As digital payments become increasingly popular worldwide, the danger of financial crime has increased. A concerning trend in fraud is Authorised fraud or Authorized push payment fraud, in which victims are manipulated into making payments. Since the victims themselves initiate and approve the transaction, it becomes incredibly difficult for banks or financial institutions to reverse or trace the fraudulent payment. Authorised frauds flourish in hasty decision-making, manipulation of trust, and taking advantage of the emotional and financial vulnerability of victims.
Authorised fraud takes many forms, but some of the most common include Investment, Romance, and Impersonation scams. Investment scams lure individuals with promises of unusually high returns, while criminals exploit emotional vulnerabilities in romance scams by establishing fake relationships to convince victims to send money. Impersonation scams feature criminals posing as trusted sources—such as banks, government agencies, or family members—hoping to extract funds from their victims.
A recent example of an Authorised scam is the FedEx courier scam, in which fraudsters impersonate FedEx employees and law enforcement officials and deceive victims into transferring money. The victims, believing they are resolving a legitimate issue, willingly send funds, unaware they are being scammed.
As per the latest Scamscope report from ACI Worldwide, Authorised fraud losses are rising, with expected losses climbing to $7.6 billion by 2028 across six leading real-time payment markets (US, UK, India, Brazil, Australia, and UAE). However, India’s forecasted growth in Authorised fraud is expected to be the lowest among these six markets, with a projected compound annual growth rate (CAGR) of just 5.9% from 2023 to 2028. This decline can be attributed to ongoing awareness campaigns and consumer education initiatives aimed at safeguarding personal information and highlighting the dangers of sharing sensitive data. These efforts have significantly increased public understanding of cybersecurity risks and thus reduced the growth of Authorised fraud.
Challenges for the Financial Institutions
The complex nature of fraud, along with the innovative tactics employed, makes authorized fraud a significant challenge for financial institutions. Traditional methods, such as rule-based alerts and risk scoring, often result in a high number of false positives. This situation strains operational resources and negatively impacts the customer experience. FIs also lack tailored risk models and comprehensive entity-based scoring systems that are crucial for detecting various types of fraud like Authorised Fraud, Unauthorised Fraud (ex:account takeovers), and Money Mules – individuals who facilitate money laundering or other fraudulent activities with or without their knowledge.
Furthermore, collective intelligence across financial institutions with regulators’ buy-in can improve the detection process multifold as fraudsters often operate across multiple platforms, creating blind spots.
AI for Real-time Fraud Detection and Prevention
The growing threat of Authorised fraud can be tackled with the help of AI. Real-time fraud detection provides a strong foundation for building more intelligent and secure financial systems. In India, the Reserve Bank of India’s innovation Hub has developed Mule Hunter AI, an AI-enabled solution designed to warn banks about financial fraud in real time, strengthening digital transaction security and improving fraud prevention efforts. In addition to solutions like Mule Hunter AI, advanced AI-driven technologies help address fraud challenges more broadly through::
Real-time fraud detection:
Real-time fraud detection provides a solid base for building more intelligent and secure financial systems. Seamlessly integrating with the FIs’ / Banks’ existing compliance stack, these solutions continuously monitor transactions to identify suspicious activities as they happen and allow dynamic risk scoring based on the assessment.
Activity-Based Intelligence:
AI technologies leverage automated behavioral analytics, typology-specific risk models, and network analytics to accurately identify potential risks and avoid fraudulent transactions.
XAI:
Improved with the inclusion of Explainable AI, the approach ensures increased efficiency at the operational level through automated case management workflows based on the typology of risk and accuracy. This ensures that legitimate transactions are processed smoothly, and customers enjoy a better experience.
Conclusion
The fight against Authorised Fraud mainly depends on strong collaboration between banks, technology providers, and regulators. Financial institutions must implement advanced fraud detection systems, while technology providers offer innovative solutions to stay ahead of fraudsters. Regulators are critical in setting standards, ensuring security protocols, and nurturing industry-wide cooperation. These stakeholders, working together, can build a more secure digital payment ecosystem in which proactive fraud prevention and shared intelligence protect consumers and help reduce risks throughout the financial sector.
About the Author
As a solution anchor for UAE, Qatar, Kuwait and Oman region, Sriram’s career is defined by a rich blend of technology and delivery management expertise in Open finance adoption, Wealth management, Payments and M & A programs. He drives strategic consulting on transformative technical and process innovations, empowering “change the bank” initiatives to deliver impactful business outcomes through differentiated solutions and emerging technology.
Article originally published in Tech Achieve Media
