2023 Outlook: Fresh Fraud Trends Emerge to Exploit Your Mid-Sized and SMB Bank

Is your newsfeed oversaturated with fraud stories lately? This year was a frenzy of fraud with bold criminals who aggressively construct a risk landscape reflective of the technology-forward mindset of today. 

Digital fraud losses are anticipated to surpass $343 billion globally between 2023 and 2027. With a fresh crop of fraud trends gaining momentum—including synthetics, insider recruitment, lending fraud, and social media scams—mid-sized financial institutions (FIs) must rethink their approach to fraud prevention. 

Customer loyalty and brand reputation is on the line. The stakes couldn’t be higher in a diversifying competitive and digital landscape. Community banks, credit unions, and regional banks can’t afford for risk management to be hindered by fragmented point solutions, lack of contextual insight, and data silos. 

Below, we’ve cherry picked some key fraud trends for 2023, but this is only the first wave of what’s likely to be another definitive year in fraud.

Just Your Friendly Neighborhood Scammer

The rule of thumb for scams is if it’s easy to make a payment, then it’s easy for scammers to make money.

Phishing, spear phishing, baiting, scareware, whaling attacks, and pretexting are a few common social engineering techniques used to prey on a victim’s vulnerabilities. Social engineering is especially effective because it relies on psychological tactics—scammers know how to use a victim’s fear, greed, or respect for authority against them. 

• Insider recruitment: Large-scale criminal networks, like LAPSUS$, have extended recruitment efforts to the workforce of legitimate businesses in all industries. Employees are compensated for providing an opening for scammers to infiltrate the target organization and gain control over cloud assets and authentication systems.
• Social media scams: Fraud losses initiated on social media hit $1.1 billion in the year leading up to March 2022. Though not an exhaustive list, fake merchandise scams, charity scams, fake job scams, romance scams, and investment scams regularly start on social media. These scams result in authorized push payment (APP) fraud, account takeover (ATO), money mule activity, identity theft, and credit card fraud.
• Google voice scams: Over 37% of the scam reports received by the Identity Theft Resource Center in the first half of 2022 were about Google Voice scams. A Google Voice account isn’t even necessary for a scammer to victimize someone and perpetrate ATO or identity theft or victimize others.

Keep in mind that any scam loss statistics that you read about are likely to be much higher than the actual numbers indicate. The shame and stigma frequently associated with scams can prevent victims from sharing their experience with the proper authorities. Just 4.8% of scam victims end up reporting their losses.

This makes the $3.6 billion lost globally by businesses alone in 2022 to scams and fraud, averaging $1.78 million in losses per case, even more daunting.

Synthetic Identity Fraud: Imitation isn’t the Sincerest Form of Flattery 

Thanks to numerous new tools and apps, synthetic identity fraud (SIF) is just a swipe away.

Artificial intelligence (AI), machine learning, and deep learning technologies add even more legitimacy to already sophisticated fraudster behaviors and tactics. Now synthetic media capabilities, like the means to modify or construct video, images, and audio, are readily accessible to the public through a number of different products.

Mainstream text-to-image synthesis and generator tools, auto-generated and downloadable synthetic faces, smartphone native AI-powered image eraser tools, and synthetic voice generator tools are available for free or as little as a few dollars.

These tools blur the interpretation of reality, and they’re anticipated to influence the trajectory of SIF in 2023. 

• SMB lending fraud: There’s been a 9% increase in small and midsize business (SMB) lending fraud since 2020. Synthetic business credentials, created from stolen business and consumer data, make it challenging for FIs to distinguish authentic loan requests from fraudulent ones.
• Business identity theft: Fraudsters use synthetic media to impersonate business profiles and resources on social media to misrepresent employees, execute scams against the company or other victims, or create replica websites to obtain sensitive data. Driven by these types of soaring cyberattack risks, the identity theft protection market is expected to reach $27.90 billion by 2029, up from $11.29 billion in 2022.

Closing Gaps in Risk Exposures with AI and Machine Learning

Luckily, as fraudsters continue to up the ante with dynamic new trends, game-changing technology and analytics, innovations are emerging in response.

Advanced AI and machine learning-powered solutions are helping mid-market financial institutions, like regional and credit unions, address specific fraud prevention challenges and risks. For example, credit unions have risk exposures that include manual reviewing processes, insecure email networks, leaked personnel data, and outdated fraud prevention systems.

To protect their customers, assets, and organization, mid-market FIs must adopt a holistic fraud strategy that incorporates fraud and AML solutions in a single platform. With AI, data intelligence, and behavioral analytics, mid-sized organizations can: 

• Detect attacks at early stages and intervene before any money movement occurs.
• Respond to new threats without alienating customers with behavioral biometrics that can automatically discover unusual patterns across channels.
• Expedite accurate risk scoring and leverage actionable insights based on contextual enriched customer profiles.
• Streamline alert and case investigation with automatically discovered relationships and linkages.
• Improve investigation efficiency with real-time KYC and CDD entity-link analysis and pre-populated case details for regulatory reports.

Fraud is a living, breathing threat and should be treated with a holistic, intuitive fraud prevention program capable of responding to fraud in whatever iteration it happens to materialize. 

On a final note, a blog simply isn’t a big enough format for the expanse of fraud trends we’re following for the upcoming year. For more in-depth 2023 fraud trends, statistics and insights, check out this new white paper.