While the COVID catastrophe has taken all of the headlines and the impact on public health has rightly been the focus, it has not gone unnoticed by some of us money movement mavens that there has been a payments pandemic running alongside it. Cash has been flowing to criminal enterprises of all kinds throughout the crisis and as of now shows no sign of abating. According to Experian, fraudulent opening of savings accounts has quadrupled in the most recent quarter and is up five times on the last year! Account takeovers and fraudulent loans have “soared” here in the UK with global criminals targeting British businesses and consumers throughout the lockdown. A particular problem has been, as elsewhere, exploitation government support schemes of one form or another. This led to, as memorably phrased in the Financial Times, a bonfire of taxpayers’ money with the banks handing out the matches.
A particular problem has been Authorized Push Payment (APP) fraud, where fraudsters trick people into sending instant payments to bank accounts controlled by criminals. This advanced form of social engineering has been on the rise globally but in countries where the instant payment network is well-established and widely-used (eg, the UK) it is reaching epidemic proportions. Losses to APP fraud (now, for the first time ever, greater than card fraud) rose 71% in the first half of this year.
What, then, is the payments pandemic? Well, Debbie Crosbie (CEO of the TSB, one of Britain’s biggest banks) was quoted recently saying that “fraud is the next pandemic” and it’s hard to argue with her. She blames social media platforms — including Facebook, Twitter, LinkedIn, Google Hangouts and Instagram — for their role in allowing victims to be duped and making money from them through advertisements. There is evidence to support her view in America too. Javelin Strategy found that individuals who have an active social media presence had one-third higher risk of being a fraud victim than those who do not. What’s more, they are almost 50% more likely to be a victim of account takeovers and payments frauds than those not active on any social media networks.
Instant Payments, Instant Fraud
In the UK, the banks were forced to introduce a code of conduct to compensate customers who send money to fraudsters. It has never been entirely clear to me what the point of this is or what it is expected to achieve. If people are tricked by fraudsters and tell their bank to transmit money to criminals, it is hard to see why this is the fault of their bank. There was a court case around this matter earlier in the year, when a customer who had sent several hundred thousand pounds to crooks attempted to recover the sums. The bank had asked her if she wanted to confirm the transactions, and she told them to proceed. The judge ruled in favour of the bank.
Jeremy Light commented on the situation earlier in the year saying that “much of the emphasis is on the victim’s bank, the sending bank, whereas it is the receiving bank, the fraudster’s bank that is at fault”. Indeed. The money is being transferred via the Faster Payments Service (FPS) to UK bank accounts. Hence if a fraud has occurred, it would seem relatively simple to make an arrest: if the receiving bank has carried out the necessary know-your-customer (KYC) checks then they will know who the customers is and the police can arrest him or her. If the bank does not know who the account holder is, then the police can arrest the bank’s compliance officer instead.
Snippings 