- The same technology that has boosted commerce can also be exploited by criminals.
- Understand the different types of fraud on the rise, and how the increase in co-operation should be a priority for everyone.
The internet and digital technology have massively improved the speed and reach of financial transactions. A small business in one country can sell to customers in another, with the product shipped direct from a warehouse in a third. Unfortunately, the same technology that has boosted commerce can also be exploited by criminals.
Fraudsters can now target almost limitless numbers of potential victims using smartphone messaging apps, for example, and they need only a small proportion to take the bait. And these criminals frequently operate from parts of the world where it is difficult for law enforcement to reach them.
Fortunately, technology can be deployed to tackle these crimes. That’s the subject of a new LSEG Risk Intelligence white paper, Digital Deception: How technology is changing fraud. It describes three growing types of fraud and considers some of the ways that technology can help defeat the fraudsters.
Emerging threats
One emerging technology that criminals are using is artificial intelligence (AI). It can be turned to writing better phishing emails to trick recipients into sharing personal data that can be used for theft. Or it might produce ‘deep-fake’ videos in which a fraudster’s face is altered to create the impression that they are a legitimate bank customer. Tricks like these have already been used to steal millions of dollars from businesses.
Along with new technology, new types of fraud are emerging, too. ‘Pig butchering’ scams became increasingly common during the Covid-19 pandemic. A scammer contacts their victim via a messaging app or online dating platform and begins a relationship. Eventually they present the victim with an investment opportunity, drawing more and more money from them before eventually disappearing. Law enforcement efforts are increasingly directed at pig butchering scams, which have been linked to losses of $1.3 billion in the US alone.
Tackling fraud
Fraudsters are successful not just because of technology, but also because they have a good understanding of their victims. Pig butchering scams, for example, rely on the fact that many people are lonely and want to believe they have forged a deep connection with a stranger.
Other scams focus on those who might be confused by technology, particularly the elderly. According to the charity Age UK, a person over the age of 65 becomes a victim of fraud every 40 seconds. The elderly are also perceived to be a group that has money saved. One US fraudster was able to steal around $35 million, mainly from members of his church, by promising huge returns from a fake investment scheme.
Despite the inventiveness of criminals, financial institutions and businesses can use technology to detect and combat fraud. Daniel Flowe, head of digital identity at LSEG, says: “Fraud is, at its core, a failure to resolve identity.” So, technology to verify identity is crucial. If fraudsters are using AI to defeat some identity checks, then a suite of measures might be necessary.
Other threats could be defeated by better onboarding of new customers. These processes can be tedious, so companies are reluctant to extend them any more than they must, but a well-designed process paired with a speedy screening solution can gather the information needed to deter fraud without frustrating legitimate customers.
Businesses could also look at technology that identifies red flags in customer behaviour and raises the alarm. Tools like these are in use already, such as those requiring a customer to verify that they are making a big credit card purchase. Even so, more use could be made of automation.
Increasing co-operation
Fraud has been around for centuries and will never be eliminated. Fraudsters are using now digital technology such as artificial intelligence to target more people and steal larger amounts of money. The statistics are endless and the reality is one – fraud is on the rise and tackling it should be a priority for everyone.
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