There aren’t many things that Britain is truly ‘great’ about these days. Yet there is a part of the rapidly changing fintech economy where the UK is the undisputed global leader.
Unfortunately, this is fraud.
Criminals scammed UK bank customers out of a record £1.3billion in 2021, says The figures published this week by UK Finance.
The UK is experiencing an ‘epidemic of fraud’, the trade body said, warning that ‘collaborative action’ between financial firms, internet giants and telecom companies is the only way for authorities to regain control.
You may not be surprised by these numbers. More 40mn UK adults have been targeted by scammers so far this year, about three-quarters of the population. Spotting questionable messages before clicking on them could be our national sport.
And fraud is proving to be a particular blind spot for the current government. After being defrauded of billions through fraudulent loan applications at the height of the pandemic, the Prime Minister was recently charged from fraud to airbrush crime figures.
Fraud accounted for 39% of all crimes in 2020-21, according to the Office of National Statistics. And it gets worse. Globally, the UK has the worst overall online fraud problem in relation to its size.
Why? An English-speaking population, widespread adoption of online banking, and our faster payment system are the “holy trinity” for organized crime gangs, who can quickly funnel stolen money across international borders. This makes it harder and more resource-intensive for Britain’s myriad crime-fighting agencies to catch up.
As the pandemic has pushed our daily lives even further online, it has become much easier for these tech-savvy criminals to target the weakest link in the chain: human beings.
According to UK Finance, bank customers were tricked into authorizing some £583million in payments in 2021, a whopping 39% increase on the previous year. Yet I fear that the numbers for 2022 will turn out to be even worse if you add the cost of living crisis to the mix.
Emotional manipulation is the main tool for extracting money from scammers; fear and greed are at the top of their playbook. As millions of Britons struggle to keep control of their finances or seek better returns on their cash savings, the opportunities to exploit the desperate are sadly increasing.
In 2021, investment fraud was a major driver of soaring “allowed” payments, accounting for nearly a third of total losses, with the promise of high returns luring potential victims.
UK Finance says scammers are well aware of how pension freedoms have given over-55s access to huge sums of money. Add to that an estimated 13 million “advice gap” of people unable or unwilling to pay for financial advice, and you have a permanent goal.
The average loss per victim of investment fraud last year was over £14,000. These scams usually originate from cold calling, but also involve fake online advertisements promising high returns on bogus investments, cloned websites, social media approaches, and even old-fashioned letters in the mail.
Either way, the “opportunity” is time-limited and victims will be pressured to act quickly or lose. Sometimes victims are persuaded to invest more money after seeing a ‘return’ on their initial investment.
The other huge increase has been identity theft scams. Ironically, these are often based on our fears of falling victim to online scammers.
In 2021, some £137million was lost to scams where criminals posing as bank or police staff convinced customers to transfer money to so-called ‘safe accounts’ », an increase of 51% in one year.
A further £77million was lost to scammers posing as employees of utility companies, HM Revenue & Customs, NHS or other official bodies using the threat of fictitious fines or unpaid debts to extract payments.
You might think you’d be too smart to fall for this, but UK Finance warns that criminals are hunting down their targets, using information gathered from social media profiles, data breaches and previous scams.
It’s true – those fake text messages urging us to sign up for energy assistance programs, withdraw money from our purchases, or pay for missed package deliveries give criminals enough data to gain our trust – then clean us.
To give credit to banks and card companies, the combination of algorithms and ingenuity (like the Banking Protocol Initiative between police and frontline banking staff) means they succeeded in detecting and preventing some £1.4billion of fraud last year.
UK Finance believes the Economic Crimes Bill announced in the Queen’s Speech could also help by giving banks the ability to ‘slow down some faster payments’ if fraud is suspected.
But the way banks treat victims of crime leaves a lot to be desired. Most signed a ‘no-fault’ code in 2019 pledging to reimburse the ‘innocent victims’ of fraud – a judgment some seem unable to deliver.
Of the £583million lost to authorized fraud last year, some £271million – 46% – was refunded to victims under the code.
If your bank turns you down, consumers can complain to the Financial Ombudsman Service, which this week reported a 20% annual increase in such cases.
Currently, the ombudsman overrules banks’ non-reimbursement decisions in around 75% of cases – an unacceptably high number – but the huge backlog of fraud cases means it takes nine months for him to receive complaints.
The Financial Conduct Authority’s “consumer duty” and stronger payments legislation could help in the future. But why should banks be solely responsible for losses due to fraud?
“Major online platforms – search engines, social media and shopping sites – are the gateway to almost all online activity and they should provide a barrier to fraud, not a conduit,” says Katy Worobec, managing director of economic crime at UK Finance.
The upcoming Online Safety Bill will impose a legal obligation on the biggest platforms to police false advertising, but until social media sites are forced to share in the huge cost of compensating victims, I doubt that has a lot of impact.
Other campaign groups, including the Social Market Foundation, make a strong case to reform the fight against fraud and increase the resources of the police.
Yet Mark Shelford, the senior police commissioner for economic and cybercrime, recently told the FT that the most cost-effective way to tackle fraud was through education. He has a point.
I’m not talking about the increasingly hidden messages that banking apps display when you transfer money, but a genuine public awareness campaign like the brilliant FCA PUP recovery ads featuring Arnold Schwarzenegger .
If Arnie can’t stop the crooks, then I don’t know who can. And social media platforms and search engines should be forced to run ads for free.