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When Jason*, a young manager at an events company in Hong Kong, recently received a WhatsApp from Janet*, his friend and colleague, he thought little of it. She asked him to transfer HK$5,000 ($641) to pay for equipment for their final performance. After checking what exactly she needed it for, he logged into his bank account and made the transfer.
But like millions of people around the world, Jason had been deceived. Janet’s WhatsApp account was compromised when she clicked on a fraudulent ID verification message, and a scammer pretended to be her.
Across the world, billions of dollars are now lost annually to online payment fraud, much of which experts say is perpetrated by international organized crime, and most of which is initiated by WhatsApps, Facebook ads, text messages and other digital triggers.
A global hotspot is Britain, where new rules from the Payment Systems Regulator come into force next month requiring banks to compensate defrauded customers in many circumstances – something the biggest lenders are already doing on a voluntary scheme. From the £1.2 billion stolen in Britain in 3 million fraud cases According to banking lobby group UK Finance, around 40 percent last year were the result of these types of “authorized push payments”. And more than 60 percent of those losses were reimbursed.
Some bankers are happy with the new rules: they will introduce a new excess of £100, to be paid by the victim, as an added incentive to be more careful; and they will spread responsibility across a broader group of financial institutions than those who signed the voluntary code. The maximum amount covered has also been reduced.
But in reality, Britain’s new regulatory approach is a missed opportunity to tackle a rampant new form of crime head-on.
The most fundamental problem is that the police devote shockingly few resources to combating fraud. This is reported by the British Ministry of the Interiorit is now the largest crime category in England and Wales, accounting for 41 percent of the total. And yet only 1 percent of police personnel are involved in fraud. Strangely enough, much of the funding for the meager police work that takes place is funded contributed by the banking sector. Little is done to crack international crime networks because individual thefts are usually small-scale, allowing them to fly under the radar for investigation or cross-border cooperation.
Meanwhile, Britain is an outlier, both in terms of the scale of the problem and the central role banks play in compensating victims. A report published this month by the Social Market Foundation for Santander UK found that British fraud victims were twice as likely to be fully compensated by their bank than those in other leading economies. Of the 28,000 people surveyed, two-thirds of Britons were partially or fully compensated, the highest percentage of the fifteen countries surveyed. (The U.S. ratio is 53 percent; Japan 31 percent; and Germany 28 percent.)
The incidence of UK fraud is higher for a cocktail of reasons: the so-called Faster Payments, which make instant bank transfers easy, the ubiquitous digital communications and the likelihood that international fraudsters speak better English than, say, Portuguese. The relatively easy recovery is the result of Britain’s long-standing culture of consumer protection, but also the pragmatism of the banks, which are keen to restore confidence after the financial crisis and a series of mis-selling scandals.
Other scam intermediaries, on the other hand, get away scot-free. Telecom companies and the technology sector are abdicating responsibility for compensation. Lobby group TechUK has signed a new “fraud charter” but insists it would be “neither proportionate nor effective” to pick up a share of the bill.
Online fraud and consumer demands for compensation are only likely to increase from here, as digitalization and instant payments accelerate, and AI gives scammers another tool. Policymakers and everyone involved in fraud chains must work together on prevention. And the police need to devote serious resources to this pandemic of crime.
But individuals must also take responsibility – by learning about the risks and how to avoid them, by reporting scams, and by accepting at least some losses if they are responsible for incurring them. Jason certainly learned an expensive lesson. After asking his bank for a refund and filing a police report – both to no avail – he has vowed to be hyper-vigilant in the future.
*not their real names
Letters in response to this article:
The regulator puts us at risk of weaker protection against scams / From Rocio Concha, Director of Policy and Advocacy, Which?, London NW1, UK
The missing tools in the fight against online fraud / From Leonor Vereda, consultant and former Financial Crime Compliance Officer, UBS, Basel, Switzerland