Remittance Fraud
What is Remittance Fraud?
Remittance fraud involves the fraudulent manipulation of funds when transferring money from one party to another across borders. This can occur through various channels, including wire transfers, online payment platforms, and traditional banking systems. Perpetrators of remittance fraud often exploit vulnerabilities in these systems to steal funds or obtain sensitive information for illicit purposes.
As the remittance industry grows and gains more players due to enablement from faster payments, mobile wallets, and advancements in digital currencies, processors and financial institutions should monitor and prevent this type of fraud. This is especially true as more regulations around this payment type are expected to prevent money laundering and terrorist financing.
Some statistics around remittance fraud include:
- The remittance industry is expected to reach $930.44 billion in revenue by 2026 and 1.3 trillion by 2032.
- Individuals who send money abroad are almost four times as likely to have suffered from financial fraud compared to those who have not sent remittances.
- In the same report, analysts found that remittance senders are likely to be expatriates living in a foreign country, potentially unfamiliar with the local language and financial system, and therefore more vulnerable to scams.
- Fraudsters typically use remittances to transfer funds to their accounts, often using account information obtained from data breaches. These funds may come from account takeovers, money mules, crypto, or shell companies set up to launder money, among other sources.
Common Types of Remittance Fraud
- Phishing Scams: Perpetrators send fraudulent emails or messages posing as legitimate entities such as banks or government agencies, tricking recipients into disclosing personal or financial information.
- Business Email Compromise: Fraudsters pose as vendors or partners or gain access to a reputable account and request wire transfers and ACH payments for services never rendered, also known as invoice fraud.
- Ransomware: Perpetrators require the business to wire funds to regain access to their servers.
- Account Takeover: Hackers gain unauthorized access to individuals’ or businesses’ accounts, allowing them to initiate fraudulent transfers without detection (an “unauthorized money transfer”). They may gain access through Trojans and man-in-the-browser attacks.
How Remittance Fraud Differs from Wire Fraud
Despite the relative security of wire transfers, as funds are sent directly from bank account to bank account, these payments pose a massive risk to financial institutions. Transfer speed, payment size, and the inability to recover funds once sent to the destination leave businesses processing remittances vulnerable.
Additionally, while remittance fraud shares similarities with other types of financial fraud, such as wire fraud or identity theft, its distinctiveness lies in its focus on transferring funds across borders. Unlike localized fraud schemes, remittance fraud often involves complex networks of international transactions, making it challenging to track and prevent. This, coupled with the speed of remittances, enabled by faster payments, P2P advancements, and digital wallets, can lead to increased risk.
Disparate regulations of each jurisdiction also may lead to undetected fraud, increasing the likelihood of fraud losses and compliance fines due to money laundering and terrorist financing.
Solutions for Remittance Fraud
In the fight against remittance fraud, leveraging advanced technologies is crucial.
An AI-powered enterprise risk management system can analyze vast amounts of transaction data in real-time, detecting irregularities and patterns indicative of fraudulent activity. For example, it can track customer behavior patterns, including time, transaction frequency, amount, and destination. If an anomaly is detected, the system can raise a red flag for review.
With Fraud.net’s solution, there’s an added layer – counterparty screening, so the processor and customer can trust their funds are being sent to a legitimate recipient and not a fraudster, sanctioned individual, or otherwise risky individual. And, we automate KYC screening and AML monitoring, to streamline compliance and mitigate risk, avoiding costly fines and fraud losses.
Additionally, implementing robust authentication measures, encryption protocols, and transaction monitoring tools can strengthen defenses against remittance fraud. Multi-factor authentication goes a long way in ensuring accounts are secure, and funds are protected, even on the corporate level.
Finally, businesses processing wires and remittances should educate their customers on how to best spot fraudsters and report suspicious behavior. This can include requiring MFA for customers, cautioning them from returning funds “accidentally” transferred to their account and urging them to report it first, and avoiding the sharing passwords and usernames across multiple accounts.
Using machine learning algorithms and behavioral analytics, Fraud.net can identify suspicious transactions with high accuracy, enabling timely intervention to prevent financial losses. Furthermore, its intuitive interface and customizable features empower businesses to effectively adapt to evolving fraud tactics.
Book a meeting today to learn more.
Return Fraud
What is Return Fraud?
Return fraud is an online scam that occurs when a person purchases an item from a retail store with the intent to return it immediately or use duplicate receipts to get money back. It is the act of defrauding a retail store via the return process. Fraudsters commit this crime in various ways. For example, the offender may return stolen merchandise to secure cash, steal receipts or receipt tape to enable a falsified return, or use somebody else's receipt to try to return an item picked up from a store shelf.
There are several types of return fraud, including:
- Returning stolen merchandise - shoplifting and returning merchandise for a refund of the full price.
- Receipt fraud - stealing or falsifying receipts to return merchandise for profit. Another version of this is purchasing goods at a low price from one store and returning at another with a higher price to profit off the difference.
- Employee fraud - assistance from employees to return stolen goods for full price. This is a form of insider fraud.
- Price switching - placing higher price labels on merchandise to later return them at a higher price than the initial purchase. This is similar to profiting off the price difference in receipt fraud.
- Price arbitrage - purchasing similar-looking but differently priced goods, and returning the cheaper item as the expensive on and profiting off the difference.
- Switch fraud - purchasing a working item, and returning a damaged or defective item that was owned before the purchase of the working item.
- Bricking - purchasing a working electronic item, and stripping it of all valuable and necessary components to make it unusable, then returning it for profit.
- Cross-retail return - returning or exchanging an item purchased at another retailer for cash, store credit, or a similar, higher-priced item at another retailer.
- Open-box fraud - purchasing an item from the store and returning it opened with the intent to repurchase at a lower price under “open-box” store policies. This is similar to price-switching.
- Wardrobing - purchasing merchandise for short-term use with the intent to return the item (ex. purchasing a dress, wearing it for a night with the tags still on, and returning it).
The Cost of Return Fraud
The retail industry loses about $24 billion annually in return fraud and policy abuse, accounting for 8% of returns. In 2020, of the 10% of returned transactions, 6% were fraudulent, leading to a loss of $25.3 billion for retailers. As retail shifts online, 38% of merchants see an increase in buy online, return in-store purchases, and 29% of merchants report an increase in fraudulent returns among such transactions. Furthermore, 21% of returns made without a receipt are fraudulent. As a result, merchants often raise prices to offset losses, unfortunately affecting customer experience.
Holiday Shopping Seasons Increase the Risk
25% of annual product returns occur between Thanksgiving and New Years Day and return fraud increases during this time as well. According to the National Retail Federation, a quarter of holiday shoppers buy items with the intent of returning them later. This leads to merchants preparing for a large volume of returns. In 2018’s holiday season, about 10% of returns were expected to be fraudulent, leading to a loss of $6.5 billion in holiday return fraud. Due to high customer volume, sometimes loss and fraud prevention measures become more relaxed despite the increased vulnerability.
As a result of increased purchase and return volume, retail staff becomes overwhelmed with handling returns as well as investigating fraudulent ones. Often this leads to more staff being hired over the holiday season, increasing the merchant’s operating costs. If they choose not to or cannot hire more staff, the existing staff becomes overworked trying to keep up with the increased volume.
How to Prevent Return Fraud
Returns are necessary for retail to promote customer loyalty and satisfaction. Unfortunately, this poses a challenge for combatting return fraud. Policies must be clear and restrictive enough to effectively prevent return fraud, but flexible to avoid discouraging legitimate returns and exchanges. They also should be easy to access on online shopping sites and packaging/receipts for shipped goods.
In addition, as much data as possible must be collected from fraudulent returns to prevent repeat offenses and inform fraud prevention for future threats. Collective intelligence informed by transaction data helps fight future fraud by arming prevention and detection services.
Fight Return Fraud with Fraud.net
Fraud.net has a large suite of solutions helpful in fighting return fraud, among other types of fraud. With identity verification, dark web monitoring, and datamining services, fighting return fraud becomes easier and more efficient.
Contact us today for a free demo and recommendations to help you protect your profits from return fraud.