The following commentary if from one of our SCARS Advisors that works tirelessly to stop fraud in the banking industry. He is mostly speaking to his industry, but it is important that consumers, and especially scam A Scam is a confidence trick - a crime - is an attempt to defraud a person or group after first gaining their trust through deception. Scams or confidence tricks exploit victims using their credulity, naïveté, compassion, vanity, irresponsibility, or greed and exploiting that. Researchers have defined confidence tricks as "a distinctive species of fraudulent conduct ... intending to further voluntary exchanges that are not mutually beneficial", as they "benefit con operators ('con men' - criminals) at the expense of their victims (the 'marks')". A scam is a crime even if no money was lost. victims are aware that changes are happening!
As a whole, the industry does a pretty good job discussing the true cost of fraud. From the obvious fraud losses to false positives to the operational costs to fight fraud, we’ve evolved to a discourse where this is all talked about. But what about when the conversation shifts to scams? Specifically, to Authorized Push Payment Fraud Authorized Push Payment Fraud (Scams) occurs when a fraudster manipulates a genuine customer into making a payment to an account they control. There are a variety of types of authorized push payment fraud, including romance scams, invoice scams and a handful of others. (APP)? Unfortunately, the true cost of scams is not widely discussed, therefore here is a quick breakdown of key considerations.
Unlike unauthorized payment fraud Payment Fraud (Non-Plastic)
The fraud definitions for payment fraud are confusing unless you specify “non-plastic”. Payment Fraud (non-plastic) refers to payments made outside of card networks, via payments rails that send funds from one bank account to another. When making this type of payment, fraud occurs when a payments is sent to an account that the fraudster controls. Payment fraud can be unauthorized, which is commonly executed as an account takeover. Payment fraud can also be authorized, which is commonly executed through authorized push payment fraud (scams)., banks have not traditionally been liable for authorized payment fraud. Now, “usually” is a loaded word since this depends on a lot of factors, the least of which is the geography you operate it. In the U.K., the Contingency Reimbursement Model (CRM) has shifted some of the liability to the banks, however, there is still plenty of debate on how effective this model has been.
In the U.S., banks are generally not liable for these fraud losses. Now, The Consumer Financial Protection Bureau The Consumer Financial Protection Bureau is a United States government agency. The Consumer Financial Protection Bureau (CFPB) is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives.
CFPB LINK (CFPB The Consumer Financial Protection Bureau is a United States government agency. The Consumer Financial Protection Bureau (CFPB) is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives.
CFPB LINK) recently indicated that some scam cases would in fact shift liability to the banks. These are early rumblings, so it will be interesting to see how this evolves.
Whether the bank retains liability is obviously a huge consideration when considering the cost of the scams. But it is far from the only one. As you will read, the true cost of scams extends well beyond fraud losses.
Customer Acquisition & Retention
- Have you ever experienced credit card fraud Card Fraud is one of the most commonly referenced fraud definitions. It occurs when a fraudster uses a card (debit or credit) to make a purchase without the authorization of the cardholder. Card fraud can occur in-person or through digital channels.?
- Not fun, but you are almost always reimbursed the money.
- Have you ever had your bank account taken over?
- Even less fun, but you still have options when it comes to reimbursement.
- Have you ever been manipulated into making a payment to a fraudster A Scammer or Fraudster is someone that engages in deception to obtain money or achieve another objective. They are criminals that attempt to deceive a victim into sending more or performing some other activity that benefits the scammer.?
The absolute worst.
Not only will you likely lose all of the money, you are left with the shame Shame is an unpleasant self-conscious emotion typically associated with a negative evaluation of the self; withdrawal motivations; and feelings of distress, exposure, mistrust, powerlessness, and worthlessness. and resulting psychological damage.
The credit card fraud example might be annoying, but the consumer probably won’t ditch the card. The account takeover Account Takeover (ATO) are the unauthorized access of a user’s account in order to steal identity credentials, execute a fraudulent transaction or engage in varying types of abuse. will surely have the consumer considering new banking options, but if made whole again, they may they stick with the bank. If a consumer is scammed into making an authorized payment, losing thousands of dollars and experiencing psychological damage in the process… Well, I cannot think of a person on the planet that will stick with that bank. The retention rate plummets.
As APP becomes more widely understood by the general public, consumers will choose banks that are protecting them from this. This means customer acquisition is on the line as well, impacting top line revenue and growth.
I am shifting the focus to a consumer cost now, the psychological damage that comes from being groomed and manipulated into paying a fraudster. While this is a bit more common in vulnerable populations, ANYONE is at risk for this. We live in a digital age, we’re moving super-fast, we have a million things on our plate and frankly, scammers are getting very sophisticated with their tactics. It’s not an obvious email in your inbox you immediately delete. It’s often a well-strategized exercise in psychological manipulation and preying on human emotion.
Now, victims don’t simply take solace in well, this could happen to anyone. For starters, they probably don’t even know how common this is. They feel psychologically weak and stupid. They pile shame on top of guilt on top of the stress of losing in some cases life-changing amounts of money. That psychological damage can lead to depression, trauma Emotional and psychological trauma is the result of extraordinarily stressful events that shatter your sense of security, making you feel helpless in a dangerous world. Psychological trauma can leave you struggling with upsetting emotions, memories, and anxiety that won’t go away. It can also leave you feeling numb, disconnected, and unable to trust other people.
Traumatic experiences often involve a threat to life or safety or other emotional shocks, but any situation that leaves you feeling overwhelmed and isolated can result in trauma, even if it doesn’t involve physical harm. It’s not the objective circumstances that determine whether an event is traumatic, but your subjective emotional experience of the event. The more frightened and helpless you feel, the more likely you are to be traumatized.
Trauma requires treatment, either through counseling or therapy or through trauma-oriented support programs, such as those offered by SCARS., and even death. This is a cost we surely don’t talk about enough and should be factored in the true cost of scams.
As a financial institution, you are not the only one who should be considering this cost. There are other technology companies and platforms that enable scams and should share responsibility in doing everything in their power to protect consumers from this vicious type of fraud. And above all else, we should shift the conversation away from who’s fault it is to how can we all proactively do our part to reduce scams and improve education.
And an important early step in the education process is understanding the true impact of the problem on society.
The shift in liability in banking is a good thing for consumers! It will mean more consumers can get refunds for scam losses and will be better able to trust their financial institutions.