Scams: You Can Prevent More Than You Think 

Since the outbreak of the global pandemic, fraud in all its forms has accelerated at a staggering pace. As criminals grow smarter and more sophisticated, financial organizations must find innovative ways of outpacing their assailants – and protecting the victims of these opportunistic attacks.    

In 2021, the FBI’s Internet Crime Complaint Center (IC3) received 847,376 complaints from the American public. A 7% increase from 2020, this was a record number and amounted to scam losses in the region of $6.9 billion. This alarming rise has reinforced the fact that fraud losses are going through undetected and are having a great impact on unsuspecting customers. 

But the volume of attacks by fraudsters is growing not just in the US, but across the globe: 

• In Australia, scams were up 89% through the first nine months of 2021 versus 2020, with the highest growth occurring in phone-based crimes. 
• In Singapore, scam losses grew by 165% in the first six months of 2021.  
• In the UK, scams were up 71% in the first half of 2021 compared to the first half of 2020 with even higher growth in Covid-19-related scams. 

Source: FBI’s Internet Crime Complaint Center (IC3)

Scams – How Do They Happen? 

Scams happen when a person or organization is tricked into transferring money to a fraudster who is posing as a genuine business or payee. They can be highly distressing for those who fall victim to them.  

While the pressure is on financial institutions to protect unsuspecting victims, stopping these attacks means getting to the root of the problem which is online platforms and social media sites where 70% of scams originate. Fraudsters are early adopters of technology, and are constantly enhancing the angle of their attacks. Their methods are becoming increasingly sophisticated; we are already seeing the use of QR codes as a form of targeting victims (quishing), and the metaverse will likely become the “ultimate platform of misinformation”.  

According to the Payments System Regulator (PSR), Authorized Push Payments (APP) fraud is a growing issue in the UK, exceeding – for the first time – credit card fraud. £355M was lost to APP scams in the first half of 2021, up by 71% compared to the first half of 2020. But this is fast becoming a £1bn problem for the UK industry, despite the fact that many victims never report being scammed.   

Striking Back Against Scammers 

The landscape of responsibility for financial institutions covering fraud losses is changing. Regulators around the globe are trying to slow the growth of scams and protect more blameless victims. Banks could expect more supervisory visitors from regulators to monitor their anti-fraud controls and systems.  

In May 2022, the UK saw another big step in protecting victims of push-payment scams with the Government’s plans set out in the Queen’s speech. As part of the financial services and markets bill, the UK’s regulator for payment services announced that it would gain the power to force banks to offer compensation to victims of “push payment” scams, highlighting “disparities” in the current voluntary approach. 

This follows the UK’s 2019 introduction of the Contingent Reimbursement Model (CRM) voluntary code which defines when and how victims should be reimbursed by banks, the reimbursement rate for fraud losses has risen from 20% to an estimated 45%. UK banks have also stepped up their efforts to warn consumers about scams on their apps and online banking sites, which is raising the level of consumer awareness and alertness. 

The proliferation of these crimes is highlighting the urgent need for more in-depth investigations and reporting to be carried out, to disrupt fraudsters and protect customers and financial institutions. Other countries are expected to follow suit. 

Both the Consumer Finance Bureau Protection (CFBP) and the Financial Conduct Authority (FCA) have noted that they are going to focus their attention on FinTech’s and digital banks, which is an indication that global regulators are realizing that to tackle scams, the full ecosystem needs to be considered. As stated by the FCA, “There cannot be a trade-off between easy account opening and robust financial crime controls.” 

Scams may be damaging to the victims, but they are also damaging to the financial institution if they are mandated to reimburse all victims.  It is therefore in a bank’s best interest to invest in technology to harden its defenses and strike back against scams.  

How Advanced Analytics Can Improve Scam Detection 

But even as bank customers grow more savvy about internet-enabled crimes, more financial transactions of all types move online to computers, smart phones and other mobile devices, and the opportunities for fraud attacks multiply. Financial institutions are under increasing pressure to stop these crimes in their tracks.  

“Layered defense” has long been a best practice strategy for business organizations defending against cyber attackers trying to penetrate their networks. The same concept holds true for bank fraud prevention measures: layering additional methods of scam detection and prevention improves results. 

While this is a powerful method, there is a growing need for financial organizations to harden their defenses to stop and prevent these losses, and the best method to accomplish this is by taking a more contextual approach. Advanced analytics technology, like Contextual Decision Intelligence, which is underpinned by entity resolution and advanced analytics technology consolidate datapoints around people of interest to generate a single customer view and spot subtle patterns more quickly than a human investigator, therefore creating a fuller picture of risk. 

Controlling Scams Using Advanced Technology  

The most successful scam detection and prevention results are being achieved by the banks that leverage this contextual approach. Benefits include: 

• Faster hidden risk detection by improving detection rates and uncovering previously undetected fraud 
• Increased fraud prevention by uncovering context from data, enabling customer engagement earlier to advise and protect from fraud 
• Enhanced customer experience by generating accurate insights to reduce false positives and prevent customer churn 
• Accelerated investigations by increasing productivity across teams with reduced manual efforts of the triage and investigation processes
  

The growing reliance on digital services and devices means that internet-enabled scams will continue to proliferate. To combat this rise, and to enable financial institutions to effectively protect victims, integrating data with advanced technology must be considered. And the time to do so is now.