Rising payment fraud wave threatens consumers, retailers and the payment sector as Black Friday approaches

As Black Friday and the holiday shopping season approaches, payment service providers, merchants and fintechs are preparing for a surge in transactions. However, they are also preparing for a parallel increase in fraudulent activities.

According to recent studies conducted by public and private entities, cybercriminals are increasingly using artificial intelligence–based techniques that allow them to operate on a larger scale and in a more sophisticated way.

Periods of large transactions such as Black Friday or holiday shopping are characterised by an increase in the number of transactions and thus in fraudulent activities. The risks extend across the entire financial ecosystem, from traditional banks to buy now, pay later (BNPL) services and e-commerce platforms.

Surge in AI-driven payment fraud

The European Central Bank and European Banking Authority jointly reported in August 2024 that the total value of fraudulent activities across the European Economic Area amounted to €4.3 billion in 2022 and €2 billion in the first half of 2023, with card payments accounting for the majority of fraud cases by volume. Similarly, payment fraud alone costs merchants $38 billion globally, and an analyst prediction says this will increase to $91 billion by 2028.

According to Signicat’s “The Battle Against AI-Driven Identity Fraud” report, fraud attempts in general have increased by 80% in the last three years and identity fraud attempts have increased by 74%. Account takeover has become the most common type of fraud affecting both B2C and B2B organisations.

Juniper Research’s report, “Top Three Emerging Technologies in Merchant Fraud Prevention”, identifies account takeover as one of the two most common types of fraud in retail, where fraudsters gain unauthorised access to customer accounts through compromised credentials, phishing or social engineering. Juniper Research also estimates the value of e-commerce fraud will rise from $44.3 billion in 2024 to $107 billion in 2029 – a growth of 141%.

The impact on consumers and businesses

As AI-based tactics – such as synthetic identities, deepfakes and phishing schemes – allow fraudsters to operate on a larger scale, making them harder to detect and prevent, these fraud methods are expected to intensify during high-volume days such as Black Friday.

The financial and reputational damage caused by fraud affects both consumers and businesses. For consumers, unauthorised transactions, stolen credit card information and identity theft can cause significant financial losses and erode trust in digital payment systems. The time and effort required to rectify fraud can further increase customer frustration.

For businesses, especially those offering BNPL services and fintech companies, the risks are even greater. Incidents of fraud not only lead to financial losses but also damage the company’s reputation and relationships. As the shopping season approaches, companies need to strengthen their defences to avoid high-profile incidents that could have long-lasting damage.

According to Juniper Research, marketplace platforms are especially vulnerable due to the large amounts of sensitive data they store. Among the types of fraud affecting online merchants are first-party fraud, chargeback fraud and promotion abuse. In particular, chargeback fraud continues to cause significant revenue losses, forcing businesses to not only refund fraudulent transactions but also bear the additional fees involved.

How technology is combating AI-driven fraud

As fraud methods become more complex, many financial institutions are turning to AI-driven fraud detection platforms to enhance their security infrastructure.

Pinar Alpay, chief product and marketing officer at Signicat, notes that “more comprehensive security strategies – incorporating facial biometrics, AI-based detection and continuous monitoring – are crucial to protect both consumers and businesses against this growing and increasingly sophisticated threat. Companies must strike the right balance between minimising the cost of fraud, cost of fraud prevention measures, and user friction resulting from additional security measures and adopt a multi-layered, security strategy”.

In addition, technologies like real-time behavioural analytics, device profiling and biometric authentication are playing a pivotal role in mitigating fraud risks. E-commerce platforms, in particular, are advised to adopt layered AI checks to detect unusual account activity early and verify the legitimacy of new accounts.

As AI-driven fraud continues to rise, particularly during high-transaction events like Black Friday, adopting these advanced technologies is essential to safeguard the integrity of digital transactions and protect both consumers and businesses from evolving threats.

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