Outsmarting fraudsters as they adapt to PSD2 SCA

The Strong Customer Authentication (SCA) requirement of the revised Payment Services Directive (PSD2) aims to improve protection against fraud throughout Europe. As the SCA rollout continues, fraudsters are working hard to adapt and keep their operations thriving. In this blog, we discuss five emerging fraud trends and how you can respond.

1. The fraudster playbook continues to evolve

Fraudsters are upskilling on SCA, sharing relevant information across their networks, and getting creative to work around the requirement. We’ve recently seen:

• Fraudsters migrate to the increasingly popular Buy Now, Pay Later (BNPL) platforms¹
  
• A spike in account takeover attacks in Europe, as merchants develop SCA exemption strategies based on trusted beneficiaries²
• Increased use of synthetic identities (where criminals combine real and fabricated information) to create fake eCommerce companies—which are then promoted on online marketplaces³

There's high awareness among fraudsters about which transactions are less likely to have SCA applied, especially those that are out-of-scope. This includes mail order/telephone order (MOTO) and "low value" (under €30) transactions. To keep orders at €29 or less, fraudsters are making more use of promo codes—which were previously an indicator of low fraud risk. We recommend adjusting fraud screening rules to apply SCA to transaction values exceeding the "low value" threshold.

2. Fraud migrating from the dark web into the light

Although the dark web remains a popular forum for fraudsters to exchange insights, we've seen an increase in SCA-related training materials appearing on mainstream websites found using everyday search engines.²

To help your business stay up to date with what’s being circulated on social networks and via niche apps, assign a resource to access to those communities. 

3. Social engineering and phishing scams on the up

To gain access to one-time passwords (OTPs), fraudsters may use social engineering techniques to try and obtain the codes. Others may use malware to compromise mobile devices, or orchestrate SIM swaps to intercept OTPs. Continue to educate consumers about these risks, so that they know what to look out for.

Fraudsters also use phishing scams to acquire credentials, then take over users' accounts and update them with new details—such as mobile phone numbers. With more focus on account takeover now that SCA is in wider use, it’s important to get cover. Account takeover solutions monitor accounts for unusual activity at login, update and creation to add a further layer of protection.

4. Out-of-scope transactions warrant extra attention

We expected to see fraudsters migrate to channels and payment types that are out of scope for SCA, and this has proved to be the case. For example, we've seen elevated rates of fraud for MOTO transactions as pandemic-related resourcing constraints ease and contact centers begin to operate at full capacity.²

To help identify MOTO fraud we recommend you collect additional data points about transactions handled through your contact center. This could include:

• Agent IDs—so you can see how well individual agents are identifying fraudulent transactions and provide extra training as needed
• Customers' phone numbers—to allow creation of morphing rules in your fraud screening platform so you can identify multiple payment cards being used from a single phone number

Consider recording calls in case of chargebacks or disputes, to help you identify fraudsters and understand the source of revenue loss.

Also out of scope for SCA are anonymous pre-paid cards, which are becoming more popular with fraudsters. Make sure your fraud screening tool can identify these cards so that you can implement a bespoke fraud strategy.

5. Reseller behavior has changed to work around SCA

PSD2 SCA has driven a change in the behavior of fraudulent and unlicensed resellers. Previously, resellers would use multiple consumer cards directly to place orders—but the friction they now encounter thanks to SCA is forcing them to use their own cards to bulk-buy stock for resale (often luxury goods or tickets for in-demand events; or desirable items during sales).²

Using a fraud screening solution that can identify high average transaction values and unusual velocities can help you implement policies that limit purchases and protect your brand. 

We can help. Find out how Cybersource Decision Manager and our other capabilities can help protect your business against the evolving fraudster—and as SCA comes into full effect.

¹ Browne, Ryan. Criminals Love Buy Now, Pay Later: How Fraudsters Exploit Popular Interest-Free Payment Plans. CNBC, November 22, 2021.
² Insights derived from Cybersource's Managed Risk Services team.
³ Walk-Morris, Tatiana. How Criminals Are Using Synthetic Identities for Fraud. Dark Reading, December 3, 2021.