According to the 2021 H1 update provided by UK Finance, U.K. banks have already lost over £750 million to fraud in the first half of this year. This represents a 30% YOY increase when compared to 2020.
Importantly, this figure does not include attempted fraud. Total fraud attempts rack up to a number well into the billions and reflect the excellent preventative work that the U.K. financial institutions (FIs) are doing to keep consumers and their money safe.
However, the most interesting takeaway from the UK Finance update is the continued growth of Authorized Push Payment (APP) scams. APP scams surpassed the amount of money stolen through card fraud (£355 million vs. £262 million) for the first time ever. A simple explanation for this shift is that fraudsters will always follow the path of least resistance to monetization. With the increasing effectiveness of fraud solutions that focus on device, location, and behavioral insights, the weakest link in the chain is no longer a bank’s fraud prevention methodology; it’s the customers themselves.
As the APP phenomenon rolls on, scams have shifted, morphed, and diversified to reflect current consumer and industry motivations. Consequently, one specific scam type is gaining a disproportionately large amount of momentum: cryptocurrency scams.
Public interest in cryptocurrencies such as Bitcoin has exploded. A gain in market share, credibility, and media coverage has resulted in an estimated 2 million U.K. adults now owning some form of crypto investments.
This popularity has been predominantly fueled by the potential to make fast, sizable gains from the volatility of crypto. Despite hefty falls, it has also had moments of exponential growth, attracting investors keen to accept the risks for potentially big rewards. Some consumers are even taking their personal finances into the red to fund their investments. Endorsements of crypto by high profile individuals such as Apple CEO Tim Cook have only added to consumer optimism.
Ironically, it is this consumer desire to make money quickly, combined with the fear of missing out on growth opportunities, that fraudsters are now using to their advantage.
The intricacies of crypto investment scams can vary wildly, from fraudsters posing as Elon Musk to the promise of free sign-up bonuses. Despite the micro-level details, the macro-level convincer is always the same – the promise of something for free.
All humans have emotional and psychological vulnerabilities, it’s just who we are. For example, consider consumers who worry about their financial stability. Fraudsters recognize this, and act on it.
The problem then is quite clear. Crypto scams create undesirable consequences for banks and crypto platforms, but most importantly, victims. What can these parties do to tackle the crypto scam phenomenon?
The bank primarily has a responsibility to protect its customers and keep them safe. A layered approach is critical to successful scam prevention. The following measures form the foundations of a solid strategy:
The crypto platforms have obligations here as well. As they facilitate the fund’s transfer by acting as the mule, strong account opening controls should be in place to ensure they are fully aware of with whom they conduct business. Many experts in the industry are pushing for receiving banks to assume liability for scams in the future. Should this ever materialize, this game-changing notion could send ripples across the industry and set a precedent for a major rethink on managing scams risk.
Failure to up their game will put crypto platforms on a knife’s edge, and continuing to enable large volumes of fraud will result in severe business restrictions such as those imposed on Binance by HSBC and others. Banks do not enjoy blocking payments as it creates operational overheads and customer inconvenience, but they have no choice if certain beneficiaries become a hotbed for fraud.
The collaboration opportunity for crypto platforms and banks is genuinely exciting and offers two-way benefits. Ultimately crypto platforms should seek “bank standard” controls to give trust and confidence to both the banks they receive payments from, as well as their consumer base.
Fraudsters remain in offense mode and won’t let up unless they meet worthy resistance. All three parties must work together to create a triple-layered defense to build that resistance. If this is achieved, the fraudsters are forced to rethink their approach. The benefits for the banks, the crypto platforms, and the consumers are clear:
Banks, consumers, and cryptocurrency platforms all have a stake in the game. Collaboration is the most important first step to keep this emerging market secure for all sides.
Article Source: feedzai.com
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