The rapid digitalization of payments has revolutionized money transfers, offering speed, convenience, and accessibility. However, as traditional transactions shift closer toward real-time capabilities, fraudsters are adapting just as quickly—exploiting new vulnerabilities to sustain illegal activities. Payment fraud has evolved into a critical threat, not just for consumers, but for the stability of the financial ecosystem. In Sweden alone, reports from the Financial Supervisory Authority (Finansinspektionen) indicated that payment fraud nearly tripled between mid-2020 and mid-2023, emphasizing the importance of strong fraud prevention. This whitepaper explores the evolving nature of fraud in the modern payment landscape, its broader impact, and the necessary adaptations within the industry to mitigate these risks.
The difference between fraud, financial crime, and money laundering
Fraud isn’t just an isolated act of deception—it’s a gateway to a broader spectrum of criminal activities. By extension, it undermines the trust of financial institutions and its services, destabilizing the economic landscape. Fraud, financial crime, and money laundering are interconnected facets of a systemic challenge.
Financial crime
A broad category of illegal activities involving financial systems, including fraud, money laundering, corruption, tax evasion, and market manipulation.
Fraud
The intentional act of deception for financial or personal gain, often involving false representation, concealment of information, or abuse of position.
Money laundering
The process of concealing the origins of illegally obtained money by passing it through complex transactions to appear legitimate, typically in three stages: placement, layering, and integration.
The most common threats in fraud
Fraud tactics continue to evolve. According to the Swedish Police Authority’s 2024 national situational report, reported fraud crimes have slightly declined, and vishing fraud proceeds have dropped by 40%. However, fraud levels remain alarmingly high, with card payment fraud and social engineering scams being the most prevalent. Some fraud tactics commonly used today are:
Card payment fraud (Direct financial fraud)
- Card Skimming – Hidden devices steal card details at ATMs or payment terminals.
- Card Cloning – Duplicating stolen card data.
- Account Takeover – Criminals gain control of bank or payment accounts.
- Unauthorized Transactions – Fraudulent transactions using stolen card details.
Social engineering fraud (Manipulating victims to gain access)
- Phishing – Fake emails tricking victims into revealing sensitive info.
- Vishing – Phone frauds impersonating banks or officials.
- Smishing – Fraudulent SMS messages leading to frauds.
- Invoice Fraud – Sending fake invoices to trick victims into paying.
Social engineering and APP fraud
Social engineering fraud, particularly Authorized Push Payment (APP) fraud, involves fraudsters deceiving victims into voluntarily transferring funds to an account under the criminals’ control. The victim, convinced by the appearance of legitimacy, authorizes a transaction based on false pretences. This type of fraud exploits digital payment systems’ inherent trust and speed.
According to the May 2024 Nordic Letter on the Fight Against Fraud by Finance Sweden (Svenska Bankföreningen), reported vishing scams in Sweden have surged by 555% since 2019, while Denmark has seen a 130% rise in smishing cases compared to 2022. These alarming trends highlight the need for urgent and coordinated action from all stakeholders, including financial institutions, technology platforms, regulators and consumers, to bolster defences against this type of fraud.
Account takeovers and identity theft
Account takeovers occur when criminals gain unauthorized access to a victim’s bank account, often through phishing, vishing, malware, or stolen card information. This allows fraudsters to execute unauthorized payment orders and manipulate accounts for further illegal activities. Identity theft extends this threat, enabling criminals to impersonate victims or create synthetic identities to evade detection.
Despite regulatory advancements such as PSD2 and Strong Customer Authentication (SCA), fraudsters have adapted by exploiting biometric spoofing and SIM-swap fraud to bypass security measures. As digital payments continue to grow, fraudsters increasingly focus on finding weaknesses in authentication and payment initiations, making account takeovers a persistent concern.
Impact on consumers, businesses, financial institutions and society
Payment fraud goes far beyond financial losses—it affects individuals, businesses, financial institutions, and society at large. Victims often experience psychological distress, particularly the elderly, who may feel shame and vulnerability after being deceived. Given that social engineering is now one of the most prevalent fraud techniques, it is crucial to prioritize safeguarding our most vulnerable populations.
Economic consequences
Fraud has widespread economic repercussions. Stolen funds fuel a criminal economy, diverting resources from legitimate businesses and public services. For individuals, financial losses can lead to debt and reduced consumer spending, affecting overall economic growth. The broader financial sector must adapt to mitigate these risks and maintain consumer confidence.
Fraud as a driving force behind gang violence
A growing concern is the link between fraud and violent crime. In Sweden, the Swedish Police Authority has identified organised fraud proceeds as a significant funding source for organized crime, including gun violence.
Data from Finansinspektionen shows that during the first half of 2024, payment service fraud earnings in Sweden totalled 1,014 million SEK—down from 1,124 million SEK in the latter half of 2023. Out of this, earnings from user-manipulated transactions fell by about 20%, and earnings involving unauthorized payment orders decreased by roughly 12%. While fraud-related revenues have declined slightly, the number of fraudulent transactions has increased, demonstrating the persistent nature of the threat. These fraud-generated funds not only provide criminal groups with easier access to weapons but also serve as a strategic resource for organized crime, as they can be reinvested in both illegal and legal economies, further exacerbating conflicts and societal insecurity.
Social consequences
As fraud becomes more pervasive, consumers may lose confidence in digital banking, limiting financial inclusion. Norway’s Økokrim (the central unit for economic and environmental crime) has reported severe psychological consequences for fraud victims, with some cases in Denmark even resulting in suicide. The sincere emotional toll shows clearly that there is a urgent need for more effective fraud prevention and victim support measures.
Fraud is quickly becoming a transnational challenge in Europe
As highlighted in the previous chapter, organized fraud has far-reaching social and economic consequences in Sweden, but also in the Nordics, and the EU. The European Central Bank (ECB) and the European Banking Authority (EBA) 2024 joint report shows how fraud has become a systemic risk within the European Economic Area (EEA), with fraudulent transactions totalling €4.3 billion in 2022 and €2.0 billion in just the first half of 2023.
While mandatory Strong Customer Authentication (SCA) has significantly reduced fraud within the EEA, cross-border transactions with non-EEA countries remain vulnerable. Fraudsters exploit real-time payment systems to rapidly transfer funds across jurisdictions before detection mechanisms can activate. In Sweden, reports indicate that 34% of all fraud cases in 2024 involved an international element, reinforcing the transnational nature of these crimes and the need for enhanced international cooperation.
The impact of real-time and cross-border payments
The expansion of real-time payments in Sweden and across Europe is driving significant changes in the payment landscape. With RIX-INST (Real-time Interbank Settlement) now supporting transactions beyond SWISH, more payments could become instant and more accessible. The ECB’s initiative to integrate TIPS users for seamless foreign exchange (FX) conversion will also further globalize real-time payments, making it easier to transfer funds instantly across multiple currencies. Additionally, the Instant Payments Regulation (IPR) will mandate that all SEPA-participating banks and EMIs ( Electronic Money Institutions) in the eurozone must fully support SEPA Instant Credit Transfers (SCT Inst), requiring transactions to be completed within ten seconds, at any time, 365 days a year. This is aimed to accelerate the roll-out of instant payments in Europe.
Speed and efficiency come at a cost
Real-time payment systems allow transactions to be processed in seconds, but this speed also presents greater fraud risks. This is because these payements have an irreversible nature, leaving minimal time for fraud detection and intervention. Fraudsters exploit this by executing unauthorized payments or laundering illegal funds before financial institutions can flag suspicious activity, complicating anti-money laundering (AML) efforts and fraud recovery processes.
The expansion of real-time payments not only enables seamless domestic and cross-border transactions but also creates more entry points for fraud and to leverage the interconnected nature of payments to evade detection.
Strengthening fraud intelligence through data sharing
Limited fraud intelligence sharing remains a key challenge, as legal and operational barriers hinder collaboration between banks, payment providers, and law enforcement. Without seamless data exchange, tracking mule accounts and fraudulent transactions across multiple entities becomes difficult. While new EU regulations enhance transaction monitoring, Finansinspektionen stresses the need for additional national initiatives to strengthen fraud prevention, before EU regulations take full effect.
Fraud is no longer confined to national borders—it is a transnational issue requiring coordinated action across the EU and beyond. As payment infrastructures evolve, fraud prevention must keep pace, emphasizing intelligence sharing, international cooperation, and balancing real-time payment efficiency with security to mitigate emerging risks.
The importance of understanding and combating fraud
Fraud in digital payments is constantly evolving, requiring a proactive, multi-layered defence. Effective fraud prevention must balance consumer protection, financial institution strategies, and payment infrastructure security.
Protecting the payment service consumer before fraud occurs
Preventing fraud starts with securing transactions before they happen. Real-time payments require proactive measures to block fraudulent activity before funds are transferred. Fraudsters increasingly exploit consumers through social engineering, making robust identification and authentication crucial. While multi-factor authentication is widely used, fraud prevention must go beyond verification to anticipate and mitigate suspicious transactions.
Educating customers about scams such as phishing and authorized push payment (APP) fraud is equally vital. Many fraud schemes target human behaviour rather than technological weaknesses. Strengthening consumer awareness can significantly reduce fraud success rates. Additionally, verification tools like Confirmation of Payee (CoP) and broader Verification of Payee (VoP) frameworks would ensure funds reach intended recipients, minimizing fraud losses.
Strengthening bank and PSP fraud controls
Financial institutions and payment service providers (PSPs) play a key role in fraud prevention. Real-time transaction controls help intercept fraudulent payments before funds are transferred. Advanced monitoring systems analyse transaction patterns, using structured payment data to enhance accuracy and reduce false positives. Fraud detection must evolve alongside the increasing speed and seamlessness of digital transactions.
Securing payment infrastructure and standards
Beyond individual controls, securing payment infrastructure is essential. Strengthening fraud intelligence sharing through frameworks like PSD3 and PSR enables financial institutions to detect and prevent fraud proactively. Additionally, continuous upgrades to payment systems and messaging standards are necessary to counter evolving threats, ensuring a resilient and trustworthy digital payment ecosystem.
What’s next?
Efforts to combat payment fraud are accelerating with new EU regulations enhancing PSP accountability and transaction monitoring. Financial institutions are also adopting further dual authorization, improved e-identification, and refined payee verification. Furthermore, the shift to ISO 20022 will standardize transaction data, improving transparency and fraud detection, especially in cross-border payments. These measures collectively strengthen digital payment security against evolving threats.
We will discuss these measures in an upcoming opinion piece, where we elaborate on how they are crucial for advancing the fraud mitigation strategies outlined in this white paper. Please stay tuned for further insights.
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