New digital ID methods could help stem scam losses

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Industry bodies are hoping the introduction of new digital identification methods will stem the amount of money lost to scams and payment fraud and limit the impact of widespread data breaches.

Latest figures from the Australian Payments Network (AusPayNet), a payment industry self-regulatory body, show losses to card fraud have stabilised at 57.5¢ per $1000 spent in 2022, at just under $580 million.

Payments fraud losses have stabilised while losses to scams balloon.Credit: iStock

Fraud that did not involve a physical card accounted for 90 per cent of the total, reflecting the rapid growth of e-commerce.

It is similar to the fraud-loss rates in 2021 and 2020 and well below the fraud-loss rate of 75¢ per $1000 in 2017, following the introduction of a framework in 2019 that encourages merchants to use secure technologies.

Introducing similar measures for identification could help reduce overall losses to scams, which are ballooning. The Australian Competition and Consumer Commission says losses in 2022 amounted to $3.1 billion, an increase of 80 per cent on 2021.

Andy White, the chief executive of AusPayNet, says: “We have shared [personal] data in an unsafe way for too long; and we think that while fraud costs have stabilised, it can be reduced significantly by ‘tokenisation’ of the data.”

“You share a token [digital identification] that enables the payment to be made, but if the token is captured by a bad actor, it is meaningless to them as they cannot use it [to access the account],” he says.

Treasury has been working on a plan for Australia’s payments system that includes supporting the broader use of digital identification. It says once digital identification is created with a provider, it can be re-used across connected services without the need to repeatedly provide identity information to those services.

The hope is that digital identification could also help prevent the data breaches that have occurred at Australian companies recently, such as Optus and Medibank.

Fraud is an unauthorised payment made from an account without the permission of the account holder, and banks generally compensate customers unless they have been negligent.

Scams are where the account holder is tricked into authorising a payment from their account, or sharing information which enables the scammer to authorise a payment by impersonating the account holder.

In the 12 months to June 30, 2022, scams cost the customers of the big four banks $588 million – a 50 per cent increase on the previous 12 months, according to a report released in April by the Australian Securities and Investments Commission.

The banks paid less than 4 per cent of those losses as reimbursement and compensation to their customers who fell victim to the scams.

Anna Bligh, the chief executive of the Australian Banking Association, told ABC radio there is always a “grey area” as to where liability lies when someone has personally authorised a payment.

She said there are “circumstances where the liability can be clearly established and banks can and do compensate” victims.

More scammers ask for payment in cryptocurrencies, as their anonymity makes it much more difficult to identify the perpetrators or recover lost money.

The big banks are limiting cryptocurrency transactions, among other measures, to crack down on scams.

Westpac, for example, is trialling customer protections for some cryptocurrency payments to reduce scam losses, and says it detects more than 60 per cent of attempted scams.

New rules are likely to be in place in the United Kingdon next year, under which banks and other payment companies will be required to compensate scam victims, in a move designed to encourage banks to do more to detect suspicious payments.

Stephen Jones, the minister for financial services, recently indicated that Australia is likely to “look at something which travels in the same direction” as the changes in Britain.

  • Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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