The rapid rate of digitalization that defined business practice during the Covid-19 pandemic opened new opportunities for criminals to exploit vulnerabilities and defraud companies, leading to a shocking rise in a new form of economic crime: platform fraud. PwC’s 2022 Global Economic Crime and Fraud Survey sheds light on the trends of platform fraud and allows businesses to understand what risks they may be exposing themselves to, thereby empowering businesses to create effective risk mitigation strategies built around the use of digital tools for identity verification and data validation.
What is Platform Fraud and Why is it a Threat?
Platform fraud can very simply be defined as fraud that is committed on a digital platform, such as a social media platform, a contactless payment platform, or a remote work platform. In the financial services industry, platform fraud was included under the broad category of “financial crime”, but the rapid growth of platform fraud has led PwC to define it under its own standalone category.
In a very short amount of time, platform fraud has grown to represent a significant portion of the total reported incidents of economic crime recorded in PwC’s survey. Of the surveyed companies, 39% of the reported incidents of economic crime were platform fraud. Furthermore, of these respondents, 51% reported having fallen victim to platform fraud, which is a four percentage-point increase compared to 2020’s statistics and marks the highest incidence rate in 20 years of PwC’s bi-annual reporting on economic crime.
The Rise of Organised Crime – New Perpetrators Bring Greater Challenges
A worrying trend in the financial crime landscape has been the entrance and rapid proliferation of organised crime networks. Compared to the nature of financial crime before the Covid-19 pandemic, the post-pandemic threat landscape has seen various forms of economic crime become organised and professional – platform fraud is no exception.
“Platform fraud has become a criminal enterprise – reinforcing the imperative for organisational resilience and the right tools to reduce your risk.”
As of 2022, organised crime was responsible for committing 28% of all incidents, making it the greatest perpetrator of platform fraud. Attacks that are conducted by organised criminal groups are also more advanced and typically lead to significantly higher financial losses compared to attacks not conducted by organised criminal groups. Furthermore, the dominance of organised crime in platform fraud has been lightning fast: prior to 2020 and the Covid-19 pandemic, organised crime played a negligible role in the proliferation of platform fraud.
After organised crime, the second greatest perpetrator of platform fraud are customers, who account for 25% of all incidents.
The third greatest perpetrators of platform fraud are vendors, who account for 19% of all incidents.
Who Are the Victims? Large Financial Institutions (FIs) vs Small and Medium Enterprises (SMEs)
When ranked by the number of instances in which they featured in incidents of platform fraud, the industries most affected by platform fraud are:
- Technology, Media and Communications (TMC): 62%
- Financial Services (FI): 58%
- Health: 49%
- Retail and Consumer: 48%
- Government and Public Services: 46%
This ranking reflects the general trends of victimisation that hold true for other specific types of externally perpetrated economic crime, such as customer fraud and business partner fraud. Larger, more technologically reliant industries with immense revenues have and will likely remain the greatest victims of economic crime, at least when ranked by incidence rate.
Technology, Media and Communications and Financial Services – Forever Targeted, yet Experienced and Well Resourced
The financial services (FI) industry maintains some of the highest exposure to fraud risk of all industries across the world. The FI industry consistently ranks near or at the top of all measurements of financial crime, both for incidence rates and associated financial losses. Furthermore, outside of the FI industry, financial platforms within other industries remain the greatest target for platform fraud.
“Almost half of all fraud cases take place on financial platforms – the most vulnerable model, particularly those involving funds transfers. But financial impact is just the beginning. Brand damage can be devastating. The undoing of customer loyalty and trust – catastrophic.”
However, although the TMC and FI industries are generally far more experienced in dealing with risks associated with economic crime, the industry nevertheless remains at high risk of attack – a fact demonstrated by the reality that perpetrators continue to successfully carry out attacks despite advanced security measures.
“Perpetrators have become more sophisticated. The stakes are high. But still, our survey shows too many business leaders, both providers and users, aren’t fully aware of their exposure.”
The TMC and FI industries must leverage their experience and immense resources to identify and mitigate risks. Not all industries have the same degree of expertise and capital that can be leveraged to their advantage.
Under Threat – The Heightened Risk Exposure to New Entrants and SMEs
In their report, PwC made an important note of the fact that the level of risk posed by platform fraud will arguably be substantially higher for SMEs and new entrants into the world of digital platforms.
“Well-established platform players have likely long been equipped with the proper security and controls to manage risk. But for newer entrants to the platform environment, there is dangerous potential for mushrooming risk.”
Not only do SMEs and new entrants likely have far less experience in mitigating digital risks – such as those posed by platform fraud – but they also stand to lose far more in the event of an attack. SMEs and new entrants typically have substantially less capital that can be used to absorb losses in an incident of platform fraud. In this context, the comprehensive identification of weaknesses and exposure to risks – coupled with their active mitigation – is crucial in order to avoid potentially devastating losses.
Tools for Risk Mitigation – Identity Verification and Data Validation Services for South Africa
The changing economic crime threat landscape calls for a detailed analysis of risks and the rapid adoption of digital tools that empower businesses to secure their perimeters and mitigate the risks of economic crime.
As South Africa’s leading provider of world-class due diligence and remote-onboarding solutions, ThisIsMe is proud to be at the forefront of a trust-based and privacy-compliant digital world. To experience how our full suite of advanced due diligence services can serve your business, book a demonstration by contacting our team here.