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Before we dive into this topic, I want to preface by saying, I know, no one wants to go back and think about 2020 (what a nightmare!), but if we’re going to have a discussion about emerging fraud trends in the payments space, we have to evaluate how business and consumer behavior changed in 2020 because of the pandemic and corresponding stay-at-home orders. I believe logic dictates that as society continues to move toward more digital interactions and faster payments, the volume of fraud incidents will increase.
In fact, according to LexisNexis, 42% of financial services firms experienced an increase in monthly fraud attempts in 2020 compared to 2019. As digital payment channels continue to increase in popularity and usage, firms will continue to develop and deploy new technologies to meet their consumers’ needs, so we can expect to see fraudsters get more creative and instances of fraud becoming more frequent.
In this blog post, we’ll explore a few fraud trends that your financial institution should be aware of, and discuss approaches you can employ to combat the risks.
Imposter scams have been around and will continue to grow in frequency. In an imposter scam, a bad actor posing as a good actor or a third party tricks the victim into believing something better will happen if only he or she transfers money. Imposter scams typically involve fraudsters contacting your account holders or employees and attempting to obtain personal and/or banking information from them by impersonating a reputable agency.
Romance scammers prey on victims through the illusion of romance or close relationships. The scammer gains the victim’s trust and cons them out of money or financial information. Given that more people are spending time at home, alone, and are more vulnerable to these type of scams, we can expect to see an uptick in this type of fraudulent activity.
In social engineering, a cybercriminal will pretend to be a legitimate entity to elicit a consumer’s personal or confidential information in order to commit fraud or theft. Many unsuspecting individuals have fallen victim to social engineering; as a matter of fact, 98% of cyber-attacks rely on some form of social engineering. Your employees, particularly those who are new to your organization, are most susceptible to social engineering as fraudsters’ attempts to extract information can be very convincing. Regular employee training is a valuable deterrent to social engineering attempts.
While not necessarily an “emerging” fraud trend, identify theft will continue to impact financial institutions and businesses alike as we move deeper into the digital landscape. Using either a stolen information or creating a synthetic identity, fraudsters can wreak havoc on an individual’s financial health, wrecking their credit score and potentially stealing assets directly from their accounts. The 2012 movie Identity Theft, starring Melissa McCarthy and Jason Bateman, may have been very funny with a heartwarming ending, but in real life, the victims of identity theft do not end up (SPOILER ALERT!) becoming friends with the individual who potentially ruined their lives!
I would also include account-credential theft under the identify fraud category as well. Specifically, fraudsters can take over accounts and conduct application fraud across multiple product lines within your institution.
Combating the Risk
So, the obvious question is: what are some strategies to combat this and mitigate the risk to your financial institution? You need a multi-layered approach to understanding your membership and gathering the customer's data across channels with the goal to see and understand the customer journey (this can include the physical identity of the membership using biometrics). This will help to understand the typical digital behavior of your membership base to be able to distinguish what is normal versus what is an anomaly.
Additionally, it’s important that institutions take an active role in educating their account holders on the importance of monitoring their accounts. A survey conducted by Lexington Law found that only 36% of respondents check their checking accounts on a daily basis. All it takes is one fraudulent transaction to have a serious negative impact on a consumer’s financial well-being, so we have to remind consumers to remain diligent and make it a habit to regularly check their accounts for suspicious activity.
Vendor management is also a key element of combating fraud risk. In the payments scenario, ask yourself and your organizational leaders if your partners have multiple methods to identify and combat fraud at the time of transaction. Be sure to team up with a technology/service provider that has a more holistic view of your enterprise, your operations, and the risks you face. From a consumer and lender perspective, we're all going to have to be more diligent than ever because fraudulent activity isn’t going anywhere anytime soon.
James Patrick is head of Risk Products at SWBC, and is leading the effort to bring to market a new portfolio of solutions that protect clients in a complex, evolving world. Prior to joining SWBC, James was in charge of digital experiences for the full customer lifecycle at a Fortune 100 insurance company. James also served as a Green Beret in the U.S. Army and founded a terrorism risk software company in Austin, Texas.