Fraud risk rises as digital payment options go mainstream

Mobile payment apps and QR code payment systems provide new targets for nefarious activity

An increasingly cashless society can leave consumers vulnerable to online scams and fake investment opportunities. Photo: istockphoto.com

The proliferation of digital payment apps, QR-code payment services and buy-now-pay-later options are prompting a rising tide of fraud, experts warn.

“Criminals are like toxic smoke and they can seep through even the smallest opening,” said Jason Lane-Sellers, director of fraud and identity for LexisNexis Risk Solutions, a global provider of information-based analytics and decision tools.

The prevalence of the digital payment tools and digital wallets, Mr Lane-Sellers said, is creating an unprecedented “attack surface” that could leave users vulnerable.

LexisNexis Risk Solutions says the popularity and prevalence of digital payment and wallet apps is prompting a rise in fraud attempts. Getty Images

Unlike scams that can appear in specific geographic areas, Mr Lane-Sellers warned that digital payment apps and cryptocurrencies were broadening the potential pool of financial victims around the world.

“This isn’t necessarily a regional issue as any organisation anywhere adopting digital-first technologies or providing financial services through digital platforms face risk. This is a global trend with certain markets at varying stages of this transformation,” he said.

Mr Lane-Sellers said that the ease of use and seemingly frictionless transaction capabilities of various apps can lull consumers into a false sense of security, but that simple, common sense approaches could help to blunt the increased prevalence of fraudsters.

“Consumers must exercise caution when making any transaction – this includes when they transfer money, open an account, change contact information within an account, and more,” he said.

“Safeguarding personal data is crucial to avoid becoming a victim of fraud. People should avoid sharing sensitive details and remember that if an offer seems too good to be true, it is likely a scam. Taking time to think and verify before making transactions and pausing again to double-check can help protect against these risks."

He said that the burden should not fall solely on the consumer.

LexisNexis Risk Solutions says these new ways of conducting transactions provide criminals with opportunities.

“Banks and merchants should adopt the latest technologies and detection methods to prevent fraud … important to note that there’s no silver bullet to solve for fraud. Only an approach that has multiple defence layers can best ensure that fraudulent activity doesn’t slip though," Mr Lane-Sellers said.

According to the US Government Accountability Office, payment scams from the use of digital and alternative payment tools are on the rise, particularly under the guise of investment pitches.

“For example, financial losses from fake investment opportunities alone rose nearly 40 per cent from 2022 to 2023 with more than $4.57 billion in associated losses,” a 2024 GAO report read.

Mr Lane-Sellers is not alone in his worries about how increasingly beholden consumers are to digital payment systems.

“In a cashless society, you make yourself less resilient to your enemies because if everything is done cashless, and if your enemies hack into the banking system or the wire transfer system, they can take down the economy without ever firing a shot,” said Jay Zagorsky, the professor of markets, public policy and law at Boston University's Questrom School of Business.

“If nobody can spend money because the credit or debit card systems aren't working, how are we supposed to buy things? How are we supposed to live?”

In his book, set to be released in April, Jay Zagorsky says there is a strong case to be made for continuing to use paper money and to resist the idea of a cashless society. Photo: Wiley

Prof Zagorsky said with the demise of physical cash payment options, especially in recent years, he decided to write a book about his studies of physical currency. That book, The Power of Cash, lays out his push for continuing cash payments on several levels.

“A large number of studies have suggested that of all the payment methods, cash still tends to be the least costly,” he said. He said cash also makes it easier for those who want to be more disciplined with spending.

Prof Zagorsky said consumers have the power to reverse the alternative payments trend.

“Go to retailers and use some cash,” he said. "Using some cash every now and then tells the retailers they need to be able to handle cash, pure and simple.”