2023 Fraud Trends and Scam Predictions

1. More AML Regulations and Sanctions in 2023

There is no crystal ball for fraud and financial crime predictions that can accurately predict how global events in 2023 will unfold. But given the current situations in several different regions, here are a few likely scenarios we can anticipate. 

• An Expanding Sanctions Map: In the Russia-Ukraine war there seems no clear path to a negotiated settlement or another end to the conflict. Depending on how the war unfolds or escalates, it’s likely additional sanctions will be issued. Meanwhile, Russia isn’t the only nation I expect will be targeted with additional sanctions. Recent provocative actions by North Korea and the globally condemned crackdowns against protestors by Iran will potentially result in further regulations. 
• Merging Fraud and KYC: More players in the financial services sector are starting to realize the importance of sharing important information. Fraud activity is becoming increasingly seen as a market in Know Your Customer (KYC) operations. This could mean we’ll see an increase in perpetual KYC (pKYC) implementation as banks connect fraud becomes part of banks’ risk assessment workflow. 
• More Regulations Become Reality: Several anti-money laundering (AML) laws have gone into effect in the past few years. Now regulators face the task of implementing these laws. The US AML Act of 2020 (AMLA2020) gives law enforcement agencies the power to issue subpoenas to international organizations with US-based accounts. Meanwhile, the EU is moving ahead with the formation of a new Anti-Money Laundering Authority (AMLA) that will be responsible for enforcing money laundering efforts. We can also expect more beneficial ownership registries (BSOs) to expand across global regions. 

2. Scams, Scams, and More Scams

Fraudsters are increasingly turning to scams as tactics like account takeover (ATO) attacks have become harder. Fraudsters have two distinct advantages working in their favor to push scams. 

The first advantage is economic uncertainty. Many global markets are fearful a recession is imminent – if not already in effect. When people are uncertain or desperate about their financial lives, they are more likely to fall for scams. This includes fake job offers, unemployment fraud, or even romance scams. The second advantage is the rise of faster payment systems in new global markets. The US and Canada, for example, are launching their own faster payment schemes similar to the UK’s Faster Payments Service. These systems enable money to move with a few taps of the screen. 

This should serve as a wake-up call to banks; identity solutions alone aren’t enough to stop scams. By pressuring or manipulating their targets, scammers have found a way to bypass safeguards like two-factor authentication (2FA) and even biometrics. 

Scammers will also evolve their tactics based on their targets. They’ll use more established tactics like ATO in markets where technical solutions and security barriers are more vulnerable. In others, they’ll use social engineering tactics to manipulate customers into sending them money. Scams are already thriving where faster payment systems are available, including SCT Inst in the EU, Zelle in the US, PIX in Brazil, and elsewhere. When Canada launches RTR in 2023, scams will evolve again for this market again. As faster payment schemes expand, scammers will become more innovative to socially engineer their scams specifically for their marks.

Whatsmore, liability is shifting for financial institutions to cover scam losses. Here’s a market differentiator opportunity that presents itself to banks. Banks that offer to reimburse victims for a portion of scam losses will set themselves banks apart.

3. More First-Party, Second-Party, Family, and Friendly Fraud

Increases in different types of fraud are also among our 2023 fraud predictions – especially those related to economic uncertainty. During every economic downturn, we see a rise in first-party fraud activities. This includes loan origination fraud, which increased by 71% during the 2008-2009 recession. Friendly fraud, which includes buying goods, claiming the purchase never arrived and demanding a refund, is also common during a recession. This trend will likely repeat itself if another recession hits. 

Second-party fraud is poised to accelerate as well in 2023. In the UK, for example, with liability shifting to banks, some people may volunteer their information to others (most likely a friend or family member) to deliberately commit fraud. The friend buys goods to make the fraud look real. When the original holder of the information claims fraud, they will get a refund for a fraud they were secretly involved in. Others may participate in money mule schemes and allow their bank accounts to be used by money launderers.

We also expect to see a rise in family fraud as economic uncertainty rises. This could take the form of a family member exploiting a relative’s trust – such as taking their ATM or credit card without their knowledge. But it can also be a willing fraud such as one family member allowing another to use their personal information to access a loan or open a new credit card. This could become more common if a recession makes it challenging to access loans or capital. 

4. Technology Makes Fraud More Convincing and Scalable

We’re also seeing an increase in the usage of deepfakes for fraud. In the year ahead, we’re likely to see the next evolution of this trend. While deepfake technology can be used to create convincing visuals of real-life people, it relies on strictly visual deception. 

But this type of social engineering can be enhanced with the help of generative AI technology that replicates a person’s conversational and typing styles. This includes mimicking the way a person “speaks” via text or SMS and even their preferred emojis. What’s most alarming is how effective these new technologies have proven to be for fraud at such an early stage of development. They will only get more convincing over time. With these tools, fraudsters can push convincing scams like CEO fraud or invoice fraud to victims. 

Deefake technology will only make it more challenging for everyday people to sort what’s true from what’s fake. We also expect fraudsters to find new ways to imitate individuals’ voices to create highly convincing audio fraud.

5. More Social Media Fraud

In the past few weeks, it’s been almost impossible to look away from Elon Musk’s Twitter takeover and the changes being implemented. Among the most controversial moves is changing how users are verified with blue check marks. By allowing verification badges to be sold, the platform has become a breeding ground for multiple scams. 

But we can hardly place the full blame for a rise in scams on Twitter alone. We’ve seen numerous social media platforms become unwitting accomplices to fraud in recent years. Fraudsters use social media platforms to push scams and do so at scale. At least one major UK bank warned that 77% of scams originate on social media, eCommerce, or dating sites. Left unchecked, social media platforms are essentially turning into “fraud-as-a-service” platforms, giving fraudsters automated tools to push their scams.

6. Fewer crypto investment scams…and more non-crypto investment scams

If there’s a silver lining among our 2023 fraud predictions, it’s very likely that we’ll see a drop in cryptocurrency investment scams. Following the downfall of FTX, it’s fair to say the crypto winter is here. Expect to see investors move away from FOMO-driven decisions to take a harder look at the market. But while crypto’s risk has been fully exposed, it’s still likely to attract potential investors. Consumers should exercise caution and ask hard questions when making these types of investments.  

Fraudsters won’t let one door close without opening a window. While the shine might be falling from crypto, there are plenty of other investment scams to push. Using their familiar high-pressure tactics, fraudsters will try to lure investors into fake stock, gold, or other commodity-related scams. Pyramid schemes and multi-level marketing (MLM) selling are poised for a comeback fuelled by platforms like Instagram and other social media platforms. People looking for a side hustle need to beware of what they’re getting into when dealing with online business opportunities.

Between shifting scam tactics, new technologies like deepfakes and generative AI, and more opportunities to reach victims online and on social media, it’s going to be more challenging to tell what’s real from what’s fake. In the face of these fraud predictions for 2023, banks need to stay vigilant about the risks they face in this market and protect themselves as they navigate a highly risky fraud landscape.