Romance scams. Puppy scams. Peer-to-peer (P2P) fraud.
Like COVID-19 variants, the fraudsters and the scammers’ schemes continue to morph and mutate, shifting to fit the digital age.
We don’t always double-check to make sure that the person on the other end of the transaction is legitimate before we click the button to send payment, and then the bad actors disappear without a trace.
Making the Distinction
He noted that it’s important to make the distinction between scams and fraud — terms that are, quite often, conflated. Generally speaking, fraud happens when someone hacks into a consumer’s account in an effort to steal money or personal information. Scams differ a bit from fraud in that they seek to incentivize a consumer to willingly send money to someone who is promising a good or service in return for those funds.
“In that case, the consumer is actually authorizing a payment,” Davey said.
The distinction boils down to the fact that when fraud happens, the victim might not be aware of it — that there may have been a technology failure or some other event that has been beyond their control.
Financial institutions (FIs) are keenly focused on fraud — and in many cases (and with P2P services such as Zelle), will make strides to reimburse the victim, he said. But when there is a scam, reimbursement is a bit murkier, given the fact that the payment has been given the official go-ahead by the account holder.
“Scammers have been around since well before telemarketing, frankly,” Davey said.
The scams themselves have shifted to adapt to the digital age, where faster payments and different mechanisms have taken root to get people to engage online.
To foil the scams, it’s imperative to have some education in place, he said.
“As payments get faster and faster, the educational component [of scam prevention] can be combined with an ‘intelligent’ product experience,” he said.
That means intercepting transactions and engaging the individual with prompts that slow activity just a bit to make sure that payments (or data transmission) are being sent to the correct party.
Volumes Are Increasing
The prompt is proactively in place to meet Zelle’s growth with transaction volumes increasing year over year by 49% and payment values increasing by 59%. As for the mechanics of the prompt, they can be as simple as re-confirming that the recipient’s name, phone number and email address are all correct, and asking the sender to sign off on the transaction again.
“This is a form of healthy friction,” said Davey.
He told PYMNTS that a consortium approach to fraud and scam prevention — such as is fostered by Early Warning —also provides an additional line of defense and consumer protection through continuous monitoring, chiefly by seeking to remove bad actors from the network. As a result of their efforts, the Zelle Network has consistently declined fraud and scams by 8% basis points year over year.
As Davey noted, there’s strength in collaboration.
“Financial institutions that are standing on their own only have purview to their own consumers or customers,” he said. “But we can look across all of these FIs and find where the scammers and fraudsters are trying to ply their trade across many institutions; we can identify these bad actors and take action quickly.”