The Federal Reserve’s FraudClassifier divides fraud into two categories: authorized fraud and its unauthorized counterpart.
Authorized fraud occurs when a legitimate party initiates a payment only to have a bad actor intervene and hijack the funds. Unauthorized fraud, on the other hand, happens when bad actors initiate or redirect a payment through an account takeover or by stealing account-holder credentials.
Although the first of these — authorized fraud — accounts for only 37% of the losses financial institutions (FIs) must absorb, it’s the form of fraud that will most likely undermine customer satisfaction and retention.
The PYMNTS Intelligence report “Leveraging AI and ML to Thwart Scammers” found that fraud incidents continue to plague FIs and their customers, despite ongoing efforts to educate consumers on steps they can take to protect themselves.