Fraud Detection and Prevention Market

Market Overview

The global fraud detection and prevention market size was valued at USD 34.3 Billion in 2022 and is anticipated to reach USD 45.6 Billion in 2023. It is expected to reach USD 254.93 billion in 2031 expanding at a compound annual growth rate (CAGR) of 24.2% from 2023 to 2031. The rapid expansion of online and digital transactions in e-commerce, mobile payments, and digital banking has provided fraudsters with more opportunities. To protect themselves and their consumers, businesses and financial institutions are investing in fraud prevention solutions. Fraud detection & prevention is a combination of methods & strategies aimed to identify, monitor, & prevent fraud. The first stage in determining the source of the issue is to detect fraud, and after this has been accomplished, the fraud must either be avoided automatically or manually using software designed specifically for this purpose.

Activities that fall under the category of fraud include instances of money laundering, cyber security threats, tax evasion, identity theft, fraudulent insurance claims, fraudulent bank checks, and terrorist financing. These fraudulent activities can be found in the financial institutions, government, healthcare, public sector, and insurance industries. As a result, in order for businesses to combat the growing number of opportunities for fraud, they have implemented contemporary fraud detection and prevention technologies as well as risk management strategies. These strategies combine big data sources with real-time monitoring and apply adaptive and predictive analytics techniques such as machine learning and artificial intelligence.

The incumbents in several industries, such as the banking and financial services industry, the healthcare industry, and the e-commerce industry, are taking the initiative to recognize the need to upgrade antiquated technologies and existing methods in order to combat digital fraud. However, there are certain companies that continue to employ and adhere to traditional techniques of fraud investigation, which are difficult and time-consuming. The sophistication of Advanced Persistent Threats (APTs) and fraudsters continually adapt their methods of intrusion, allowing them to avoid detection by employing conventional notions. Therefore, with the use of analytical and authentication tools, real-time detection of fraudulent activities becomes simple, and as a consequence, it is envisaged that this will promote the adoption of fraud detection and prevention (FDP) solutions.

Market Dynamics

Market Drivers

The rate of adoption of fraud detection and prevention systems grew as a result of the growing use of digitalization and IoT

A digital revolution is currently taking place all over the planet. Internet users today not only conduct online searches and participate in online social networking, but they have also moved on to other online activities such as online banking and online shopping. People stayed inside their homes because of the lockdown that was implemented during COVID-19, and a significant portion of the populace participated in online transactions. Because of this, there has been a dramatic increase in the number of fraudulent websites. In addition to the financial sector, there has been an increase in the number of fraudulent websites that impersonate businesses and services that transport goods to customers' homes. These websites lure customers into making transactions online.

IoT is rapidly becoming an essential component of modern consumer lifestyles as well as industrial processes as its use spreads and as new gadgets with IoT built-in are introduced to the market. According to projections made by the Global System for Mobile Communication (GSMA), the number of Internet of Things connections will reach 23 billion by the end of the year 2020. Connected devices are one of the elements that make it easier for hackers to break into computer systems because of the ease they provide. Connected devices are responsible for the collection, transmission, and storage of a wide variety of sensitive customer data.

Frauds using advertisements and automated teller machines are examples of significant IoT scams that are pervasive and taken very seriously in the industry. The rise of cybercrime that targets individuals with fraudulent debit and credit card activations, online bookings, free coronavirus testing, and job offers has been a contributing factor in the development of fraud detection and prevention systems.

The rise in popularity of business-to-consumer (B2C), business-to-business (B2B), and consumer-to-consumer (C2C) e-commerce transactions, which frequently involve a mutual exchange of critical information, identity information, and personal data of both individuals and businesses, has been correlated with an increase in the risks of online fraud. The proliferation of mobile gaming and the expanding usage of social media both contribute to an increase in the likelihood of future fraudulent activity. The money lost as a result of fraudulent activities is growing even as the schemes used to commit them get more complex.  Help Net Security conducted a review of more than 44 billion events that occurred across 800 million active users throughout the world and found that the sophistication of newly discovered threats is rapidly increasing. Because of this, there is now a pressing requirement to place a significant focus on contextual detection systems that are in a position to proactively resist invasions before any possible losses occur.

Market Restraints

Insufficient availability of skilled security personnel

One of the most serious challenges that businesses are confronted with in the modern day is a scarcity of competent employees who are able to combat fraudulent operations. When it comes to analyzing and identifying sophisticated fraud during cyberattacks, the organizations that are recruiting security specialists lack the necessary skills.

According to a study of data provided by the Bureau of Labor Statistics conducted by Peninsula News, the United States will be facing a shortfall of at least 500,000 qualified cybersecurity professionals by the year 2021. It was also claimed by the National Association of Software and Service Companies (NASSCOM) that there would be a demand for one million specialists in the field of cybersecurity by the year 2020.

According to responses from a study of 3,237 professionals conducted by the Non-Profit Professional Association for Cyber Security (ISC), fifty-one percent of respondents believe that a shortage of cybersecurity specialists poses extremely high risks for their companies.

Market Opportunity

Rise in usage of AI and machine learning in the banking sector to boost the FDP market

The banking and financial services industries are early users of risk-prevention technologies. Financial organizations are extremely vulnerable as a result of huge internet data exchanges. 

According to another report by BCG and FICCI, India's online banking usage rate is expected to grow further to 80% by 2022, which would translate to about one billion users.  However, the rise in online banking usage also increases the risk of fraudulent activity, as cybercriminals exploit the vulnerabilities and loopholes in digital payment systems and networks. 

With the emergence of pattern recognition, fraud detection systems are evolving. Machine learning technologies have given artificial intelligence a big boost in its ability to defend any system since ML can safeguard firms from insider fraud and spot any irregularities in persons who may leak data. As the need for AI and machine learning grows, so does the popularity of FDP solutions.

Regional Analysis

Geographically, the market is segmented into five major regions, North America, Asia Pacific, Europe, South America, and the Middle East & Africa.

North America accounted for the largest market share in the global fraud detection and prevention market. The growth is primarily due to the region's advanced technological infrastructure, high volume of digital transactions, and a large number of companies operating in sectors such as finance, e-commerce, and healthcare. This market has expanded due to the presence of well-established technology companies, financial institutions, and regulatory bodies in North America.

Europe is anticipated to grow at the fastest CAGR over the forecast period. This is due to various factors such as a significant increase in network crimes, fraud, and sophisticated cyberattacks, necessitating robust FDP solutions. As the sophistication of cyber threats increases, businesses and governments in Europe are compelled to invest in cutting-edge FDP technologies to safeguard their assets and data.

Moreover, key participants in the European FDP market are diversifying their efforts across a variety of vertical markets, including Banking, Financial Services, Insurance (BFSI), telecommunications, retail, government, and manufacturing. This diversification enables FDP providers to access multiple industries and capitalize on expansion opportunities. Different industries encounter unique fraud challenges, necessitating sector-specific FDP solutions.

Segmental Analysis

In 2022, the solutions category accounted for 70% of total revenue. The rising number of Account Takeovers (ATOs) and phishing emails has prompted businesses to invest in sophisticated tools and solutions to spot fraud anomalies early on. These methods cut detection time by processing big data volumes in real time. Furthermore, these solutions assist businesses in satisfying regulatory standards.

Over the projected period, the services category is expected to grow at the quickest rate. Developing-country businesses are increasingly deploying comprehensive fraud prevention techniques. Integration, consultation, training, and support services from fraud protection service providers are required to establish an effective framework. Over the projection period, the need for professional consultancy and other third-party services to detect fraud in real time is likely to fuel segment expansion.

Insights into Solution

Based on Solution the market is divided into Fraud Analytics, Authentication, Governance, Risk, and Compliance. In 2022, the authentication solutions category led the market, accounting for 30% of total revenue. Businesses have traditionally utilized authentication systems to safeguard customer credentials and sensitive data. Enterprises are now relying on advanced authentication solutions like voice biometrics, single-factor authentication, and multi-factor authentication as fraud attempts in customer-facing apps become more complex.

Over the projection period, the fraud analytics solutions category is expected to grow at the quickest rate. Data assimilation from digital technology is on the rise, and it is transforming the corporate environment and opening new company growth chances. Analytical solutions aid in the investigation of fraud and anomalous activities in businesses that hold huge amounts of data. The use of such predictive and preventative analytical tools aids businesses in taking necessary corrective action. Over the projected period, these potential benefits supplied by the solutions are likely to fuel segment expansion.

The professional services category had the highest revenue share of 20% in 2022 and is predicted to maintain its dominance throughout the projection period. Professional services include consultancy, assistance, and training and development. These service providers assign a specialized team of specialists to assist firms in deploying technology and training personnel. Training and support programs are an important component of professional services since they assist professionals in closing security holes and implementing fraud detection methods.

The managed services category, on the other hand, is expected to develop at the quickest CAGR throughout the projection period. Managed services are used by organizations that want to take preventive actions to combat fraud in real time. Managed service providers monitor company activities in real time and harvest atypical user behavior from large data created across all touchpoints. Real-time data review and mining is a proactive way to detect fraud. Moreover, outsourcing such risk-based security frameworks to managed service suppliers frees up time for enterprises to focus on higher-value operations. Over the projected period, these factors are expected to enhance demand for managed services across all industrial verticals.

In 2022, the application of payment fraud had the highest revenue share of almost 60%, and it is predicted to expand at a stable CAGR during the projection period. The demand of consumers for cashless payment methods and e-wallets is increasing, providing opportunities for fraudsters. These programs' flaws or weaknesses might allow simple access to banking and financial reserves. As a result, the necessity to identify such frauds in real time, as well as the requirement to fix any application vulnerabilities, is contributing to the segment's growth.

Over the projected period, the identity theft category is expected to grow at the quickest rate. Identity theft is becoming more common as crooks learn how to circumvent the verification procedure. In 2022, the Federal Trade Commission's investigation tool, known as "The Consumer Sentinel Network," recorded 5.4 million fraud and identity theft claims, up 6 percent from the previous year. The total reported losses from these claims reached USD 10.2 billion, up 16% from the USD 8.8 billion reported in 2021. The most common types of fraud reported were cryptocurrency scams, romance scams, and government imposter scams. As a result, the necessity to combat rising identity theft is projected to boost market growth.

Insights into Organization Size

Based on organization size the market is divided into Small and Medium Enterprise (SMEs), Large Enterprises. In 2022, the big enterprise category accounted for more than 74% of total sales. Fraudulent activities such as phishing and money laundering, as well as distributed denial-of-service assaults, are common among major businesses, and such attacks can have a detrimental influence on profits. As a result, huge corporations must implement preventative solutions and services. One of the most important corporate tactics for ensuring organisational data security is to invest in preventative measures. The SMEs category, on the other hand, is expected to grow at the quickest rate throughout the projection period.

The rising number of fraud cases in these firms is responsible for the segment's rise. Cyber-attacks are a result of SMEs' rising reliance on digital solutions and their lack of effective security procedures. Furthermore, SMEs face difficulty in monitoring data protection compliance standards due to a lack of understanding about frauds and their impact on corporate earnings. Furthermore, greater cross-border trade adds to a rise in fraudulent activity. As a result, the segment is expected to rise in the next years due to a demand for solutions that can analyse, identify, mitigate, and report frauds among SMEs.

Insights into Vertical Segment

Based on vertical segment the market is segmented into: BFSI, Government & Defense, Healthcare, IT & Telecom, Industrial & Manufacturing, Retail & E-commerce, and Others. In 2022, the BFSI segment had the biggest revenue share, accounting for more than 40% of total revenue. The banking and financial services industry's incumbents have become a frequent target for hackers due to rapid digitalization and electronification of processes. Furthermore, the rising popularity of goods like mutual funds, stockbroking, and insurance among customers who want to digitally access these solutions across several touchpoints forces businesses to incorporate fraud prevention systems. Furthermore, the rise in identity theft and card fraud incidents throughout the world is encouraging the use of authentication solutions in this market.

Over the projected period, the retail & e-commerce vertical category is expected to grow at the quickest rate. Electronic gadgets and digital platforms are used by incumbents in the retail and e-commerce industries to improve client experience. The use of such solutions, however, raises the danger of financial and digital fraud. As a result, demand for authentication and other fraud prevention solutions is likely to rise in this sector throughout the forecast period in order to secure client information and reinforce security infrastructure.

Recent Developments

• In September 2022, Experian launched Experian Fraud Score, a fraud protection solution that will aid organizations of all sizes in identifying fraud at the transaction and customer lifecycle stages.
• In June 2022, Advanced Fraud Solutions (AFS) collaborated with Fiserv, a provider of payments and financial services technology, to enable Fiserv and financial institution customers to check risk-based fund availability, fraud detection, and decision procedures, thereby preventing losses and detecting fraudulent credits prior to their acceptance.
• In May 2022, Fiserv introduced a fraud mitigation service that reduced fraud losses for its small and medium bank clients and credit unions by 10 to 15 percent. This solution combines the enhanced artificial intelligence capabilities of Fico Fraud Predictor, Global Intelligent Profiles, and Adaptive Analytics to provide a complementary, cohesive, and comprehensive approach.
• In April 2021, NICE Actimize launches SURVEIL-X, an AI-powered surveillance and suitability solution for the insurance and wealth management industries. This solution was built on the comprehensive surveillance platform SURVEIL-X.