Scams have always been a thing. For fraud executives in the U.K., they’ve been a much bigger thing for the better part of the last decade. For fraud executives in most other markets, however, they’re just now beginning to loom larger on the radar.
This is prompting many fraud executives to sit up and take notice for a variety of reasons. Two stand out as particularly notable:
- They’re an edge-case type of fraud. Scams are like synthetics and mules in that the manner in which they fit into the business unit’s mandate to balance fraud losses with client experience, operational efficiency, and regulatory compliance is inconsistent from one financial institution to the next. This inconsistency is borne from diverging perspectives on the circumstances for distinguishing between an authorized payment vs. an unauthorized payment when it comes to policies for reimbursing victims.
Given the pattern of greater regulatory (and legislative) scrutiny in response to the increase in scams in the U.K. market and given recent signals from the CFPB about Reg E compliance related to reimbursement policies for unauthorized payments, many fraud executives are understandably concerned about how widespread increases in scam activity might result in potentially significant disruptions to their balancing act.
- There are no satisfying ways to stop them (yet). Despite a sincere desire to protect their customers, most fraud executives are pragmatic (to one extent or another) in resisting unconstrained reimbursement policies for the simple reason that most have seen a lot of examples of abuse and collusion between bogus claimants and fraudsters. Most, therefore, are keen to find ways to separate the wheat from the chaff in a more effective manner but are frustrated by the relatively primitive state of the art in scam detection and prevention.
Deputizing the customer through more robust awareness and education programs is a noble idea, but most fraud executives are quick to point out that it has not been a terribly effective strategy in terms of reducing the impact of attacks.
To make matters worse, and to note yet another example of the negative impact of a lack of standardized reporting for non-card fraud types, it’s challenging to get an accurate read on the contours of the problem or on the pace of its expansion. As a result, many fraud executives look to the U.K. for indications not just of the scale and rate of growth in scams, but also for patterns in how the market and regulators might respond to such increases.
Unfortunately, neither are terribly encouraging. Katy Worobec from UK Finance, the U.K.’s primary industry association, declared that scams are a national security threat and underscored this by pointing out that losses associated with authorized push payments exceeded card fraud losses in 2021. Recent research among North American fraud executives reveals that 94% report growth in consumer scam activity and that 67% report growth rates of more than 10%.
On the matter of scam detection and prevention, there is growing interest in technologically oriented capabilities with a particular emphasis on those that seek to selectively prompt the customer into revealing additional contextual information surrounding high-risk interactions. Many of these types of solutions are gaining traction in the U.K. market under a program known as Confirmation of Payee that mandates minimum criteria for matching the payee’s information with the beneficiary’s account title, but they are also drawing attention from North American financial institutions interested in demonstrating an effort to proactively control for what they fear may be the next big fraud trend for 2022.
For a more detailed overview of how financial institutions are combatting scams, please read my latest report Scams: On the Precipice of the Scampocalypse or reach out to me at [email protected].
