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Banking

Romance scams: How Banks can Help Prevent Heartbreak for their Customers

Romance scams: How Banks can Help Prevent Heartbreak for their Customers

By Andy Renshaw, VP of payment strategy & solutions at Feedzai.

A year has passed since the first lockdown and many of us are still housebound. Unfortunately, this confinement has brought attention to an alarming trend that is growing in popularity and taking advantage of ‘lonely’ singles: romance scams.  However, banks and other Financial Institutions (FIs) can help customers avoid falling foul of these scams, armed with the right information and context.  Andy Renshaw, VP Payment Solutions and Strategy explains.

What is a Romance Scam?

The obvious lack of access to pubs, bars, restaurants and other social gathering venues has meant a significant shift in the way people are dating or linking – as I am reliably informed it’s called these days. Whatever you call it, dating has moved from the physical to the virtual. In many ways, this introduces a certain amount of risk, as it’s easier to hide things about your character online as opposed to in-person.

Although romance scams (sometimes known as “catfishing”) happen both in-person and online – due to the current pandemic situation, they’re much more likely to occur online. And research has now put romance scams in the top 5 modus operandi of fraudsters in the UK.

In a romance scam, a fraudster pretends to be romantically interested in an unsuspecting victim. The fraudster will often exploit their target’s romantic interest and manipulate them into giving them money or buying them valuable items on their behalf. They might claim that they would like to meet in person but do not have enough money to travel, or that they are based overseas for business, or are in the military, or that they just had an emergency and can’t afford a plane ticket or indeed, money for an impending operation.

Romance Scams by Numbers

According to the latest figures from the Federal Trade Commission (FTC), romance scams represent one of the fastest-growing forms of fraud in the United States. The FTC reported that $304 million was lost to romance scams in 2020, a 51% increase from the previous year. Meanwhile, the FBI’s Internet Crime Complaint Center (IC3), logged nearly 20,000 romance scam complaints as recently as last year.

Unfortunately, the COVID-19 pandemic presented an opportunity for fraudsters to push romance scams as millions of people stuck in lockdown turned to dating apps and websites to start online relationships. Data from the Better Business Scam Tracker — which tracks reports of these types of fraud — found romance scam activity increased by 20% between April 2020 and October 2020, compared to the same period in the previous year.

Romance scams are by no means limited to the US market. Authorities in Hong Kong reported that roughly 681 citizens have been scammed by fraudsters between January and September last year. This reflects a 50% increase in this type of activity from the same time last year. In the UK, a woman lost £320,000 ($438,000 USD) to a romance scam while another lost £10,000 ($13,600) to the same con artist. Interpol recently issued a warning to its 194 members that romance scammers are using dating apps to trick victims into various investment schemes.

Andy Renshaw

Andy Renshaw

How Banks Can Protect Customers from Romance Scams

Banks and other financial institutions can play the role of both financial and romantic guardians in protecting their customers from these con artists. Romance scams are a form of authorised push payment (APP) fraud that depends on the victim willingly making a transfer to the fraudster (albeit under false pretences). Ultimately, the fraudster’s endgame is to manipulate a target into transferring money from his or her bank account to one that is controlled by the fraudster – or alternatively, revealing the victim’s credit card information.

Here are a few steps that banks can take to help stop romance scams:

  1. Watch for Unusual Customer Behaviour

One of the most effective ways banks can stop fraud is to understand how their customers typically behave. With this understanding, banks can more easily spot red flags if their customers transact in unusual ways. If they determine that a customer might be making an unusually risky transaction — such as making a wire transfer to an unknown recipient overseas or buying a plane ticket on behalf of someone else — the bank can stop the transaction before the customer’s money is lost.

Banks should also take time to modify their existing policies and procedures related to operational processes in order to ensure that fraud operations analysts are trained to spot unusual patterns. Analysts should be trained to ask customers if they understand the risks of scams when they validate their transaction activities.

  1. Set Transfer Limits and Rules

One of the ways that banks can help their customers avoid losing money to a romantic deception is to implement rules and limits designed to mitigate these kinds of losses. For example, banks can impose limits on the amount or frequency of transfers from a customer’s bank account. Additionally, these rules can stop a transaction from being completed if they far exceed the number of transfers made in the past few months. The availability of instant payment schemes in numerous global markets means that money can move in a matter of minutes or even seconds. Having these rules in place could help customers avoid losing their money before they realize they are being scammed.

  1. Embrace Machine Learning

It can be extremely challenging for human beings to detect romance scam red flags amid troves of transaction data. Machine learning technology relieves banks of the heavy lifting by spotting patterns in large volumes of data. This includes how often a customer has previously made overseas transfers or if their financial patterns indicate that they might be under the influence of a bad actor.

Banks might try to warn their customers that sending money to the person they’ve “fallen in love with” is a risky transaction, but ultimately it is up to the person to choose whether they wish the transfer to proceed. In these instances, Machine Learning can be useful to help banks to provide their customers with the full picture: what if your bank could tell you that this person who is desperately seeking £1500 from you has also collected the same amount from 5 other people that same week? This context could be crucial to someone who has been blinded by love. This is where AI in banking to detect fraud can make a real difference.

  1. Consumer education and awareness campaigns 

At a time when many people are still in lockdown and pursuing online relationships, banks could play a role in helping their customers detect red flags. Banks can launch awareness campaigns aimed at educating consumers about how romance scams operate and warn them of signs that they might be engaging with someone with sinister intentions. These campaigns can point to publicly-available resources from consumer advocacy groups like the Better Business Bureau and law enforcement agencies like the FTC.

In fact, the FTC has released a list of common romance scam warning signs including:

  • When the other person professes feelings of love too early in the relationship;
  • When the other person tries to quickly move the communication away from the dating site or app;
  • When the person asks for money for an emergency or for a plane ticket.

Romance scams are among the fastest-growing scams because fraudsters are able to prey on people’s emotions. There are numerous consumer-facing resources available that are aimed at raising awareness of these scams and helping customers determine if they are being manipulated or not. Some resources encourage victims to notify their bank immediately if they believe they have fallen for a romance scammer.

But the sad truth is, when it comes to matters of the heart, this type of fraud is very difficult to stop, and money lost to romance scammers is likely money lost for good. Prevention is the best way that banks can keep their customers safe from this kind of fraud. Machine learning solutions proactively detect suspicious activity and stop romance scammers, making it more likely that banks can make better decisions and protect their customers more effectively.

Global Banking & Finance Review

 

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