Peer-to-peer trading (P2P) is continuing to transform the payments landscape by offering a technology that overcomes the traditional roadblocks to transactions. Its success stems from the speed, flexibility and accessibility it offers, opening new opportunities for financial entities in emerging and established markets. Yet innovation often brings new risks and challenges that need to be properly assessed. According to the JD Power 2023 U.S. Direct Banking Satisfaction, 8% of all banking customers say they’ve been victimised by a P2P scam in the last 12 months. One of the persistent threats we are seeing in the P2P trading space is triangle fraud.
It’s a scheme that thrives on simplicity, designed to create significant disruptions across multiple parties exposed to it. This includes unsuspecting traders who can find themselves entangled in criminal investigations. This is the reason one triangle fraud needs to be recognised as a serious threat. So how does the triangle scam work? Simply put, it exploits the very foundations of P2P platforms that are integral to its success – mutual trust between parties, and decentralisation. A fraudster can post an irresistible offer online which attracts interest and attention, say an iPhone at a heavily discounted price. A buyer expresses interest and asks for the seller’s payment details. While this is happening, the fraudster is initiating a cryptocurrency trade with a legitimate P2P trader. Instead of paying the trader, the fraudster links the trader with the buyer, giving the buyer the trader’s payment details.
The buyer transfers for the funds for what they believe is an iPhone purchase. The trader receives the funds, thinking it is payment for the cryptocurrency and releases the crypto to the fraudster. The end result is the buyer not receiving an iPhone, and the trader receiving funds from the buyer for a transaction they believe was for the crypto they were selling, meaning they are involved (inadvertently) in fraudulent activities. All the while, the fraudster has disappeared with the crypto from the trader.
This is a simple example of a triangle scam. However, it poses a reputation and regulatory risk which could undermine the future development of the industry, undermining the trust in P2P payments and decentralised finance. If not addressed, this will become a systematic issue with reputational and regulatory consequences that could result in slower payment transactions.
To effectively address this challenge and prevent an increase in triangle scams, the industry must focus on vigilance, with a series of steps that can be taken.The first is scrutiny. Traders need to scrutinise all counterparties, set very clear terms, and ensure that all transactions that seem dubious are scrutinised with an additional set of checks and balances. While this might lead to a slight delay in a payment being completed, it shows to both parties involved in a transaction that the platform is taking security and fraud prevention seriously. This can be accompanied by licensed exchanges that offer filters to help identify trusted users, and these tools should be non-negotiable in any trading workflow.
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