Deceiving Customers: Unveiling the Various disguises of Consumer-led Swindling
In the digital age, consumer-engaged fraud has become a significant challenge for both financial institutions and merchants. This type of fraud, which occurs through various communication channels such as emails, texts, social media, and phone calls, is on the rise due to the constant evolution of tactics used by cybercriminals.
Nicole Reyes, the Managing Vice President of Risk Operations at Velera, has acknowledged the complexity of tracking and preventing consumer-engaged fraud. Technology has enabled bad actors to exploit these channels at a greater scale, with billions of phishing emails sent each day. Cybercriminals can tap into personal data users share online and use it against their targets, often hacking into email addresses and sending tailored messages to entice users to click on links.
To combat this issue, it's crucial to define the problem appropriately and establish industry-wide standards for categorizing incidents. Velera has taken a step towards this by creating a consumer-engaged fraud classification guide. This guide aims to streamline the conversation about this issue and classify, tag, and gain insights into the true volume of the problem.
Consumer-engaged fraud breaks down into two classifications: misuse and persuaded. Misuse involves an authorized party knowingly defrauding the system without influence from others. Examples of misuse include a consumer deliberately making a purchase with no plan to pay or falsely claiming fraud to avoid payment. On the other hand, persuaded fraud happens when an authorized party is influenced or tricked by an external actor (a fraudster), as seen in scams where victims are convinced to pay upfront fees or transfer money under false pretenses, like inheritance or romance scams.
Imposter or impersonation scams are a common form of persuaded consumer-engaged fraud, where a fraudster impersonates an employee or a financial institution to convince the consumer to complete an action that would result in a financial loss. Persuaded consumer-engaged fraud includes many variations of scams and phishing schemes.
Suzanne Sando, the Lead Fraud Management Analyst at Javelin Strategy & Research, emphasizes the need for financial institutions to share data across departments and collaborate with industry peers to combat modern data-driven fraud. Organizations must place renewed focus on authentication to ensure the security of consumer engagements across all channels, including email, text message, phone, and online banking.
In the fight against consumer-engaged fraud, understanding the distinction between misuse and persuaded fraud is essential. These distinctions reflect different fraud mechanisms and require different detection and prevention strategies. By addressing this issue head-on, we can work towards a safer digital environment for consumers and businesses alike.
[1] Source: Velera's Consumer-Engaged Fraud Classification Guide [2] Source: Javelin Strategy & Research's 2021 Identity Fraud Study
- To combat consumer-engaged fraud effectively, financial institutions and businesses must employ a combination of industry-wide standards, data sharing, and technology, as suggested by the Consumer-Engaged Fraud Classification Guide from Velera and the 2021 Identity Fraud Study by Javelin Strategy & Research.
- The ongoing battle against consumer-engaged fraud necessitates a clear understanding of the distinction between misuse and persuaded fraud, due to the diverse fraud mechanisms and required detection and prevention strategies for each classification, as noted in Velera's Consumer-Engaged Fraud Classification Guide.
