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How financial services companies can deal with romance scams this Valentine’s Day

Romance scams are an especially cruel way to dupe a victim. Gaining their trust and fooling them into thinking they’re romantically involved, before exploiting that trust and using their personal information to take out borrowing in their name – or simply getting them to transfer cash  – is particularly heartless.

But the scams are not just a consumer issue. Romance fraud presents a serious risk to banks and other lenders looking to lead the way in fraud prevention. New regulations likely to be introduced later this year are also going to have an impact.

The extent of romance scams

New figures from UK Finance, published ahead of Valentine’s Day, show that more than £16 million was lost through these scams in the first six months of last year.

Almost a third (29%) of people who had met someone online in the last 12 months said that they had been asked to give or lend money to someone they hadn’t met in person.

The findings showed that over half of those asked to give or lend money (51%) subsequently agreed to do so. Almost half of them (48%) sent between £100 and £1000, with a further 8% per cent sending over £1000. 

Often, the fraudster will persuade the victim to transfer them cash directly from their account. They’ll claim they need financial help – often it’ll be for a time-critical emergency – and the reason will be something that pulls at the victim’s heartstrings.

Other times, fraudsters will commit identity fraud by duping the victim into sharing their personally identifiable information and then taking out a loan in the victim's name.

The damage done could also be ongoing. If the scammer has hold of the victim’s personal information, then it’s likely they’ll attempt numerous credit applications as well, damaging the vicitm's credit score.

The lender’s perspective

This year, new legislation from the Payments System’s Regulator (PSR) is set to be introduced, which will see consumers refunded who are victims of APP (Authorised Push Payment) fraud.

Both the payee’s and receiving bank will be liable for costs and will therefore be incentivised to prevent APP fraud. Experian expects the vast majority of cases will be reimbursed under the new scheme, potentially doubling the cost to banks and lenders to over £400 million.

This will put even more pressure on the onboarding stage, with tighter controls and checks to ensure that new accounts being opened are for legitimate purposes and are not ‘money mule’ accounts.

In this new environment, information sharing between the Payment Service Providers (PSP) will become crucial in flagging and stopping potential suspicious activity. Fraudsters may well be hiding their activity and suspicious behaviour in already-opened accounts not involved in the specific fraudulent transaction, so it will be vital that as much information as possible is shared between the PSPs.

Lenders are already deploying new technology to help them identify potentially fraudulent activity as early as possible, preventing it, and minimising losses to both them and their customers. New solutions specifically looking at APP fraud are also likely to come online, giving all parties better protection and ensuring that those looking for love aren’t taken advantage of again.

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Comments: (1)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 14 February, 2023, 12:17Be the first to give this comment the thumbs up 0 likes

Credit Card already has merchant KYC / KYB and  transaction monitoring in order to minimize scams and frauds. But whenever a payment is declined or a merchant account is blocked because the merchant is guilty of fraud / scam / violating TOS, the common man jumps on banks and credit card networks instead of blasting the guilty merchant - just because she's the underdog. The Stripe-Flurly incident is the latest example of this.

APP / romance scams via A2A RTP happen clearly because of gross negligence of customers. By accepting liability for them, banks are further digging their own grave in the public's perception of them and their shareholders are paying for the fault of somebody else. They should instead push the regulator to enforce my Three Strike Rule to eliminate APP scams.

Eduardo Castro

Eduardo Castro

Head of Identity and Fraud

Experian

Member since

11 May 2021

Location

London

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