A Rude Awakening: fraudsters are now fearless

Faster payments is the fraudsters’ preferred method of payment as the money arrives almost immediately in the payee’s account. To receive that payment therefore, the fraudster has to open a bank account. The current dysfunctionality is each bank holds the client’s information in confidence and does not share insights on risk on that account to other banks. 

Regulations require bank accounts and banking transactions to be stored for years. Banks do so by keeping the information in their own data lakes and these could be the cold case files with which to catch the criminals.

The lack of data sharing, which can be changed by making the data anonymous with a trusted third party, allows fraud to continue to accelerate.

• In the first half of 2020, 1.4 million cases involving people and companies reported fraud of £374 million, and there were 400,000 cases over the same period in 2019

Action: Where two different banks are involved in a faster payments transaction then both sides must check for fraudulent activity around the payee to account before the payment leaves the payer account. This can be done bi-laterally between the banks.

• Almost 90% of people experienced negative emotions after an incident of fraud

Action: Legislation aimed at ‘attempting online fraud’ is needed

Fraudsters have realised that methods of prevention are currently so inadequate that they need to spend little time nor effort covering their tracks. This is evidenced by:

• Prosecutors admit that under 3% of cases are likely to end in charges and the digital world needs to be policed differently

Action: Need to prevent fraud at scale so banks and the payee know who is liable before the money is sent

• Banks continue to accuse their customers of the fraud and not the fraudster

Action: Real time dashboard showing high risk transactions between the two banks is needed with the option of granting the payee final approval 

The covid pandemic is proving a boom for fraudsters as it is moving an analogue world to digital virtually overnight.  Digital behaviours have to be learnt and laws adopted to ensure a stable society.  For example, how we pay for items is changing as we move away from cash, and usage of cash machines dropped 38% last year.  The UK Budget saw the limit on contactless card technology to be raised to £100 further decreasing the need for cash.

Banking and technology are the keys to success.  Banks today prevent 70% of the attempted fraud relinquished and 30% of actual fraud required to be addressed.  There is where experience in the corporate market that can be useful:

• Nearly 50% of companies, after experiencing a fraud, emerged in a better place citing the implementation of new technology to prevent and curtail repeated fraudulent attempts
• 40% of companies have been hit by the same fraudster more than once

By using new available technology, the banking world is moving into the same arena as the fraudster.  Early research from the USA suggests Neo and Challenger Banks are one step ahead at preventing fraud than the traditional banks being they are new technology native.  The traditional banks have the millions of accounts and use inadequate technology for the digital age.

Given the banking industry has the information of the fraudsters, there should be a two-pronged attack running parallel; first a historic unmasking of the fraudsters for past crimes and a united fraud prevention programme to prevent fraud in the first place.  The available technology and cloud centric techniques, to avoid expensive and long implementations, could:

• Take historic faster payment traffic between two banks and identify the fraudster.  Then the fraudster’s activities can be reviewed against the banks’ own risk management to see if improvements are needed
• Use the existing rule-based logic to screen the flow of faster payments in real time between the banks to reduce the 30% fraud down: a 10% drop from 2019 saves £33 million and 10,500 people from emotional turmoil.

In the past, no one discussed fraud as it was all too emotional.  Virtually everyone knows of someone who has been defrauded and probably has received emails, texts, tweets, phone calls or a combination of approaches to induce us to make payments. 

The need for action, like faster payments, is immediate.  The call is for the banks to be regulated, as a group, to tackle digital fraud. But they need to act now, by taking action before UK Government legislation forces them to act.

One way is to support the PSR’s (Payment Systems Regulator) two calls for views exploring greater protections for everyone using payment systems: one relating to the protections against APP scams, and the other looking more broadly at consumer protection in interbank (bank-to-bank) payments. The closing date is 8th April 2021.