Rising Attack Rates Show How Fraudsters Are Zeroing in on Fintechs, According to Sift Data

Fraudsters targeted fintechs at an alarming rate in 2021, according to Sift Science Inc.’s first-quarter 2022 Digital Trust & Safety Index. The index reveals that the payment-fraud attack rate across fintechs within Sift’s network increased a whopping 70% in 2021 compared to 2020. The attack rate is defined as the number of fraudulent transactions blocked by Sift out of total transactions. The increase was the highest in any vertical in Sift’s network of more than 34,000 sites and apps. The index also included a survey of more than 1,000 consumers.

A key reason fintechs have become attractive targets for fraudsters is that the sector saw a 121% growth in transaction volume in 2021, compared to 2020, according to the data for the fintechs in Sift’s sample. 

“The fintech space is currently experiencing rapid, accelerated growth. Consumers are relying on digital-first financial services and they have more options than they’ve ever had,” Jane Lee, trust and safety architect for Sift, says by email. “Coupled with the growing acceptance of digital currencies as a legitimate asset class, the fintech industry is attracting huge amounts of money, thus making it a prime target for fraudsters.” 

While Sift has covered fraud attacks targeting fintechs in prior research, the company says this is the first time it has done a deeper examination of how fraud is impacting these organizations. 

The onslaught against fintechs was primarily aimed at alternative payment products, such as digital wallets, which saw a 200% uptick in payment fraud. Criminals are attacking wallets in large part because many of them support cryptocurrency, which can be easily transferred to another wallet without leaving a paper trail, according to Lee. 

“[Fraudsters] will always follow the flow of currency,” says Lee. “The skyrocketing growth and popularity of alternative payments, digital wallets, and decentralized finance spells out an opportunity for fraudsters.”

Fraudsters also took aim at cryptocurrency exchanges, with attacks on exchanges increasing more than 140% in 2021 compared to 2020. A primary reason is that many criminals view exchanges as an ideal mechanism for laundering stolen funds. 

“While cryptocurrency exchanges typically include know-your-customer and identity-verification steps, cybercriminals have found ways to bypass those safeguards,” says Lee. 

Buy now, pay later services were another favored target. In 2021, BNPL providers saw a 54% rise in fraud attacks, compared to 2020. The value of attempted fraudulent BNPL purchases rose 5% in 2021, to $179.00 from $170.55 in 2020.

One of the BNPL scams spotted by Sift consists of offers for unlimited access to BNPL accounts through fake credit card numbers and compromised email addresses on Telegram, an encrypted messaging app that fraudsters often use to communicate with fellow scammers. Interested individuals direct-message the fraudster on Telegram, then pay for access to the stolen account data.

“Professional fraudsters often post on Telegram forums advertising their ability to provide people with fake credit card numbers to use for BNPL payments or compromised email addresses belonging to consumers that have already been approved by a BNPL provider,” Lee says. “As the BNPL market continues to grow, we’ve observed a significant rise in scammers targeting this alternative payment method.”

One point fintechs need to keep in mind amidst rising fraud attacks is that the attacks can negatively affect customer trust in the fintechs’ Web sites. “Many brands fail to realize that the damage of payment fraud goes beyond the initial financial impact,” says Lee. “The vast majority of consumers report abandoning brands after they experience fraud on a business’s Web site or app, diminishing customer lifetime value and driving up acquisition costs.”