Entrepreneur
Digital fraud is nothing new; it’s been a problem since the early days of the internet. The problem has historically been focused on markets like North America and Europe. That may be changing, though.
A recently released report from transaction monitoring firm Sumsub points to an alarming increase in fraudulent activity within the Asia-Pacific (APAC) region. Their 2024 Identity Fraud Report reveals that, between 2023 and 2024, the APAC region experienced a 121% increase in the number of verified identity fraud attacks.
Instances of identity fraud rose most precipitously in Singapore; the city-state witnessed a 207% increase in attacks compared to the previous year. Thailand recorded a year-over-year increase of 206%, while Indonesia saw the incidence of identity fraud grow by 201%.
According to the study, fake document scams were the most common form of identity fraud in the APAC region, accounting for 50% of all attacks. Other frequently observed tactics in the region include chargeback scams (15% of fraud attacks), account takeovers (12%), deepfakes (7%) and fraud networks (4%).
Of course, these figures need some context. Examining fraud rates as a percentage of all transactions can provide further clues.
An estimated 6.02% of all transactions in Indonesia, for instance, are fraudulent. Other developing countries in the APAC region, like Pakistan and Bangladesh, also experience some of the highest fraud rates globally, at 4.28% and 4%, respectively. While these countries have taken steps to reduce their fraud rates, the report remarks that “regions facing financial instability are more vulnerable to fraud, as economic pressures drive individuals to seek alternative, often illicit, means of income.” In other words, high fraud rates may be one of many growing pains that developing economies have to endure if the report is to be taken at face value.
The wide delta in fraud rates between developing and developed nations lends credence to this claim. In the United States, a comparatively minuscule 1.66% of transactions are fraudulent; in Canada, this figure is 1.45%.
Related: How We Can Win the AI Arms Race Against Fraud
What does this mean for merchants?
To put it plainly, ecommerce merchants who do business with customers in the Asia-Pacific market may have to accept a high number of fraud attempts — and the resulting elevated chargeback rates — as a cost of doing business.
A recent Visa report clearly highlights this conundrum: “…merchants of all sizes in [the] Asia Pacific [region] report that 3.3%, or $33 USD out of every $1,000 USD, of their total eCommerce revenue is lost annually to payment fraud.” Worse, fraud losses appear to be growing. The report goes on to say that APAC merchants lost 2.9% of revenue to payment fraud in 2023, a figure that suggests fraud losses borne by merchants in the region increased by 0.4% in just the past year.
Merchants can make some moves here. As outlined above, for instance, 15% of observed fraud attempts in the APAC region are tied to chargeback fraud, and merchants can challenge these invalid cases through the dispute re-presentment process. However, winning is neither automatic nor likely.
As the Visa report explains, merchants in the APAC region have a dispute win rate of less than 20%. They ultimately recover just $156 USD out of every $1,000 USD disputed. These numbers closely mirror the figures in the 2024 Chargeback Field Report, which shows that merchants successfully recover revenue from just 18% of the disputes filed against them.
Related: Nearly Half of Americans Are Worried About Being Duped by AI
Using AI to combat the rise in fraud
Luckily, representment isn’t the only way to combat fraud attempts. Merchants can take a more proactive approach.
The authors of the Sumsub report I cited above note that fraudsters are increasingly relying on AI as a cheap and scalable way to commit fraud. Deepfake scams, for example, grew by 194% between 2023 and 2024 in the Asia-Pacific region. But AI can also empower businesses to fight back.
Merchants can deploy AI tools at checkout to monitor transactions and flag suspicious activities well before they devolve into full-blown payment disputes, for example. AI’s capacity for analyzing vast amounts of data in real-time can help pinpoint behaviors associated with the fraud. Behavioral analytics, which use a buyer’s past purchase habits to distinguish between normal and outlier activity, can likewise be used to curb related risks, like fraud networks or money laundering.
The systems can also prevent other forms of identity fraud, like account takeover attacks, by blocking excessive profile changes and flagging failed login attempts. Transaction information could even be cross-referenced with social data, public records, and other information to identify and flag data mismatches.
Even after a sale, AI can help parse post-transaction data like delivery addresses and note customers’ return patterns or chargeback habits for red flags. Analyzing this data can also help merchants uncover the root cause of customers’ complaints and take actionable steps to improve service delivery and reduce chargeback rates.
Related: How Generative AI is Fueling Fake News and Online Fraud
Staying one step ahead
AI-enabled fraud detection is a promising concept. But, it should still be combined with old-fashioned best practices to maximize a business’s capacity to identify and stop fraud.
Multi-factor authentication, for example, is a good way to deter account takeover fraud. This is a security measure that requires customers to provide a one-time SMS code or PINs in addition to a password. The Sumsub report emphasizes that “[w]eak passwords (36%)…are the predominant method of account compromise in the APAC region in 2024.”
As AI and other technologies become more commonplace, so will opportunities and tactics for fraud. Merchants must aim to stay one step ahead to safeguard their revenue, data, and operations from bad actors in a global market.
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