Global Telecoms Hit Hard: $38.95 Billion Lost to Fraud in 2023

Telco-blog

The telecommunications industry is facing a crisis. As fraudsters exploit the widespread use of mobile devices, global telecoms suffered staggering losses of alone.

With more cell phones on the planet than people, these devices have become central to our lives. From banking and shopping to social media and beyond, mobile devices offer a gateway for fraudsters to target both users and telecom providers.

As International Fraud Awareness Week 2024 highlights, the telecommunications sector is under siege, and urgent action is needed to combat this growing threat.

 

Telecoms under siege: the pandemic's fraud surge


The COVID-19 pandemic accelerated digital engagement, forcing many telco transactions online. This shift, while necessary, opened the door for a surge in fraud.

Previously, customers visited physical stores for major transactions like new contracts or upgrades. The pandemic forced these interactions online, creating vulnerabilities that fraudsters exploited.

Telco operators responded by investing heavily in security measures in line with fraud prevention best practices. However, the battle against fraud remains ongoing, as criminals continuously seek new ways to exploit weaknesses in the industry.

 

Emerging fraud risks in 2024 and beyond for telco service providers


Telecom fraud remains a significant threat, with various tactics used to exploit vulnerabilities in networks and systems. According to the Communications Fraud Control Association (CFCA),  51% of current fraud cases fall into these categories:

  1. Subscription application fraud: Fraudsters bypass identity verification to obtain postpaid subscriptions, gaining access to valuable devices like smartphones or tablets.
  2. Subscription credit “muling” fraud: Unwitting individuals are tricked into committing application fraud and delivering the illegally obtained devices. Credit mules, often using their own genuine information, are challenging to detect.
  3. Account takeover fraud: Stolen or synthetic identities are used to hijack user accounts, leading to potential financial losses and reputational damage for telco service providers.
  4. PBX fraud: Fraudsters gain unauthorised access to private branch exchanges (PBXs) to route calls to high-rate international or premium numbers, resulting in financial losses for businesses.
  5. Service/equipment abuse: This broad category covers various illegal activities involving telecom services or equipment. One example is international revenue sharing fraud, where fraudsters set up premium phone numbers and use illegal access to a business's phone system to continuously dial those numbers, incurring significant costs. Detecting this type of fraud can be difficult, and once discovered, recovering losses is often impossible.

 

Global impact of the telecom fraud surge

 

South Africa

 

In South Africa, telecom fraud . 15.5% of digital transactions were flagged as fraudulent, far surpassing the global average of 4.5%. This surge is particularly alarming given South Africa's rapidly growing telecom sector, with and mobile internet usage.

 

South East Asia

 

Telecom fraud in Southeast Asia has escalated into a major global concern. An estimated people are forced into labor in scam call centers, perpetuating a vicious cycle of exploitation. These criminal networks use various telecom fraud methods to infiltrate other industries, resulting in an estimated annual loss of $39 billion annually.

 

Philippines[2]

 

8.3% of all digital transactions by consumers in the Philippines last year were suspected fraudulent, 66% higher than the global digital fraud rate of 5%. For transactions where the consumer or fraudster was located in the Philippines, 2.4% of these were in the telecommunications sector.

 

Latin America

 

Malware-driven fraud in Latin America surged by a staggering 113% in the past year, with Argentina and Colombia experiencing the most significant increases. Mobile devices, used in 79[3] % of these cases, are a common target for fraudsters. These criminals exploit widely used digital banking apps, bypassing security measures like two-factor authentication.

Not only do mobile service providers face direct financial losses, but their reputations also suffer from the prevalence of these fraudulent activities. Stolen device fraud and account takeover are additional challenges plaguing the region.

 

Telecom industry fraud challenges: under constant attack


Identity fraud remains a significant threat to telecoms providers, enabling a wide range of fraudulent activities, from application fraud and credit “muling” to account takeovers and PBX fraud. By impersonating legitimate users, fraudsters gain unauthorised access to telecoms systems and services, resulting in substantial financial losses.

 

Digital onboarding and KYC: the first line of defense in telecom fraud risk management


While digital onboarding has simplified customer acquisition, it has also introduced new vulnerabilities. Despite advancements in KYC (Know Your Customer) methods, including biometrics, liveness tests, and device analysis, fraudsters continue to outmaneuver security measures. Leveraging AI-powered deepfakes and sophisticated machine learning techniques, they create convincing synthetic identities and exploit system weaknesses through automated attacks.

Additionally, the availability of compromised personal information on the dark web facilitates account takeover fraud. By accessing stolen credentials, fraudsters can easily bypass knowledge-based authentication and gain control of accounts, often before devices are delivered to rightful owners.

 

Fraud prevention best practices: embracing the four pillars of identity verification

 

To combat sophisticated identity fraud, telecom providers must implement robust multi-layered fraud risk management solutions. By examining the four pillars of identity, organisations can gain a more holistic understanding of a customer's authenticity:

  • Person: Is the individual who they claim to be? Are their provided details consistent with their claimed identity? Are there any signs of compromised personal information or suspicious device activity? Is a ‘selfie’ required to be taken by the client linked to another identity or social security number?
  • Accounts: How many accounts does the customer have? Which institutions are these accounts located? What is their credit activity history? Have any accounts been flagged for suspicious activity? Has the customer opened several similar accounts within a short time span?
  • Transactions: Do the customer's behaviours align with expected good customer behaviour or unpredictable patterns associated with fraudulent behaviour ? Are there any unusual patterns or high-risk activities? Have any accounts, identity or device been blocked by other parties?
  • Devices: What devices are being used to access the customer's accounts? Have any of these devices been linked to fraud previously? Are there any signs of device tampering or the use of VPNs or proxies to mask their location?

 

Fraud risk management strategies: aligning the four pillars for effective fraud detection

 

The four pillars of identity verification must be considered collectively, in context. By analysing the interrelationships between these elements, telecoms providers can identify anomalies that may indicate fraudulent activity. While the majority of legitimate customers will exhibit consistent patterns, fraudsters often employ techniques to mask their malicious intent. By carefully examining the subtle details and connections between the four pillars, organisations can more effectively detect and prevent identity fraud.

 

TransUnion: your trusted partner in combating telco fraud


The telecommunications industry faces a constant barrage of sophisticated fraud threats, driven by the lucrative potential of illicit activities. To protect their operations and maintain customer trust, telcos require a dedicated partner with a proven track record in fraud prevention, a partner that understands telecom industry fraud challenges. TransUnion® offers a comprehensive suite of solutions designed to safeguard your business from a wide range of fraud risks.

Don't let fraud harm your business. Partner with TransUnion and level up on trust. Help protect customers and strengthen your reputation with our telco fraud detection solutions by contacting DOKenya@transunion.com

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