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Sweetheart Fraud: Why Banks Are Now on the Hook To Protect Their Customers From Themselves
March 20, 2024 Blog


The financial landscape is a battlefield. With the rise of sophisticated scams and fraudsters wielding cunning tactics, banks and Financial Institutions (FIs) are constantly on the defensive, with many increasingly turning to analytical solutions to safeguard their customers.

However, while fraud detection systems are evolving to become more adept at identifying and thwarting scams and fraudulent activities, what happens when the line between victim and perpetrator blurs?  Consider the heartbreaking scenario of a sweetheart scam—a customer, convinced by a romantic illusion, insists on transferring a significant sum of money to a potential fraudster. Here, technology alone reaches a frustrating impasse.

Implications of Fraud: Impact on Customers and FIs

In a recent interview, Ian Holmes, Global Director for Enterprise Fraud Solutions at SAS, shared how this scenario exemplifies the growing menace of Authorised Push Payment (APP) fraud, where victims unknowingly authorise payments to scammers. Ian emphasised that this is just one facet of a broader issue, with unauthorised payment frauds continuing to plague the financial sector.

With a history as old as commerce itself, the realm of fraud seems boundless, constrained only by the imagination of those who perpetrate it. Notable among the prevalent types today include:

  • Sweetheart Scams: As mentioned earlier, these scams involve emotional manipulation, often remotely, where a fraudster convinces the victim of a romantic connection and then solicits money.
  • Account Takeover (ATO): Fraudsters gain access to a victim’s financial accounts (bank accounts, credit cards) through various means (data breaches, malware) and then use them for unauthorised transactions.
  • Investment Scams: Fraudsters lure victims into investing in bogus schemes, promising high returns. The victim unknowingly transfers money that disappears without a trace.

Even businesses are not escaping the target of fraudsters:

  • CFO/Business Email Compromise: This scheme involves fraudsters gaining unauthorised access to a company executive’s email account or impersonating them. With this access, they manipulate employees into initiating wire transfers or divulging sensitive information under false pretences. The unsuspecting employees, believing they are following legitimate instructions from their higher-ups, unwittingly fall victim to the fraudster’s schemes, leading to financial losses and compromised data security.
  • Invoice Redirection: Fraudsters target businesses by intercepting legitimate invoices or communications from a supplier. They then manipulate the invoice to replace the supplier’s bank account details with their own. The unsuspecting business, believing they are paying their usual supplier, unwittingly sends the payment to the fraudster’s account.

According to Ian, these incidents not only inflict devastating losses on unsuspecting customers but also create a ripple effect for financial institutions. The financial burden extends beyond simply reimbursing victims (when possible). Legal action, reputational damage, and the sheer volume of fraud cases all contribute to a significant cost for financial institutions.

Moreover, Ian highlights a trend towards “no blame” laws, wherein banks may be obligated to refund money to scam victims, even if the customer was somehow at fault. Such legislation is gaining traction in the UK, US and Australia, suggesting that financial institutions should prepare for its potential adoption in other countries as well.

Navigating Fraud in the Digital Age

During the discussion, Ian rightly points out a key difference between fraud and areas like Anti-Money Laundering (AML) for financial institutions. While AML focuses solely on identifying suspicious activity through internal investigation, fraud prevention involves a customer service element, whereby institutions must effectively stop fraud attempts without frustrating legitimate customers.

This necessitates a more sophisticated approach, one that requires FIs to gain a holistic understanding of customers’ behaviour across all channels. Only through this lens can they effectively discern deviations from a customer’s “typical behaviour,” serving as potential indicators of fraudulent activity.

In this complex scenario, Ian confidently describes how data and the application of advanced analytical techniques such as Machine Learning (ML) emerge as a most powerful weapon.

Over the years, SAS has demonstrated this by empowering financial institutions worldwide to identify and respond to unwanted and suspicious behaviours in real time.  In essence, these advanced techniques can not only mitigate fraud attempts but also empower customers to make informed decisions.  This occurs through several key characteristics:

  • Firstly, SAS simplifies data integration for FIs, allowing them to combine internal, external, and third-party data and enrich them together through intelligence orchestration. This helps create predictive ML models tailored to each organisation’s requirements, enabling quicker and more informed risk-based decisions across the board.
  • Embedded machine learning methods within SAS detect and adapt to evolving behaviour patterns, resulting in more effective and robust models. This adaptability allows FIs to remain vigilant against shifting tactics and emerging fraud schemes, facilitating faster fraud detection and revenue loss reduction.
  • Crucially, when fraudulent behaviour is detected, SAS’s system scores and prioritises alerts. This prioritisation enables immediate customer self-service or swift manual review and assessment by the institution, minimising false positives and reducing customer inconvenience.

These areas become particularly crucial in cases of APP scams and similar schemes, where the victim’s own actions are the key vulnerability.

In the ever-evolving landscape of financial fraud, staying ahead is paramount. If you’d like to find out how financial institutions can better arm themselves against the relentless ingenuity of fraudsters, safeguard customers and maintain a competitive edge, click here and discover how SAS can help you stay ahead of the curve.