Financial fraud today: Educating consumers as a line of defence

Fraud impacts every sector of society – from major corporations to everyday consumers. Recent trends reveal marked shifts in fraudster behaviour, highlighted by a 31% increase in romance scam payments over the past year and new patterns in investment fraud. These scams continue to grow in sophistication, combining advanced technology with social engineering to exploit vulnerabilities.

One of the greatest defences against financial fraud is to educate consumers so that they can protect themselves. We've dedicated this blog to helping end customers.

What is a scam?

A scam occurs when fraudsters use deceptive tactics to manipulate people or organisations into sharing sensitive information, sending money, or giving up valuable assets. These schemes typically rely on false promises or representations. Scammers are skilled at exploiting common vulnerabilities – whether that's gaps in knowledge, financial pressure, manufactured urgency, or emotional triggers – to deceive their intended targets.

Types of scams

Scammers continue to develop increasingly sophisticated and ingenious methods to deceive and defraud their victims.

While this blog explores some of the most prevalent scams currently in circulation, it represents only a snapshot of existing threats. As scammers constantly adapt their tactics, our ability to identify and combat these schemes must evolve accordingly.

#1. Phishing

'Phishing' is a term used where fraudsters use scam emails, text messages, phone calls, QR codes or other similar methods to trick victims. Phishing emails are designed to target numerous individuals or businesses with deceptive links or requests for information. The goal is to gain valuable personal or financial information that the fraudster can exploit in a variety of way. For example, a phishing text might claim the recipient is eligible for a benefit from a government scheme, such as support for energy bills.

The text message usually contains a link that appears legitimate but leads to a fraudulent site that ask the recipient to enter personal and/or financial details. Once entered, this data becomes accessible to the scammer, who may use it for further fraud, such as identity theft or account takeovers.

#2. Spear phishing

‘Spear phishing’ is a more targeted approach to Phishing, where fraudsters look to gather information specific to the individual and directly contact them via email or telephone to manipulate them into providing personal or financial information.

A recent scam targeting Google account holders illustrates how fraudsters can use known information about an individual to manipulate genuine security features.  In this example, fraudsters triggered a legitimate Google fraud alert on a user's account. Shortly afterwards, the fraudster contacted the user, claiming to be a representative from the Google Fraud Team, offering to help secure their account.  The fraudster requested a one-time passcode (OTP) on the account which was sent by Google to the user for verification. Believing the call was authentic, the victim shared the OTP with the fraudster, which granted the fraudster access to their Google account.

#3. Romance scams

Romance scams are where fraudsters set up a fake online identity and connects with an individual online over months and even years. Once the fraudster has gained the trust and affections of the individual, they then dupe the individual into sending them money for items or bills such as emergency health care, or plane tickets to visit. These cases have been on the rise in recent year, especially with the rising popularity of dating apps.

The total number of romance scam payments increased 31 per cent in 2023 and are up 200 per cent from 2020. However, this figure could be significantly underestimating the true prevalence of this crime, as victims of romance can feel shame at being duped and having their heart broken at the same time. Therefore, they are much less willing to discuss the fraud with friends or family let alone report the fraud.

#4. Investment scams

Investment scams trick individuals to invest their income, savings or pensions into fake investment opportunities.

Investment scams dropped in 2022 and 2023, and this drop reflects the cost-of-living challenges. However, with expectations of rising real incomes it is anticipated investment scam rates will also rise. 

There has been an increase in targeted investment scams in the over 55 age group. Recent changes allowing a quarter of the pension amount to be withdrawn from the age of 55 contributes to an image of more disposable income within this age group. Coupled with low interest rates in recent years it makes investment scams with higher-than-normal rates of return particularly attractive.

Cloning firms is one of the methods fraudsters use to trick individual into investing where, the cloned firms pretend to be a genuine firm and may even copy their website. Fraudsters will use tactics such as time pressure, fear of missing out and advertise higher than normal interest rates to dupe the individual into making a decision without doing due research on the investment.

#5. Shopping purchase scams

Shopping purchase scams are when an individual makes a purchase online and the product never turns up.  The fraudster may set up a fake website or a fake online profile on a seller’s website such as TikTok or GumTree to advertise the product.

Protecting against fraud

Falling victim to fraud can have devastating financial and emotional consequences. However, education plays a vital role in spotting warning signs and staying ahead of emerging fraud tactics, helping prevent victimisation. Individuals should remain alert to:

• Anything that sounds too good to be true

• Requests for money upfront

• Cold Callers

• Being rushed into making a decision

• Any inbound communication channel that includes links, QR codes etc

• Being asked to provide financial or personal information

Its also worth stating explicitly, that:

• Internet/phone providers will not contact you and ask you to install software on your device

• A bank will not contact you to move your money into a “safe” account

• Police are not going to phone you to help them with a covert operation to catch fraudsters

All of these represent common tactics used by fraudsters. Protection levels for fraud victims vary depending on the payment channel and method used. For example, the new APP fraud reimbursement requirement, which came into force on 7 October 2024, offers protection up to £85,000 for app-based fraud, including romance and payment scams.

Credit cards provide protection under Section 75 of the Consumer Credit Act for purchases between £100 and £30,000. However, while these safeguards exist, prudent financial management and fraud response remain crucial. Acting with gross negligence can significantly reduce the likelihood of recovering funds from fraud-related claims. Education therefore serves two vital purposes: helping individuals avoid fraud initially and improving their chances of fund recovery should a scam occur.

Several publicly available resources can help individuals protect themselves against fraud:

• The UK Finance promote a Take Five national campaign that offers straight forwards, impart advice to help raise awareness and try to protect individuals from Fraud.

• The FCA have tools such as ScamSmart which allows individuals to check an investment or pension opportunity to avoid scams.

• The FCA produce a list, updated every evening, of authorised or registered firms by the FCA and its strongly advised to deal only with firms included on the list. Additionally, there is a warning list produced by the FCA which includes any unauthorised firms that the FCA are aware of that are not allowed to operate in the UK.

• Friends Against Scams is a National Trading Standards Scams Team initiative which aims to protect and prevent people from becoming victims of scams by empowering people to take a stand against scams.

Reporting fraud

Individuals should contact their bank immediately to notify them that fraudulent activity is suspected. If money has been transferred to a different bank, it is always worth contacting that bank as well.

Any fraudulent activity should be reported Action Fraud. Action Fraud is the national reporting centre for fraud and cybercrimes, and it collects reports bout fraud on behalf of the police in England, Wales and Northern Ireland. They can also offer help and advice to those impacted by fraud.

Fraud prevention is most effective when everyone plays their part - individuals, businesses and financial institutions alike. The key lies in remaining informed and responding swiftly to suspicious activity.

Remember that safeguards are in place, including the new APP fraud reimbursement requirement covering losses up to £85,000. However, prevention remains preferable to cure. Stay vigilant for warning signs, utilise available resources such as the FCA's ScamSmart tool, and report any suspicious activity promptly.

Sources:

UK Finance Annual Fraud report 2024.pdf) | https://www.fca.org.uk/scamsmart | https://register.fca.org.uk/s/ | https://www.fca.org.uk/consumers/warning-list-unauthorised-firms | https://www.friendsagainstscams.org.uk/ | https://www.actionfraud.police.uk/