UK Finance Annual Fraud Report

UK Finance call out “small reductions in the amount stolen through payment fraud in 2023, but with losses of nearly £1.2 billion it remains a major threat to the UK”. Across the two primary areas of unauthorised fraud (payment cards and remote banking), 2023 saw a fall in losses compared with 2022. The most significant area of growth across all fraud categories monitored by UK Finance was card ID theft – this usually occurs due to the comprise of personal data. For APP fraud, whilst the total value has dropped, the case numbers have continued to grow with romance and purchase scams being the most common. 

The Report calls out the importance of action from other sectors. UK Finance recognises that the financial services sector spends more than anyone else on combatting economic crime, including fraud and asks other sectors to step up and stop the criminal activity. In 2023, 76% of APP fraud cases originated from online sources and a further 16% from telecommunications but despite this, the sectors are not involved in reimbursing victims. UK Finance say this needs to change and a “cross-sector approach is crucial”.  

The rules on reimbursement from the Payment Systems Regulator (PSR) come into force later this year. UK Finance have noted the work being carried out by members to make sure they are ready, but it does have some concerns on the approach being taken by the PSR. It is noted that the PSR proposal is great for victim protection but there are concerns around the unintended consequences including customer complacency and increased first party fraud.  

It is noted that reimbursement is only part of the solution. The data can only show the value attributed to unauthorised fraud (as it is not possible to capture, for example, where a customer abandons a payment because of effective warning messages). In 2023, £1.2 billion of unauthorised fraud was prevented (7% increase on 2022). On reimbursement for APP fraud, the data shows that reimbursement rates rose across almost all categories of APP fraud in 2023 – and these rates are expected to continue to rise when the mandatory reimbursement comes in later this year.  

The Report notes the changes in the way people accessed banking services during the pandemic meant criminals altered the ways in which they targeted victims. However, the data now shows that losses across the fraud types captured by UK Finance have reverted to pre-pandemic trends (e.g. lost and stolen cards which dropped sharply during lockdown, have returned to pre-pandemic levels).  

Unauthorised fraud losses were £708.7 million in 2023 (down 3% from 2022). Some of the factors which are thought to have contributed to this overall reduction include (1) lenders increasing expiry periods on cards meaning fewer cards are in transit (so fewer cards available to steal), (2) additional activation procedures when cards are received, and (3) the requirements for Strong Customer Authentication. However, increases were seen in unauthorised mobile banking fraud which is considered to be due to the increased use of mobile banking apps. 

Whilst APP fraud losses have decreased, the number of cases has increased. Purchase scams have significantly increased and despite many online platforms offering secure payment options, criminals are tricking victims to pay via a bank transfer. Investment scams have reduced with UK Finance putting this down to the cost of living. However, these pressures are expected to reduce in 2024, and with the media attention around cryptocurrency prices, UK Finance expects these scams to increase. There has been a reduction in impersonation scams (e.g. fraudsters claiming to be from the police or bank staff) – this is considered likely to be down to the extensive education campaigns.

The Report references the fact that many countries are experiencing an increase in most types of fraud, especially scams. For example, Australia is called out as a country with a population of just 26 million people, it recorded AUD 3 billion in APP losses.  

The use of AI is mentioned as both a risk and an opportunity. As fraudsters look at ways around the additional protections put in place by lenders the use of AI to create images, scripts, videos and voices is expected to increase. Whilst the use of AI is not currently considered a driver behind the rise in telephone banking losses, if criminals are using AI, lenders need to consider its use too – for example in considering detection innovation.  

There is a consistent theme throughout the Report of the importance of lenders (and other sectors) to continue to adapt to prevent fraud. UK Finance notes that as new technologies and security systems are deployed it means some routes are more difficult for criminals and so they shift their tactics and look for new opportunities. UK Finance notes the importance of intelligence sharing across the financial services sector and other sectors as key to enabling the continued disruption and prevention of fraud.