In the increasingly interconnected world of global finance, cross-border payments unlock significant opportunities for businesses, but they also present complex challenges - particularly when it comes to fraud. To help navigate these issues, as part of International Fraud Awareness Week, we sat down with Mario Louka, Financial Crime Manager & Deputy MLRO at Freemarket. In this article, Mario gives his insights into the evolving fraud landscape and how businesses can protect themselves in today’s digital era.
Mario: While Freemarket primarily serves businesses and doesn’t encounter high volumes of fraud directly, we’re acutely aware of the broader risks in the industry. A common form is Authorised Push Payment (APP) fraud. This is where the victim is tricked into authorising a payment, often in response to a convincing scam. APP fraud has become increasingly prevalent, with the UK alone seeing losses of £485.2 million in 2022, according to UK Finance. These schemes are often linked to online investment scams, especially in cryptocurrency, where fraudsters promote fake opportunities, leading unsuspecting victims to lose their funds. According to the FBI, losses from crypto fraud rose by 45% from 2022 to 2023, highlighting the increasing scale of these scams. Social media plays a big role here, as it’s become a channel for fraudsters to target unsuspecting victims.
Mario: The shift to digital has undoubtedly transformed the fraud landscape. One area that stands out is remote onboarding. While technology has made it easier to verify individuals from anywhere in the world, fraudsters have also become more adept at exploiting these systems. For example, they trick individuals into handing over KYC (Know Your Customer) documentation, which they can then use to open fraudulent accounts. Fraudsters are also leveraging technology; it’s estimated that generative AI could enable fraud losses to reach $40 billion in the United States by 2027 if proper measures aren’t taken. Criminals are becoming more sophisticated, using deepfakes and AI tools to manipulate previously secure verification methods like video selfies. The technology has improved, but so have the methods of those looking to exploit it.
Mario: Understanding your customer and their typical payment behaviour is key. Fraud often manifests in subtle deviations from normal patterns. For instance, if a client typically operates within one sector—like online gambling—but suddenly starts making payments to unfamiliar entities or locations, that’s a red flag indicator unless clear rationale isprovided by the customer. The "confirmation of payee" measures introduced recently are also crucial in helping businesses verify that payments are going to the correct recipient. Discrepancies in account names or unexplained changes in payment flows should always prompt further investigation.
Mario: Absolutely. At Freemarket, we take a multi-faceted approach to fraud prevention. It begins with robust onboarding protocols where we use advanced systems to verify identities, company information, and residential addresses against global databases. This is complemented by thorough due diligence to understand the client’s typical transaction behaviour, which informs our real-time monitoring systems. These systems flag anomalies common in fraudulent activity including volume, velocity, value, country factors. We also apply stringent two-factor authentication and a four-eye approval process for new beneficiaries, adding layers of security before any payment is processed.
Mario: One trend that’s making a real difference is the use of data analytics and AI to power advanced systems. Whilst the concept of KYB & TM remains the same, the underlying technology which assists in decision-making and identification of red flags has vastly improved. This means that typologies can be identified and affected transactions flagged in real-time to mitigate attempts at fraud. The "confirmation of payee" initiative in the UK has also been a game-changer, allowing businesses to verify account details before payments are made. It's a step in the right direction, especially as fraud becomes more sophisticated and global.
Mario: A significant challenge is the global nature of financial crime versus the localised focus of law enforcement. Criminals are increasingly adept at moving funds across borders almost immediately after defrauding someone, which makes recovery difficult. The rise of cryptocurrencies also presents a new layer of complexity, as these transactions are virtually irreversible once completed. Social media-based scams will likely continue to proliferate unless regulatory pressure increases on these platforms to improve fraud detection and prevention mechanisms.
Mario: Collaboration is absolutely essential. Public-private partnerships - where governments work alongside financial institutions and fintech companies - are crucial for tackling money laundering and fraud effectively. Speed is also vital. Financial institutions need to act quickly to freeze suspicious transactions before they disappear across borders. The sharing of information between institutions, where possible, is another critical component, as it enables the early detection of emerging fraud trends and strengthens collective defences.
Mario: It starts with education. Businesses need to take the lead in raising awareness, both internally and among their customers. This can be done through regular updates, blogs, FAQs, and even direct marketing campaigns focused on fraud prevention. Many people don’t realise they’ve fallen victim to fraud until it’s too late, so the more we can do to educate them on common scams and risky behaviours beforehand, the better. Proactive fraud awareness not only mitigates risk but builds trust with clients.
As fraud tactics continue to evolve, so must the strategies to combat them. By leveraging the latest technologies, fostering industry-wide collaboration, and prioritising education, businesses can better protect themselves and their customers in the cross-border payments ecosystem. At Freemarket, we’re committed to driving forward these efforts, ensuring our clients can operate securely and confidently in a complex, global marketplace.