What is APP fraud?

APP amounted to 22% of reported Fintech fraud last year. Perhaps more than Fintechs, it’s fraud vendors that should be worried.

But starting from the top, what is APP fraud?

Authorized Push Payment fraud happens when a victim is duped into sending money for a service/investment they’ll never get. It’s basically a fancier term for scam. According to a recent Alloy report, APP fraud was the most frequent pattern reported by fintechs - 22% of global fraud.

At this point you must be thinking, how come a fraud pattern I’ve never heard of is the most common fraud pattern in the world?  Well, it’s mostly just a new name for a well-known pattern that prior to ‘23 would have been labeled as Merchant Fraud, Buyer Remorse or Collusion.

This “rebranding” is exemplified when you break down the global figure to individual markets: while it’s “only” 17% (3rd place) of fraud in the US, it’s 29% (1st place) of fraud in the UK. As the UK has some hard regulations rolling out this year concerning APP fraud, it makes sense why it’s also measured more carefully there.

You’d think Fintechs would be hard-pressed to deal with this issue, and they are. But I also see how this threatens the strategy of some of the biggest fraud vendors out there.

You see, in the distant past CNP fraud vendors served exclusively either the banking industry or the eCommerce one. The rise of Fintechs over the last decade helped to bridge the gap between these two worlds, but it also signaled to fraud vendors that perhaps they can “dance at both weddings”, as the Yiddish saying goes. In fact, today you see many big names in the space offering solutions to both industries.

But APP fraud is of zero interest to merchants, marketplaces and even to payment companies. It’s mainly banks, traditional and Neo, that are at risk. Divergence of problems will have to lead to separate solutions. And separate solutions will lead to a strategic conflict.  While the regulator will push different actors into different directions, fraud vendors will have to choose once more where to play.

Big as it is, APP fraud is just an example for how I predict the fraud prevention landscape will change in 2024 and beyond.