Introduction
The post-pandemic cost of living crisis and the recent interest rate increases have both put a damper on living standards, not only in the UK, but globally. According to the Office of National Statistics, 4 in 10 adults are finding it hard to cover their rent or mortgage payments. This highlights the real, negative effects of rising interest rates, higher inflation and low wage growth. These elements all put pressure on individuals to find alternative ways to fill the gap between income and expenses and also provide a fertile hunting ground for fraudsters.
According to the National Crime Agency, fraud is the most commonly experienced crime in the UK, and it costs businesses and individuals billions each year. “The 2017 Annual Fraud Indicator estimates fraud losses to the UK at around £190 billion every year, with the private sector hit hardest losing around £140 billion.”
Adding in the rapid advances in technology means new opportunities for fraudsters. Below are some of the types of frauds that banks and other financial institutions are having to deal with in today’s digital landscape.
First Party Fraud
This is where a person:
Provides false information about their identity or financial resources in order to have an application for a loan or other credit arrangement approved, or to buy goods online;
Gives false information to get extended credit or a refund;
Falsely misrepresenting goods as not having been received; or
Returning used items.
This may be a one off or across many applications to different financial institutions. Financial institutions may not even be aware as the fraud is likely to be miscategorised as a credit loss when the repayments are not made.
The profile of a first party fraudster is changing more and more, as customers previously with a good credit rating and history of repayment find themselves struggling financially.
Second Party Fraud
This is where an individual knowingly gives their identity or personal information to another to commit a fraud, in exchange for a small fee. A commonly known instance of this money-muling. The target of this type of fraud used to be a younger profile but the banks are now seeing more older customers involved, perhaps again due to the recent pressures of the cost-of-living crisis.
This type of fraud is also very hard to detect or challenge by banks as it has been permitted by the owner of the bank account.
Third Party Fraud
This is the traditional identity theft, where an individual’s identity or personal details are used without their consent or even knowledge for a third party’s personal gain. It also includes manufactured identity where stolen or false information is used to create a false identity.
There is a clear victim in this case and, therefore, easier to identify when it occurs. There are many scams that aim to dupe unsuspecting individuals to part with their identity or money such as:
Payment app scams
Phone scams
Romance scams
OTP bot scams. Arkose Labs describes these one-time password bots as: “Attackers use these programmed bots to call up unsuspecting consumers and trick them into divulging their two-factor authentication codes. They then use these codes to authenticate and complete unauthorized transactions from compromised accounts.”
How can the financial industry respond?
The challenge for banks and financial institutions is staying ahead of this rapidly changing virtual landscape. Investment in new technology to detect frauds and scams is a given but it can be expensive. It’s about using the current technology in its most efficient form as well as:
Keeping staff informed, trained and alert to potential fraud;
Providing guidance to customers; and
Ensuring that internal controls, especially around personal data, are watertight.
How can we be of assistance?
At Leaman Crellin we provide training and consultancy to all staff levels in fraud risk assessment, review of internal controls and procedures, and insights into creating an anti-fraud culture. Feel free to reach out to Rajeshri Rajani for an informal discussion about how we may be of assistance.
