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Can banks do more to protect consumers from investment scams?

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By Abhinav Anand, Chief Product Officer, Smartnumbers

With the uncertainty of the pandemic, there has been a significant rise in investment scams. Consumers lost nearly £570m in 2020/21, three times higher than 2018, creating one of the highest losses of any type of Authorised Push Payment (APP) fraud. Investment scams occur when criminals promise high returns enticing victims into transferring their savings into bogus funds or paying for a fake investment.

In response to the rising number of investment scams, The Financial Conduct Authority (FCA) recently stepped up their efforts to protect consumers. They pledged that by 2025 they will reduce the money consumers lose to investment scams perpetrated or facilitated by regulated firms, by improving the way they detect, disrupt and take action against scammers.

But as investment scams continue to soar, are these steps enough? Should banks themselves do more to protect consumers from fraudsters? To answer these questions, we need to first explore how investment scams work and then consider how banks can tackle APP fraud.

How investment scams work

Most investment scams use the same principles of promising a high profit with low risk and pressurising victims into investing now otherwise risk losing out. There are many types of investment scams, but typically their approach will start with unsolicited phone calls or emails.

For example, a victim will receive a cold call or email from a fraudster pretending to be a stock broker or portfolio manager, offering financial or investment advice. They may even claim to be from a well known investment company or bank. Fraudsters often impersonate other businesses to seem legitimate. They will claim to offer a low-risk investment opportunity with quick and high returns.

Next, the scammer will continue to contact their victim, pressuring them to invest and highlighting that it’s a time-limited offer with a bonus or discount if they invest before a set date. They will likely play down the risks and use complicated language to mislead their victim. They may say they’re making this offer exclusive, and not to tell anyone else. When the victim is finally won over, they’ll transfer funds to the fraudster’s account, often as much as tens or hundreds of thousands of pounds.

Unfortunately, making payments from your bank account has never been easier. With the advent of open banking and the growing use of mobile banking apps, you can transfer money literally at the touch of a button (or screen). This creates consumer convenience, but it also means you can make payment decisions in a matter of seconds, with little opportunity for reflection. This is what fraudsters readily exploit in investment scams and is a testament to the growing risk of APP fraud.

So, how can banks protect consumers from investment scams and prevent them from handing over their life savings?

How banks can prevent APP fraud

While regulators and the banking and payments industry are working together to help APP fraud victims recover lost funds, preventing fraudsters from successfully scamming people in the first place is where banks can take action.

Doing it successfully requires a multi-layered approach, with scam warnings and interventions injected into the seamless flows of online banking and mobile applications to help create moments of reflection for victims. Here’s what banks can do:

  1. Adopt Confirmation of Payee

In June, the UK’s six largest banks introduced Confirmation of Payee. Designed to add friction in the payments process and flag where there is a mismatch between the names of the recipient and the associated account details, the tool has been relatively successful. However, fraudsters know it exists, so often warn victims in advance and tell them to ignore it.

  1. Educate consumers and spread awareness

Banks and the Government must work harder, and together, to provide consumers with information on how to avoid becoming a victim of fraud. The better we educate the public, the more difficult it is for fraudsters to manipulate victims. This should include advice such as never disclosing security details and to always double-check contact details for the recipient bank.

As well as education, customers should be encouraged to check emails, texts or phone calls before responding to requests. While organisations such as CIFAS and Action Fraud regularly update the public with useful resources and the FCA recently stepped up their efforts to help protect consumers, more must be done.

  1. Prevent reconnaissance in the contact centre

Fraudsters often run reconnaissance programmes through banks’ contact centres to try and collect useful information on potential victims. Leveraging the Interactive Voice Response (IVR) systems or even the online chatbots, they collect sensitive information that can be used to socially engineer customer service staff.

There are tools and technologies available today to address these vulnerabilities in the contact centre and other channels. Bank customer service teams and fraud teams must work together to explore what’s available on the market today to make the fraudsters’ job as hard as possible, and keep customers safe.

Banks responsibility to customers

As fraudsters get smarter and more determined, investment scams are only going to get worse. While educating consumers on the warning signs is critical, protecting them from losing their life savings is only possible if banks take a more proactive approach to identifying and preventing fraud early in the attack cycle. This involves reviewing their fraud strategy and implementing the right technologies to enhance security and prevent fraud attempts. Only then can they fulfill their duty of care to customers and keep their accounts safe.

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