An illustration picture taken in London on December 30, 2021, shows a PsychoKitty NFT (Non-Fungible … [+]
Every few years, the pace of transformation spurred by digital technology jumps into hyperspeed. We are currently living through one of these time periods. With the explosion of data, people are increasingly becoming comfortable sharing, digital devices that have become integral to our lives, and new unregulated spaces such as NFTs—for scammers, the future of fraud is bright but for those of us who lean on technology, it’s a never-ending effort to stay vigilant.
Experian’s Annual Future of Fraud Forecast for 2022 details a very real present that also feels futuristic. Every new scam it lays out is based upon a new habit whether it’s how we buy things, how we store things, or even how we look for love like the now infamous and very real Tinder Swindler. Fraud is always a counteraction to initial action. And not all fraud is overt or obvious—for example, Dan Olsen’s now-viral video on YouTube “Line Goes Up” describes the current hype around NFTs as something of a “poverty trap”—where the wealth and winners in the space have already been established, much like bubble models—putting newcomers in high-risk situations. Dan explains: “Cryptocurrency is a greater fool scam, in which members who buy in must convince someone else to invest in order to make their money back.”
On the transaction side, Juniper Research reports merchant losses to online payment fraud will exceed $206 billion cumulatively for the period between 2021 and 2025. That’s why it’s crucial that businesses get the right fraud prevention tools in place to anticipate future scams and mitigate financial losses. “Business and consumers need to be aware of the creativity and agility that fraudsters are using today, especially in our digital-first world,” said Kathleen Peters, chief innovation officer at Experian Decision Analytics in North America. “Experian continues to leverage data and advanced analytics to develop innovative solutions to help businesses prevent fraudulent behavior and protect consumers.”
The Way We Pay Opens Us To Increased Risk
Change isn’t something you notice in real-time but we have definitely shifted in how we pay for things and not just that it has gone more online. Buy Now, Pay Later (BNPL) – the paying for online carts in installments rather than all at once is growing massively. Klarna, Afterpay, Affirm didn’t create a new concept. The concept of credit and installments has always existed but it was typically reserved for larger, big-ticket purchases. Making smaller purchases more palatable has led to 45 million active BNPL users in 2021 spending more than $20.8 billion. The industry has increased over 300% year-over-year since 2018.
Then there is cryptocurrency. Record buzz and investment logically is leading to record numbers of scams. There were over $80 million in reported losses from October 2020 to March 2021, according to the FTC, from cryptocurrency scams. That number seemed large and then as I was writing this piece the story of a $4.5 billion crypto laundering scheme dropped, led by a husband and wife duo with a rapper alter ego named Razzlekhan. Things are obviously getting more elaborate and Netflix has everything it needs for its next true crime doc. Cryptocurrency schemes will be designed to extract, store and conceal stolen funds because the space is so new.
“There’s so much confusion around cryptocurrency,” says Tina Mulqueen, founder of The Block Talk, and one of Admonsters’ 2021 Top Women in Media for her work in technology communication. “And where there’s confusion, fraudsters will exploit it. We saw this years ago with ICOs, and now we’re seeing it with NFTs. There are valid projects out there, but without integrity in market education it can be tough for investors to navigate.” It shouldn’t necessarily scare people from using cryptocurrency, investing it or investing in blockchain altogether.
But there is a learning curve. Making sure to have multiple layers of authentication and the use of a hard wallet or “cold storage” are the first steps. Decentralization is an interesting concept because the very process of blockchain – thousands of online ledgers used to verify something – in itself makes something more verifiable because of the volume of data points used. But consumers find discomfort in what they don’t fully grasp. It’s the same phenomenon that causes most parents, who were social media savvy twenty years ago, to not want to get on TikTok.
Blockchain and cryptocurrency will continue to grow. We just witnessed the first “Crypto Super Bowl” when it comes to advertising. Goldman Sachs recently referred to Bitcoin becoming the new gold and we are already seeing conventional ways to mitigate risk as BMCS last week launched the first Sumcoin Index Fund – which is essentially one coin that tracks the Top 100 cryptocurrencies based on market capitalization.
The Metaverse Brings New Opportunities For Fraud
Speaking of things people right now only partially understood, there’s the metaverse. Simply put, the concept of interacting seamlessly in a virtual world isn’t new. It’s just picking up steam. Facebook is now Meta and they are already pitching advertisers on new ways to generate revenue through immersive shopping experiences and digital goods. If there’s a future in which our workplaces become part Metaverse, rather than just a Zoom screen then it’s easy to see the need to make sure our meta identities reflect what we are trying to present to the world, to our co-workers to anyone. If you’ve ever had a kid that plays NBA2k this already occurs. They play, collect virtual currency and spend it on outfits, attributes, and new haircuts for their character. Because that character is an extension of them in an ever-expanding online universe where they play against other online competitors. It’s a very rudimentary version of what the metaverse could be.
But it also makes you start thinking more about fraud and concerns. There are already parental concerns about kids flocking to the new Horizon Worlds app. In an overall conversation on fraud, we can already see where issues are going to occur with identity fraud in the metaverse. We can also look forward and project that the buying and selling of NFTs will see significant fraud attempts in an unregulated space. “Building for long-term value is hard, which is why we are seeing get-rich-quick schemes all the time in crypto and the Metaverse,” says Alan Smithson, Co-Founder of MetaVRse and Co-Creator of the Mall of the Metaverse opening in 2022. Smithson also wrote the Metaverse Manifesto that outlines ethical guidelines for the future in XR. “It is imperative that we act more responsibly as we build the future of human communication, collaboration, culture, and commerce.”
The Here and Now Requires Vigilance
Ransomware is still a very real concern even if some of the focus is shifting to new digital habits. In the first six months of 2021, there was $590 million in ransomware-related activity, which exceeds the value of $416 million reported for the entirety of 2020 according to the U.S. Treasury’s Financial Crimes Enforcement Network. Remember the cautionary tale (no spoilers) that everyone is watching, The Tinder Swindler. Because more consumers went on dating apps and social media to look for love during the pandemic, fraudsters saw an opportunity to create intimate, trusted relationships without the immediate need to meet in person. From January 1, 2021 — July 31, 2021, the FBI Internet Crime Complaint Center received over 1,800 complaints, related to online romance scams, resulting in losses of approximately $133 million. Experian predicts that romance scams will continue to see an uptick as fraudsters take advantage of these relationships to ask for money or a “loan” to cover anything from travel costs to medical expenses. That was one of the major plot points in Hulu’s Nine Perfect Strangers (again no spoilers).
The point is to never let your guard down whether it’s in business, a virtual world, or in matters of the heart. You shouldn’t become a fraudster but it doesn’t hurt to think like one in how you go in protecting yourself in an increasingly virtual world.
