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Venmo, which is owned by PayPal, reported $27 billion in One alarming trend bubbling toward the surface is syn-
transactions during the third quarter of 2019 and an active thetic identity fraud, whereby criminals use a combina-
user base of 40 million. Square also has entered the P2P tion of real information (such as Social Security numbers
field with Cash App, formerly known as Square Cash, and taken from data hacks) with fictional information (for
more recently an app specifically targeting businesses, example, made-up names). Over time, fraudsters build
known as Square Cash for Business that links to business up the creditworthiness of their synthetic identities, then
bank accounts. Businesses set up a Cash.me page where purchase high-value goods and services on credit, and
customers can submit payments. then disappear.

Estimates by eMarketer.com put the total of P2P mobile McKinsey & Co. estimated synthetic identity fraud is
transactions at $309.95 billion in 2019, growing to $396.48 the fastest-growing type of financial crime in the United
billion this year. There were an estimated 69.2 million P2P States. Auriemma Group estimates U.S. lenders lost $6 bil-
users in 2019, and that number is expected to grow to 73.8 lion to synthetic identity frauds in 2016. And losses con-
million this year, according to eMarketer.com. Visa took tinue to climb, said Ken Montgomery, COO at the Federal
note of the trend and recently disclosed a blockbuster deal Reserve Bank of Boston and the Fed System's payment se-
to purchase Plaid, a data network that connects bank info curity strategy leader. "Crime rings see attractive opportu-
to fintech apps like Venmo. nities in synthetic identity payments fraud," Montgomery
said.
Faster payments creating openings for fraudsters?
The appeal of P2P payment schemes is the perception of Data breaches are a leading contributor to the trend. Be-
speed. Recipients receive near instantaneous access to tween 2017 and 2018, the volume of personally identifiable
funds, although final settlement, on the back end, doesn't information exposed in breaches rose by 126 percent, with
usually occur until end of day or the following business more than 446 million records exposed, according to the
day. Identity Theft Resource Center. Complicating matters, this
type of fraud is difficult to identify. ID Analytics estimated
"No matter how fast a payment moves through the net- that upward of 95 percent of credit applications using syn-
work, it still has to be processed in the back office, and thetic identities aren't getting flagged by traditional fraud
that is what will ultimately decide the speed of faster pay- models, like those used to detect traditional identity fraud.
ments," Baldwin said.
The problem is that most banks and companies rely on This is the impetus behind new detection approaches that
back-office systems and processes that are decades old leverage artificial intelligence and other machine learning
and ill-equipped to handle faster payments, he Baldwin tools. "Machine learning has greatly enhanced the ability
added. Faster payments may also prove a boon to fraud- to detect fraud, and all of the major payment networks are
sters. "There's not as much opportunity to detect fraud in applying this technology through a combination of inter-
flight," Baldwin said. nal R&D as well as through investments and acquisitions,"
said Tim Sloane, Mercator's vice president of payments in-
Further complicating the situation, said Trace Fooshee, se- novation.
nior analyst at the consultancy Aite Group, is that many Are in-car payments in the cards?
banks have failed to prioritize investments in fraud miti-
gation on par with digital payment and service platform The Internet of Things is making all types of devices
initiatives. smarter – and payments enabled. Ingenico's Fairbairn,
said he expects IoT payments to come to cars in a big way.
"Fraud executives are expected to reduce fraud losses He cited research suggesting 775 million cars will be con-
while simultaneously making significant improvements nected to payment systems by 2023, accounting for $63 bil-
to client experience, and with rigorously scrutinized bud- lion in transactions that year. "If these estimations are to
gets," Fooshee noted. "In parallel with these objectives, be achieved, over 2020 we'll start seeing IoT payments for
these fraud executives are expected to manage a variety [fuel], tolls and food," he said.
of processes that are, for many FIs, still largely manual,
within increasingly restrictive compliance requirements – Visa is counting on this. In January Visa revealed it is
all of this despite double-digit growth in fraud attack rates working with SiriusXM on an in-car payment prototype.
and losses, and a constantly expanding and ever-evolving A new SiriusXM e-wallet is being designed for integration
digital surface area to defend and protect." into dashboards that will allow drivers and passengers to
make all kinds of purchases (from gas and tolls to food
With more merchants adopting EMV terminals, it has be- and movie tickets) using simple voice commands. The app
come harder for criminals to commit payments fraud, at will leverage tokenization, which allows payments to be
least in brick-and-mortar establishments. Fraudsters have processed without exposing account details.
reacted by moving more activity online.
Patti Murphy is senior editor at The Green Sheet and self-described pay-
ments maven of the Fourth Estate. Follow her on Twitter @GS_PayMaven

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