Protecting the digital wallet

The exponential rise of digital payments has brought new risks for online platforms. As the financial crime landscape evolves, it's become imperative for platforms' trust and safety and financial crime teams to collaborate to combat fraud and protect users and brands.

In this point of view, we explore the impact of digital payments on the convergence of trust and safety and financial crime teams and how platforms can fight back by adopting collaborative, proactive measures and harnessing the power of AI.

The digital payments market was valued at nearly $10 trillion in 2023 and is projected to reach $11.5 trillion in 2024. But this explosive growth has attracted the attention of financial criminals, with money laundering activities estimated to be 2% of the entire global GDP, equivalent to approximately $2 trillion annually.

Recent events, such as Binance being ordered to pay $4 billion in damages for violating money laundering rules, have highlighted the risks associated with digital payments. And this isn't just a problem for traditional online platforms – any sites that accept digital payments, such as social media, dating, and gaming, are all at risk.

Online platforms and marketplaces face a huge range of payment risks that vary depending on the platform type and span legal, compliance, financial, and reputational risks. Some risk types are more intuitive than others, but they crop up everywhere in the payments space. However, platforms and marketplaces with their nested merchants, sellers, and inventory providers provide a degree of opaqueness that fraudsters take full advantage of. Some of the most common risks include:

• Money laundering/terrorist financing: This includes creating bogus properties on property rental sites like Airbnb and using stolen credit cards to launder dirty money through property hosts they meet on underground forums. The hosts split the payments with the fraudsters and create fake reviews to complete the transactions. Virtual currencies, such as Twitch bits that can be bought and donated to streamers, and in-game currencies are also common money laundering hotspots

• IP infringement: The sale of counterfeit goods is considered the largest illicit trade in the world, with an increasing percentage of it being sold on ecommerce platforms. In 2023, Etsy removed 1.2 million listings for copyright and trademark violations and 1.45 million listings for potential counterfeit violations

• Bait-and-switch scams: Consumers buy a high-cost item at a reasonable discount, but the seller sends a completely different, low-cost product. At best, the purchaser has given the seller a loan for a couple of months until a refund is made. At worst, the consumer gives up trying to get a refund, and the seller keeps the payment

• Fake reviews: As consumers increasingly rely on review sites to make purchasing decisions, the fake reviews trade has ballooned. Business owners can buy fake reviews from brokers who hire staff in low-cost regions and use VPNs to mask their locations. It's a huge market, with some sellers offering $15 gift cards for a positive review of a product costing $10. In 2022, Amazon reported more than 23,000 social media groups, with over 46 million members and followers, that facilitated fake reviews

• Fraudulent returns: This abuses a merchant's returns policy by returning items that don't qualify for a return or refund, such as stolen goods that have already been used, items purchased from a different retailer, or counterfeit goods

Online platforms must have a robust system of controls to spot these scams and shut them down quickly. But detecting and preventing illegal activities across the range of risks and the vast volume of transactions is an uphill battle. This is where trust and safety and financial crime teams can join forces to leverage each other's expertise.

Trust and safety teams have always played a crucial role in maintaining the integrity of online platforms. Collaborating with risk and fraud teams, they act as gatekeepers, constantly monitoring for bad actors and negative signals. Their proactive and reactive approach tackles content or behavior that violates platform rules or community guidelines. From combating hateful behavior and violent extremism to ensuring minor safety and authenticity, trust and safety teams are at the forefront of maintaining a safe online environment.

The convergence of trust and safety and financial crime teams is a natural progression in the fight against digital payment risks. While risk, fraud, and security teams focus on guarding the gate, trust and safety teams step in to address any breaches. By leveraging the expertise of content moderators, policy experts, investigators, data scientists, and engineers, these teams proactively identify and react to fraudulent activities. Their collaboration is crucial in detecting and mitigating risks that slip through the initial defenses.

This collaboration is highlighted in the phenomenon of fraudulent live streams. Bad actors create hundreds of accounts to exploit the payment system of a target platform. They utilize stolen credentials, such as bank or credit cards, to send monetary rewards to each other, cashing out before the platform detects the fraudulent activity. This pattern, which may just seem odd to an average user, is a telltale sign of fraud to experts in trust and safety and risk. These incidents highlight the need for constant vigilance and collaboration to stay ahead of evolving fraud tactics.

Platforms and marketplaces are using increasingly sophisticated AI tools to mitigate payment risks and protect their users. These tools monitor conduct and content behavior along with other dubious signals (such as IP hopping, email domains, and device activity) to develop classifiers.

Amazon's fraud-detecting AI looks at a range of factors to calculate the likelihood that a review is fake. This can include the author's relationship with other online accounts, their sign-in activity, review history, and any unusual behavior. Plus, sites such as Amazon, eBay, and Walmart support plugins that detect fake reviews and scams.

Airbnb uses AI to detect and prevent fraudulent activities on its platform. Machine learning algorithms analyze user behavior and activity to chargeback patterns and anomalies that may indicate fraudulent behavior, such as fake listings or identity theft. This enables Airbnb to take swift action to protect its users and maintain a secure environment.

The gaming industry is adopting more stringent know-your-player strategies that monitor transactions to identify unusual or suspicious patterns that might indicate money laundering. By continuously monitoring player transactions, gaming companies can detect and prevent illicit financial flows in real time, significantly reducing the risk of legal and reputational damage.

And marketplaces are adopting more stringent seller verification controls that use AI to detect forged documents and image and video verification to confirm sellers' identities.

Recent advancements in generative AI have boosted platforms' ability to reevaluate the tactics, techniques, and patterns of bad actors to detect risks more accurately.

To effectively combat the risks associated with digital payments, online platforms must adopt a two-pronged approach. Firstly, they should establish robust controls at the gate (including AI) to prevent bad actors from gaining access. This means constant vigilance throughout the application process for sellers, merchants, and inventory providers. Ongoing monitoring is essential to detect and address morphing entities.

Secondly, trust and safety teams must break out of their silos and collaborate with internal teams, such as security, fraud, risk, and customer support, and other platforms, to share insights and reduce the risk of tunnel vision. By staying five steps ahead, platforms can effectively mitigate risks and protect their users and brands.

Online platforms are also working with service providers with expertise in both trust and safety and financial crime for more comprehensive solutions to combat fraud, protect users, and maintain the integrity of online platforms. By uniting the expertise of their teams and fostering collaboration, they help platforms stay ahead of bad actors and ensure a safe and secure digital environment for all.