Summary:P2P payments have become increasingly popular, but their most convenient attributes also make them ripe targets for fraud. We discuss tips CFIs can provide customers to avoid becoming victims.
The first known payment currency dates back to around 3,000 B.C. in Mesopotamia, where agricultural symbols were drawn on clay tablets to represent debts owed from one person to another. Metal coins were first minted around 630 B.C. in Lydia (modern-day Turkey) and paper money was first printed in China around 1020 A.D. to facilitate international trade. In 1981, the first electronic payment was made, followed by the first online payment in 1994.The launch of PayPal in 1998, along with the growing adoption of mobile technology, ushered in what has become one of the most popular forms of payment today: peer-to-peer, or P2P, payments. As with each new type of payment option, P2P payments offer both benefits and risks to consumers and community financial institutions (CFIs).Roughly two-thirds of smartphone users in the US (or about 170MM people) will send a P2P payment in 2024, and this is projected to increase to three-quarters of smartphone users (or nearly 200MM people) by 2028, according to a forecast by eMarketer. Total P2P transaction volume in the US is projected to increase from $1.4T in 2023 to $2.3T by 2026.090524 graph.png104.03 KB Ripe Targets for FraudThe main aspects of P2P payments that make them so popular — convenience, speed, and accessibility — also make them ripe targets for fraud. Consumers love the fact that they can transfer money to friends instantly with just a few clicks. Unfortunately, so do thieves and fraudsters, who find it relatively easy to assume others’ identities and steal these fund transfers. Around 8% of banking customers reported being the victim of a P2P payments scam in a 2023 report by J.D. Power. While still a low proportion, this number will likely increase as P2P payments become more common and scammers become more versed in their tactics on these platforms. More concerning are the losses consumers have reported. The Federal Trade Commission reported receiving around 65K consumer complaints about P2P fraud payments, with consumers suffering $210MM in losses in 2023. These losses have been climbing steadily each year, with 2021 data reporting $130MM in losses and 2022 losses totaling $163MM.The irreversible nature of P2P payments makes getting stolen money back especially difficult for consumers and challenging for community financial institutions (CFIs), which often were not even involved in the fraudulent transaction. Common P2P Fraud ScamsThere are several different types of P2P payment fraud that consumers need to be made aware of, including the following:
Unauthorized money transfers. These occur when thieves transfer money out of a consumer’s P2P account without permission by stealing their login credentials, often by using phishing tactics. Thieves usually act quickly and sometimes even change account settings, which makes it hard for victims to stop the transfer and recover their money.
“Accidental” funds transfers. In this case, thieves send messages to consumers saying that they accidentally transferred money into their account and asking them to send it back. The victim believes the request is genuine and sends the money back, not knowing the money from these supposedly mistaken transfers came from stolen sources or fake accounts. Once the victim’s transfer back of the original funds clears, the thief claims the first transaction as fraudulent and the app reverses it, leaving the victim with a loss in their account.
Imposter fraud. This scam occurs when thieves trick victims into thinking they’re dealing with a legitimate institution, such as the P2P platform or their bank. Posing as representatives of a familiar institution, fraudsters tell victims that there is suspicious activity in their account and they need to send them money to verify their account or reverse a transaction. The money actually goes to an account controlled by the thieves.
Fake product purchases. With this scam, fraudsters posing as sellers advertise products on popular online marketplaces like eBay and Etsy. Before shipping products, they request payment via a P2P app. However, the products purchased don’t exist and the thieves simply pocket the money.
A Balancing ActP2P platforms and CFIs face a balancing act when it comes to monitoring for fraud and identifying fraud exposure while providing the convenience and speed consumers expect from P2P payments. The urgency is greater when you consider that global P2P payment volume is expected to hit $5.2T by 2028, according to a study performed by Vantage Market Research.Successfully combatting P2P payment fraud will require CFIs and consumers to work together collaboratively. CFIs can be more proactive in educating consumers about the risks of P2P payment fraud and steps they can take to protect themselves, including the following:
Confirm identity of recipients. Consumers should confirm and double-check the name, phone number, email address, and other identifiers of recipients before hitting the send button on any P2P funds transfer.
Set up account alerts. These will notify consumers via text or email immediately whenever a P2P transaction is initiated on their accounts so they can take quick action if the transaction is fraudulent.
Use multi-factor authentication (MFA). With MFA, a second form of verification is required, such as a code sent via text or email, before a P2P funds transfer can be initiated.
Safeguard personal information. Consumers should use extreme caution whenever they’re asked to share sensitive personal information such as account numbers and passwords over the phone or via text or email. Scammers posing as customer service reps can use this information to hack into consumers’ P2P accounts and steal their money.
Keep P2P apps updated. P2P app updates include the latest security features designed to keep consumers’ accounts safe from intrusion by fraudsters.
Meanwhile, CFIs may be able to use technology tools like artificial intelligence and machine learning to spot fraudulent P2P transfers faster. This could increase the chance that transactions can be stopped before they’re initiated.Given the growing risks involved in P2P payments, bank-centric funds transfer platforms like FedNow and RTP rail-based transactions can offer more security than retail P2P platforms like PayPal and Venmo that ride on traditional payment rails. With P2P payments predicted to experience a 19.5% CAGR for the next four years and the consistent rise in consumer losses from this type of fraud, now is the time for CFIs to be proactive in helping their customers protect themselves from P2P payment fraud.
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