Feedzai Q&A: Everything You Need to Know About Scams

Why are scams so common now?

Dan Holmes: Scams are becoming real common in the industry right now, and there are a few key reasons for this. 

If we look back at the past three or four years, the primary threat of fraud in the industry was account takeover (ATO) fraud. As a result, the banks responded to that by bringing in technology that allowed them to effectively detect account takeover within the banking domain. 

But as banks have become more successful with their detection methods, fraudsters have adapted. 

Fraudsters look for the weakest part of the chain, which is no longer the fraud defense system on the bank side. Now, it’s the customer. So fraudsters have started to target customers – who are now the weakest part of the chain – and they are seeing more success. 

Scams have evolved. No longer do scams present themselves in the form of bogus lottery wins or foreign princes. They’ve grown much more sophisticated by playing on either fear or reward opportunity for the customer and often reflect current events such as COVID. These are events with economic global impacts. 

What types of scams are out there?

“Scam” is very much a generic term. You’ll hear all sorts of subcategories such as impersonation scams, romance scams, or cryptocurrency scams. There’s a plethora of them out there. Impersonation scams, in particular, work by the fraudster representing an individual in a position of trust. They call a victim and say, “Hey, I’m calling from the bank. There’s been an issue with one of your accounts. We need to secure that account.” That’s playing on the fear emotion of the victim. Once the fraudster has convinced the victim that they are who they say they are and that they’re in that position of trust, the victim will carry out actions under instruction from the fraudster. 

In this specific example, I would say, “Hey, your accounts are at risk. I’ve set you up a second account over here, which is a safe account. What I’d like you to do is move all the money from your account into that safe account whilst we can further secure and investigate the suspicious activity on your account.” Once the victim does that, the fraudster hangs up the phone and moves the money looking for the easiest method in which to cash out. 

Does a victim’s age affect their susceptibility to scams?

A common misconception is that older, vulnerable customers are more likely to fall victim to scams. That’s simply not true. Data analysis shows younger generations as well as the older generations and all those in between that can succumb to scams. If you plot the data on a chart, you end up with sort of a bathtub view of both younger and older generations being susceptible. There’s various hypotheses around why that is. But fundamentally, banks need to be prepared to engage with customers of all ages and backgrounds to successfully defend their assets. 

There are some things that we’re aware of when it comes to generational responses to scams. Generally, a scam will play on one of two things: fear or reward. These two categories really differentiate the different ends of the generational scale. 

Fear is much more common with older customers. If I contact a potential victim and say, “Hey, your accounts are at risk, we need you to move your money out of your account,” this tactic will likely resonate with an older victim. Older bank customers still perceive bank officials as being in positions of trust, and it’s very easy from a fraudster’s perspective to generate a rapport with these customers and ask them to act on their behalf. 

When you think of the younger end of the generational scale, they tend to respond more to the reward side of things. So, what does that mean? We live in a culture where people want things now, and they want to make quick money. That’s generally one of the allures of crypto. Crypto scams are really hot, but often sound too good to be true. So if I was to categorize, I’d say fear at the older end of the generational scale with high reward at the lower end of the generational scale. 

How can banks fight scams?

There are three things banks can do to stop scams. 

1. Adopt the right technology. This is critical. There are a whole number of fraud technologies available in the market. Not all of them are effective with scam detection. Banks need to be selective and choose the right one in order to succeed. 
2. Utilize data in the right way. There’s an issue at banks that we’ve seen through consultative discussions. In some cases, a bank will employ three or four different point solutions. But these different solutions essentially become islands that don’t interact with one another. What the bank really needs to do is have a central aggregation service that allows them to utilize that data in one place and derive maximum value from that data. Feedzai is a great example of how that can be brought to life. 
3. Educate customers. Education and awareness are absolutely critical to any successful scam detection campaign. Typically, education and awareness resources in online banking are hidden away in the corner of a website. The customer has to locate them, read through them, and figure out exactly what they should and shouldn’t do. That doesn’t work anymore. Scams are so common that education and awareness need to take different forms. Banks need to leverage new channels to appeal to younger audiences, such as social media. They need to leverage TV, radio, all these things that banks traditionally haven’t engaged with. It becomes imperative now to push the warning of scams out to as many customers as possible. The only way to do that is to push your message out through those channels.

Why is labeling fraud data important?

Labeling is important not just for stopping scams but for stopping fraud in general. Feedzai is an AI-led platform, which means it utilizes machine learning to better protect its customers and their assets. There’s an old adage within machine learning that if you put bad data in, you will get bad results out. The key to putting good data in and making sure that you don’t fall into that trap is to label your fraud data. 

That can come in one of two ways. One, a binary fraud label to say, “This transaction is fraud or it isn’t.” But more recently, what we’re starting to see and what we’d like to encourage banks to do is actually not just say, “This is fraud or it’s not fraud,” but apply a fraud category to that label as well. So that could be something as simple as saying, ”This is an unauthorized fraud” or “This is a scam.” That would give two clear buckets of fraud. 

Those frauds happen in very different ways. So it’s important that the models and rules can differentiate at that level to derive better outcomes. The benefit of labeling from the bank’s perspective is that good data in, equals better results out from a tool like Feedzai. That results in better detection rates and lower false positives – both of which are core KPIs of any fraud strategy. 

How does Feedzai stay on the cutting edge of technology?

There’s two things here when it comes to Feedzai staying on top of new scams. 

First, we invest 26% of the company’s revenue back into R&D. What does that mean? It means that the leading edge ideas that we’re coming up with in the labs can work their way through the product development ecosystem and end up in the hands of our customers. This enables our customers to constantly use the best capabilities available on the market to best protect their own customers from scams and protect their fraud budgets and their bottom line.

Second, Feedzai is fortunate enough to work with some of the largest banks in the world. This means that we get fantastic insights into how fraud is occurring. That insight allows us to not just drive our R&D from our own lab and our own research, but actually to share that intelligence across our customer base. It’s absolutely realistic for customers of Feedzai to say, “Look, I’m getting hit with this scam type.” Feedzai can react to that quickly and proactively warn the other customers that this is what we’re seeing in industry and it’s very likely to come your way. This is how fraud works. You guys should gear up and better protect yourselves now. It moves you from a reactive fraud state to a proactive fraud state, which is absolutely the key place to be when it comes to strong detection. 

If you are looking for a fraud solution that provides strong protection from scams, we’d like to help you. Schedule a demo with us today to see how our experts and our technology can reduce fraud and increase growth.