Ombudsman Service (FOS) data revealed that fraud and scam complaints reached their highest ever quarterly level in Q2 2024, at 8,734 complaints (a 43% increase year-on-year). The FOS reports that crimes are becoming more complex and convincing, with rising cases of multi-stage fraud (where funds pass through several banks before reaching the fraudster).

While much progress has been made to tackle fraud, the scale of the problem remains significant (£1.17bn was lost to fraud in 2023¹), and the accelerating pace of technological change means responses must continue to adapt. 

In collaboration with Stop Scams UK, PwC recently convened senior industry leaders to discuss the fraud threat landscape of the future, and the changes needed to meet the challenges ahead. Industry experts agreed that the fraud environment will evolve rapidly over the next decade, as fraudsters adopt increasingly sophisticated technologies. 

Growing use of automation and generative AI

We expect the growing use of automation and generative AI tools to amplify fraudsters' ability to operate at scale, leading to an increase in fraud threat volumes. Technology will also allow fraudsters to develop more sophisticated scams that will be harder for consumers to recognise as malicious. Criminals will be able to create highly personalised approaches, using hyper-realistic deep fakes, voice clones and tailoring tactics based on personal information found online. In a world where AI-enhanced content is becoming more prevalent, it will be harder for consumers to distinguish legitimate from malicious use.

To meet these challenges, banks and building societies will need to deploy increasingly sophisticated scam detection and data sharing models, and to make more frequent interventions in payment journeys in a way that effectively balances fraud prevention with good customer outcomes. 

Government action

Government should lay the groundwork for this by building on existing data sharing initiatives to develop a clear vision for system-level data sharing. Greater collaboration between law enforcement, public and private organisations across sectors, plus clearer guidance to govern data sharing between institutions, would enable firms to apply tailored analytics to much wider data sets. For example, a future model could see social media platforms sharing information about users that have accessed suspected scam content, which is matched to bank account holder details to inform payment risk modelling.

Armed with this richer insight, banks and building societies could deploy more sophisticated risk detection systems that identify scam risk at the point of payment based on individual customer behaviours. Incoming rules which enable firms to delay a payment where they have reasonable grounds to suspect fraud or dishonesty (which the FCA issued a guidance consultation on earlier this month) will support their ability to intervene based on this data. This will help to prevent fraudulent payments, reducing consumer harm and reimbursement costs. 

But deploying the new payment delay powers will bring complexities, and require firms to consider enhancements to their customer communications and support, particularly in light of the higher standards of the Consumer Duty. 

Striking a balance

Firms have a challenging balance to strike between intervening on high risk payments, managing the operational cost of interventions, and delivering good outcomes in line with the Duty, by minimising the impact of delays on legitimate payments. Ahead of the rules coming into force, firms should reflect on their customer support and how they use management information to monitor the impact of interventions on outcomes. The FCA stresses that firms will likely need a real time human interface, such as a phone service, to provide effective support when delaying payments. 

Given the FCA’s review of anti-fraud controls earlier this year found that fraud teams were not always appropriately resourced, it’s important that firms reflect on the resourcing and capability of customer support teams. While more cost-effective channels such as virtual agents can be effective in resolving simpler queries, adequately resourced and trained specialist teams are needed to handle the most complex and highest impact issues. 

More broadly, customer communications play an important role in the fight against fraud. Over time, we expect to see firms using enhanced risk detection systems to drive more personalised and sophisticated warning messages to customers at the point of payment. Firms should continue to test the effectiveness of warning messages, and consider more innovative and interactive techniques, informed by behavioural science and tailored to customers to drive maximum engagement. 

While the pace of technological change will create a challenging threat landscape over the coming years, it also has the power to drive more innovative and powerful anti-scam capabilities. By leveraging technology and greater collaboration, organisations can develop long-term strategies to protect their customers and their business from evolving threats. 

For more information, read our report on the Future of fraud: A UK view from the 2030s.

¹https://www.ukfinance.org.uk/system/files/2024-06/UK%20Finance%20Annual%20Fraud%20report%202024.pdf