Cybercrime and fraud on the rise

The threat posed by fraudsters is an ever-present risk. However, tougher economic conditions typically cause a spike in fraud and transactional crimes as financial pressures on consumers and companies cause lapses in judgment or business processes and controls

Fraudulent schemes targeting businesses and consumers take various guises, with digital fraud, cybercrime and credit application fraud posing prolific threats.

Cybercrime has become one of the fastest-growing forms of fraud worldwide as people spend more time online, and SA is a popular target. According to a 2022 report by the Netherlands-based online security company Surfshark, the country ranked sixth globally in terms of cybercrime density.

Human error due to a lack of awareness about potential risks, and a lack of training and understanding regarding best practices, remain the major vulnerability for consumers and businesses alike. The number of customers being scammed by people impersonating reputable credit providers is increasing weekly while the digital manipulation of key personal documents such as identity documents, pay slips and bank statements is an increasing phenomenon,” says Alfred Ramosedi, CEO at Bayport.

According to TransUnion s South Africa Q4 2022 Consumer Pulse Study, money and gift card fraud was the top form of digital fraud schemes (40%) among those targeted in the past three months, followed by third-party seller scams (33%) and phishing (28%), which were up four and two percentage points from the prior quarter, respectively.

The TransUnion study highlights that incidents were highest among the Gen Z cohort, with 40% of respondents in this generational segment targeted by a digital fraud scheme.

Additional study insights reveal that 89% of respondents were concerned about sharing personal information. Among these consumers, 78% were worried about having their identities stolen.

Informing and educating consumers through every means and channel available is essential to combat rising cybercrime and fraud levels, says Ramosedi.

From a business perspective, fraudulent credit applications are on the rise, says Debtsource CEO Frank Knight.

An increase in fraudulent credit applications is typically a seasonal trend in the lead up to the Christmas period.

However, we have seen a nonseasonal year-on-year increase in the region of 15% since the start of the year.

Currently, about one in every 300 applications processed by Debtsource on behalf of customers contains some potential fraudulent activity

The impact of this is far wider than just the actual direct risk. The scale of fraud is affecting businesses from a credit decision perspective, because they have to scrutinise every transaction far more carefully says Knight.

To combat this fraud, Debtsource determines how the application came into being, confirms if the salesperson visited the premises and checks who signed the credit application form. The credit management provider now also compares ID documents to those filed with Home Affairs as these documents can be falsified.

The watch list of red flags we scrutinise is constantly growing. It is now at a point where client debtors ask us to put them on our watchlist, which compels us to confirm any application they process, says Knight. The faster productivity improves using technologies such as AI and the hungrier people become for additional data sources, the more we have to insert manual interventions to slow down the application to help prevent fraud.

Consumers turn to credit to make ends meet

Appetite for credit remained high as consumers grapple with stagnant household incomes and the rising cost of living.

Consumers have already shifted spending from discretionary to essential items the TransUnion Q4 2022 Consumer Pulse Study found that 67% of respondents cut discretionary spending in the previous three months.

And many are using credit to fund this spending and navigate the economic pressures. Data from the TransUnion Q3 2022

South Africa Industry Insights Report shows that overall credit originations increased 14.5% year over year (YoY) in Q2 2022 (the most recent quarter available due to reporting lag), with applications for new credit increasing 13.1% YoY. These trends are not positive as they indicate South Africans are turning to credit to make ends meet in the current high inflation environment, says Weihan Sun, Director, Financial Services Research and Consulting at TransUnion Africa. This demand prevailed across credit cards, nonbank personal loans and clothing accounts.

Enquiry volumes for credit cards increased 9.6% YoY in Q2 2022, and lenders are meeting demand originations for the period rose 39.4% YoY.

Weihan Sun headwinds.

However, lenders are opting to offer lower loan amounts and limits on revolving facilities to mitigate risk average limits on new cards were 5.2% lower YoY. This trend will likely continue into Q4 2022 and Q1 2023, suggests Sun.

Credit providers are also more likely to turn off the taps as risks rise. As such, issuers will closely monitor how consumers use credit cards in the current environment.

In contrast, clothing accounts and retail revolving accounts saw higher new account limit amounts, while bank and nonbank personal loans also saw increased opening amounts.

Despite this increased demand for credit amid a tougher economic climate, delinquencies improved as consumers paid down debt to mitigate the financial impact of rising interest rates.

Paying down debt faster remained a priority for 37% of survey respondents. As a result, outstanding balances across all lending products decreased by 2.3% YoY in Q3 2022, and balances on most unsecured products returned to prepandemic levels.

Consumers anticipate further economic headwinds and are adopting a conservative stance on spending and indebtedness. They remain concerned about how additional interest rate increases expected this year will impact their wallets, despite being smaller and less frequent than those implemented in 2022, says Sun.

Lenders are also being more proactive in account management, particularly as younger and riskier borrowers drive new business, suggests Sun

Consumers are under financial pressure and will increasingly depend on credit to meet their day-to-day expenses. However, trends from our data including the improved delinquency performances, reduced discretionary spending and fewer large purchases show they are doing so with caution.

On the back end, businesses can streamline workloads and reduce manual intervention by introducing more automation into operational activities. Investing in technologies such as artificial intelligence (AI), machine learning (ML) and cloud-based software creates opportunities for credit providers to access advanced capabilities such as analytics and task automation, which can reduce human error, and enhances the ability to analyse and interpret vast amounts of data from multiple sources, including alternative data sources. Additional research findings

62% OF COMPANIES BELIEVE AI AND ML ARE TRANSFORMING THE WAY THEY DO BUSINESS published in the Experian report showed that 62% of companies believe AI and ML are radically transforming the way they do business

The real value of technology in the lending industry is the ability to process, manage and interrogate large volumes of data to understand customer needs and behaviours. These insights subsequently inform lending criteria and collections mechanisms, says Bayport

Navigating the New Normal

To produce growth amid economic uncertainty, businesses must recognise emerging potential, mitigate rising risks, and meet the heightened expectations of modern customers. Failure to do so can negatively impact future revenue, increase bad debt and lower shareholder value — potentially putting your reputation at risk.

As a leading information and insights company, TransUnion can help you confidently provide friction-right digital experiences by combining advanced analytics with enhanced trended credit data and robust fraud-fighting solutions.

Having a job does not automatically mean having money

Most employed South Africans cannot afford their monthly living expenses. This is an employee wellbeing issue and an employer responsibility: employees who are in financial distress struggle to be productive, are disengaged, and unable to maintain positive workplace relationships.

THE RESULT? Companies struggle. The national economy suffers.

THE SOLUTION? Bayport’s workplace financial wellness programme that offers employees practical debt relief combined with financial skills and knowledge.

In partnership with employers, Bayport delivers social impact and financial wellness.

CEO Alfred Ramosedi. Within this environment, businesses that prioritise investment in digital transformation for their internal and customer-facing processes become more appealing to consumers and better equipped to prevent fraud, suggests Wells. The result is a greater chance of meeting these expectations with more convenience, simplicity and security, he adds.