When Financial Scams Threaten Customers, Block Criminals With Context

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

In 2021, the FBI’s Internet Crime Complaint Center (IC3) received more than 847,000 complaints from the American public – a 7% increase from 2020. This was a record number of complaints and amounted to scam losses of about US$6.9 billion.

And 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)

While the pressure is on financial institutions to protect victims, stopping attacks means getting to the root of the problem. More than 70% of scams originate on online platforms and social media sites. Online fraudsters are early adopters of technology innovations, and are constantly improving their attacks; we’re already seeing the use of QR codes as a method of targeting victims (“quishing”), and the metaverse will likely become a platform for misinformation.

According to the UK’s Payments System Regulator (PSR), Authorized Push Payments (APP) fraud is exceeding credit card fraud for the first time in the UK, where £355M was lost to APP scams in the first half of 2021.

Striking back against scammers

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

In May 2022, the UK made a big step in protecting victims of push-payment scams. As part of a 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.

Both the Consumer Finance Bureau Protection (CFBP) and the UK Financial Conduct Authority (FCA) are devoting more attention to fintechs and digital banks – an indication that global regulators realize that to tackle scams, the full ecosystem needs to be considered.

“There cannot be a tradeoff between easy account opening and robust financial crime controls.” 

Financial Conduct Authority

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 graph analytics can improve scam detection

“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 layered defense offers powerful defenses, financial organizations must harden their defenses to stop losses. The best method is a contextual approach.

AI-powered technology, like Quantexa's Decision Intelligence Platform, which is underpinned by Entity Resolution and graph analytics technology, consolidates datapoints around people of interest to generate a single customer view and spot subtle patterns more quickly than a human investigator. This process creates a fuller picture of risk. 

Controlling scams using Decision Intelligence

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 proliferate. To combat this rise and to enable financial institutions to effectively protect victims, financial institutions must consider automated solutions that deliver contextual data insights.

Fraud

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