60% companies to increase fraud detection and prevention spends: Report
Fraud detection and prevention solutions help companies reduce fraud operational costs, false positives, and chargebacks.
To fight cybercrime, about 60% of companies are expected to increase their fraud detection and prevention (FDP) budget in the next two years to advance their automation and analytical capabilities, a report said.
The report titled 'Anatomy of Fraud Report 2023', prepared by Praxis Global Alliance in collaboration with Bureau, noted that investing in FDP solutions can lead to potential benefits, including cost reduction, improved user experience, and better orchestration capabilities. It can enable businesses to make informed decisions and protect their financial and reputational interests.
It added that FDP solutions reduce fraud operational costs, false positives, and chargebacks by facilitating real-time monitoring, seamless CX, and orchestration capabilities, eliminating white spaces across various industries.
The global FDP market was valued at $31 billion in 2022, expected to reach $86 billion in 2027 growing at a compind annual growth rate (CAGR) of 22%, and one of the fastest-growing regions is APAC.
Frauds, including bot attacks, website cloning, and mule accounts, among others, are seen across sectors, whereas some are industry-specific, such as KYC fraud (BFSI), delivery fraud (ecommerce), etc.
The report said that new-age SaaS FDP players help organisations detect fraud post-occurrence and also prevent fraud from occurring by using advanced analytics to reduce losses.
Globally, in 2022, FDP players raised $700 million, with over 70% of companies raising growth-stage rounds.
Indian landscape
The COVID-19 pandemic accelerated the need for advanced FDP solutions owing to rising exposure to digital fraud. It has triggered digital transformation and legacy modernisation in India like remote working, focus on automation, AI, cybersecurity, and others. Businesses across sectors are taking a digital route to growth due to which there's been a 2x growth in microbusinesses actively transacting online.
The report highlighted that the highest number of frauds happen in advance fees (more than 3,800), followed by cards and the internet (3,500+).
It said that Indian enterprises are increasing spending on IT. In 2022, companies spent over $104 billion on IT, with software emerging as the fastest-growing segment. Moreover, 67% of enterprises spend 4% of revenue on IT and 33% earmark more than 30% of IT budgets for digital spend. Spend on SaaS is expected to increase at the rate of 16% between 2022-27.
Also, 97% of enterprises have increased spending on foundational digital technologies—cybersecurity, cloud, and big data analytics. This has led to a rapid increase in job opportunities in the IT and digital sectors to drive spending.
Since April 2020, several FDP players have raised funding, including ($77 million in the last two years). Also, large players acquire FDP firms to enhance their capabilities and enrich their existing portfolios.
The Indian addressable FDP market was worth $1.5 billion in 2022, projected to reach $7.6 billion by 2027, growing at a CAGR of 37%.
Banking and financial services (BFSI) and ecommerce are the most vulnerable industries to fraud attacks. BFSI constituted over 70% of the FDP addressable market in 2022, followed by ecommerce (24%).
Account-related fraud holds a 65% share in financial services and a 54% share in ecommerce. Limited data, changing fraud patterns, and system integration complexity are some of the key challenges faced by banks.
According to the report, frictionless CX with robust security and the unavailability of quality data are the challenges faced by FDP players. Advanced AI/ML, biometrics, real-time monitoring, and blockchain are key components of FDP products, it said.
The Indian government has laid down various key regulations, including two-factor authentication, KYC processes, etc, to mitigate fraud expected to drive spending on solutions. It has rapidly adopted digital platforms for e-governance initiatives, such as UPI, CoWIN, Digilocker, and others.
Internet penetration is growing at a CAGR of 5% in India, expected to reach 78% penetration by 2027. This has resulted in digital retail transactions increasing to $7.5 trillion in FY22 compared to $6 trillion in FY21. The report said that UPI-related fraud constituted 55% of the total digital payment fraud in May 2022.
The cost of fraud to a company varies between 3x and 5x of fraud value in key verticals, whereas the web browser channel accounts for over 40% of fraud costs in India, as per the report.
(The report name was added.)
Edited by Kanishk Singh
