Financial scams targeting Seniors are exploding, with both the number of victims and dollar amount of losses doubling over the last 4 years. FBI statistics peg the dollar loss at $3.4B in 2023, but most experts caution that this is just a fraction of the actual losses due to the reluctance of many seniors to report the scams to any sort of law enforcement agency or to their financial institution. The primary reason for not reporting is embarrassment. After all, we seniors want to be perceived as responsible, financially savvy, and independent, not vulnerable. Yet, age is relentless, and scammers have developed sophisticated tools and techniques to exploit potential weaknesses. The question is, have banks done enough to protect their elderly customers or could (or should) they do more?
Banks and other financial institutions are the first line of defense in the war against elder financial abuse. After all, these scams involve money, and the origin of that money is most often a bank account or credit card. Consequently, most experts agree that if you want to stop a scam you need to stop it at the source. And, although reliable statistics are not available, we can be assured that banks win far more battles than they lose. Yet the losses keep mounting and accelerating exponentially, indicating to many that much more can and should be done.
Most banks and other financial institutions have done a pretty good job on the basics – identifying many forms of suspicious activity, issuing alerts, and providing some form of education to both customers and staff. However, while these actions are necessary, they are not sufficient to counter the increasingly sophisticated schemes that fraudsters have devised to circumvent bank detection and mitigation systems and procedures.
The biggest challenge facing banks trying to disrupt elder financial scams is that most, if not all, of these scams involve a willing transaction initiated by the victim. This is fundamentally different than the other types of frauds many systems are designed to detect and prevent. Account takeovers, identity theft, and other forms of “traditional” frauds are generally well-understood and, importantly, carry some form of legal protection for the victim that helps to mitigate the financial pain. Not so with many of the scams targeting seniors. Most of these prey on potential vulnerabilities such as unfamiliarity with technology, financial insecurity, family responsibility, and loneliness to convince unsuspecting seniors to send money to someone, somewhere, for some bogus reason. And, too often, the victim is forced to absorb the entire loss with little recourse to the financial intermediary that facilitated the transaction. In many cases, the bank will express sympathy or empathy but not assume any liability.
The dilemma for banks is how to question these types of “willing” transactions without insulting the judgement of their clients, violating their privacy, or putting obstacles in the way of legitimate transactions. Navigating this thin line and creating the proper balance between protection and transaction facilitation requires that banks focus resources, systems, training, and procedures on specific elements of the most prevalent and pernicious scams being perpetrated today.
Know Your Scams
Not all scams are created equal, and each has unique characteristics that should be studied and understood in order to develop targeted and unique solutions to protect older customers. There are many types of scams, and variations on these scams, but according to the FBI, the top producing schemes fall into 5 major categories.
Source: 2023 FBI ic3 Report
While tech support scams account for the largest number of reported scams for people over 60, investment scams (many involving cryptocurrency) produce the largest total and average dollar monetary loss.
However, it is not sufficient to just know that these types of frauds exist and have a basic understanding of the structure of the scam. Rather, a deeper analysis of all the scam components is required to build systems, processes, and procedures that can detect and potentially stop these scams before the transaction is completed. Consequently, it is critical to answer a few specific questions on each type of major scam such as: How is initial contact made? What messaging is used? What payment methods and amounts are usually requested? What instructions are given on payment structure? Where do the payments generally go? For example, investment schemes often involve high dollar transactions through some sort of cryptocurrency exchange. As a result, putting systems filters in place that flag these types of transactions (especially with customers over a certain age who do not usually send funds to purchase cryptocurrencies) and trigger appropriate customer communication and follow-up can help to not only identify potential, fraud, but stop it. Understanding each type of fraud at a granular level can provide a roadmap to create effective system capabilities, policies, processes, and procedures tailored to the components of specific scams. This knowledge base also helps to create training and other employee tools that will allow front-line staff to have confident and informed conversations with potentially vulnerable customers.
Don’t Alert, Warn
Once potential telltale signs of each type of scam have been identified, it is necessary to create highly effective customer communication frameworks and processes. Most, if not all, banks have implemented some sort of transaction alerts to notify customers of unusual account activity. Generally, they describe the transaction and instruct the customer to call a designated number if they did not authorize it. These alerts usually end with a sentence along the lines of “If you did authorize this transaction, you need do nothing.”
These generic types of alerts don’t work to prevent elder scams because the victim did willingly and intentionally initiate the transaction. Something stronger is required in the form of a warning. When a potential scam transaction is identified, a personal conversation with a real human being should not be a suggestion, but a requirement. The warning should state that the transaction in question is often associated with a financial fraud and before it can be completed it is necessary to call our Fraud Prevention Hotline and talk to one of our Fraud Prevention Specialists. These units need to be accessible immediately (no menus, no wait times, no hold music, no transfers), have access to real time customer and account information, and be staffed with specialists who are highly trained on the characteristics of a broad array of scams and armed with the tools necessary to have informed and often delicate conversations with elderly customers. Could this process inconvenience a few customers who initiated legitimate transactions? Sure, but if the conversations are conducted efficiently and professionally, more often than not customers will appreciate the concern.
Don’t Let Scammers Win the Technology War
Given the nature of many of these scams it is not surprising that some have decidedly low-tech components. However, they are all supported and powered by highly sophisticated technology to identify targets, accumulate personal information, and construct messaging. Increasingly, AI is being used to make fraudulent communications look and feel far more legitimate and professional. Additionally, many scammers have a deep understanding of bank and payment system capabilities and structure funds transfers to take advantage of potential weaknesses. As the move to implementing real-time payment networks expands and the utilization of third-party payment providers increases, fraud exposure will accelerate.
As a result, banks must meet these technology challenges head on. Clearly, virtually all bank technology systems have some sort of fraud management capabilities. Not surprisingly, the largest banks have invested more heavily and many have built proprietary applications that utilize more sophisticated analytical tools to provide extra layers of protection. Smaller Community and Regional banks generally rely on their core providers to supply basic fraud detection and management applications. All of these systems generally capture all the data necessary to detect potential fraudulent transactions. The challenge facing most banks, however, is transforming this data into actionable information that flows seamlessly across all applications, is updated in real time, and is quickly and easily accessible by risk management and customer facing personnel. This challenge is not exclusive to fraud identification and prevention, but it is one that has potentially more severe customer consequences if not addressed.
An emerging area of technology focus is obviously Artificial Intelligence. The role of AI in identifying and preventing many types of fraud, including elder financial abuse, is potentially huge. Many law enforcement officers will tell you the best way to fight a criminal is to be able to understand how they think. Fortunately, most bankers don’t have that skill and can’t get into the heads of scammers who prey on the elderly. Also, many find it hard to understand how seniors get duped by scams that seem so transparent. AI has no such constraints. With the proper coding it will be possible to have AI technology replicate and model the behavior of high intensity scams, identify patterns, and highlight potential points of identification and intervention. Many banks are exploring and deploying AI capabilities to drive sales and marketing activities, provide technology-enabled customer service, or perform specific functions. However, the most righteous use of AI may not be to expand customer relationships, replace staff, or cut costs, but to protect vulnerable customers.
See Something? Do Something!
If banks are the first line of defense in fighting the war against elder financial scams, front line and customer facing employees are the last line. The history of fraud prevention is replete with examples of employees stepping outside of established procedures to protect their customers. These stories of confident, knowledgeable, and empowered employees taking heroic action are inspiring, but they shouldn’t be necessary. Nevertheless, front line employees are a critical resource in the fraud management process and need to be equipped to act appropriately and decisively. This means in-depth training on scam components, targets, techniques, and potential warning signs; tools that help them communicate with and educate potentially vulnerable customers; and policies that give them the freedom and empowerment to act within very broad guidelines.
Sounds Expensive. Why Do It?
Creating an effective and differentiated program to specifically combat elder financial scams requires investment in resources, technology, time, and people. Major steps include performing an objective assessment of current knowledge levels, processes, and capabilities; conducting an in-depth analysis of the components, techniques, and characteristic of high-volume scams; identifying and installing needed technology enhancements; developing new customer communication protocols; and creating highly effective employee and customer educational material. All of this likely takes time and money.
So, is it worth it? After all, most current processes and programs meet legal and regulatory requirements and banks have limited financial liability for losses incurred by customers who make seemingly bad decisions. So, if the financial and regulatory consequences of maintaining the status quo are not significant, why change? One could argue that protecting the bank’s most vulnerable customers is just the right thing to do and in line with a bank’s most critical fiduciary responsibilities. However, if that reason is not good enough, there are at least two additional reasons that should be considered.
The first is that the world is changing, and it is likely that the legal and regulatory environment will change accordingly. The explosion in financial scams targeting the elderly has already received considerable media attention. Stories about seniors losing their life savings abound, often mentioning that banks did little to stop it, were powerless to recover the funds, and assumed no liability for the loss. Often the bank attitude comes across as “We did everything right, so this isn’t our problem”. However, as the population continues to age, and scams explode further it is likely that pressure will mount on banks and their regulators to require more proactive efforts by banks to help prevent these scams and/or assume greater financial liability. We have found that it is usually better to get out ahead of these trends than play catch up under the scrutiny of the media, public, or regulators. And, while the industry trade associations have provided some support, research, and training, it appears that much of their activity is aimed at reducing regulatory oversight and financial liability, rather than proposing common sense solutions. This is not surprising given their charters and constituencies.
The second reason is perhaps more important: doing good is just good business. Seniors represent the most valuable and important customer segment for most banks. They constitute a primary source of core funding in an environment where additional sources of core deposits are scarce. Building comprehensive and effective fraud protection services specifically designed for seniors helps to create a value proposition that doesn’t rely solely on premium CD rates or cliché-filled packaged Seniors programs. By responding to an increasingly urgent need of the Senior community, these value-added features will allow the bank to achieve competitive differentiation and advantage, expand and retain relationships with highly valuable current customers, acquire new customers and their families, and ultimately support the bank’s brand as a company that not only says it cares about its customers, but actually does something to prove it.
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