Fraud Risk 101: Educating and Protecting Customers from Scams 

Thursday, June 15, 2023  |   Alexandra Romjue, Senior Data Analyst

As consumers continue to face economic uneasiness, financial institutions have an opportunity to be a trusted partner by providing financial education and solutions that help ease this uncertainty and reduce consumers’ risk of falling victim to a financial scam. Financial insecurity was evident in a recent Raddon survey of younger Millennials and Gen Z consumers, with 53% of respondents indicating they have trouble making financial ends meet on a monthly basis. More than three out of four (77%) of these younger Americans also worry about how they will be able to pay for things in the future. Financial concerns extend to older consumers as well, with nearly one-half (47%) of Gen X and one-third (32%) of Baby Boomers, in another recent survey from Raddon Research Insights, feeling as if they are not financially prepared for retirement.

One peril of this financial insecurity is that research suggests it may increase the likelihood of individuals falling victim to a financial scam. This same research also found that individuals who feel financially insecure are more likely to lose money in an actual fraud scenario. Some of the differences separating victims and non-victims include having prior knowledge of the fraud, and third-party intervention such as an astute cashier or bank teller serving as a last line of defense. Financial institutions can and should play a key role in both of these areas: education and prevention.

Fraud risks are higher than ever in the year 2023. Today’s technological and scientific advancements allow us to browse millions of websites on the Internet, FaceTime over thousands of miles, transfer money in minutes over our smart phones, and much more. While these advancements and convenient solutions have made many lives easier, especially in such a fast-paced world, it has also come with many opportunities to be a victim of a scam.

Just how often do consumers fall victim to fraud and scams? The numbers are unfortunately staggering. According to a study done by the Federal Trade Commission (FTC), around $8.8 billion was reported lost to scams in 2022. Fraudsters employ a variety of scams to deceive their victims, the most frequently used being investment, imposter, and sweetheart scams. Let's break down these categories and discuss how you as financial experts, can help educate your customers on how to avoid falling victim to these popular scams.

Figure 1: Popular Scams Reported by the FTC

Funds Lost (in Billions) to Fraud Increase by More Than 30% From 2021 to 2022

Source: Federal Trade Commission, 2022

Investment Scam: According to the FTC, in 2022 the highest amount of money reported to be lost were due to investment scams with losses greater than $3.8 billion. Investment scams are when someone attempts to trick the victim into “investing” funds into areas such as stocks, bonds, real estate, cryptocurrency, and more. These scammers will sometimes go as far as to lie and use information from real investment firms.

Imposter Scam: The next highest amount on the list, according to the FTC, with a whopping $2.6 billion in reported losses came from imposter scams. Many of you are likely familiar with these scams where someone calls a person claiming to be someone of importance with an urgent issue which can only be "resolved" if they provide personal and financial information. Instead, the information is used to gain access to untraceable funds (gift cards) or to steal their identify. For example, have you had a customer tell you that their local internet company called and that they were told to buy gift cards and give the caller the serial numbers? Have you ever had a customer call into your institution and state that the IRS personally called them and needs all their banking account information including online logins? These are just a few examples of imposter scams.

Sweetheart/Romance Scam: While terms like “sweetheart” and “romance” may seem like sweet “nothings,” this scam is definitely “something,” and not in a good way! Online dating has been all the rage over the last decade and when you make a connection with someone it’s common for the communication to be via phone or online. Imagine meeting someone online, becoming comfortable with them, and then being asked for money or banking information. This is something that occurs when someone creates a fake identity online and cultivates a safe space for their victim to trust them with their money or personal information. In 2022, the FTC reported that over 77,000 people reported a romance scam which led to losses of $1.3 billion.

What Education is Needed for Employees?

Before educating your customers on scams to be aware of, it’s important to train and educate your employees. When talking with customers, it’s crucial that your employees are aware of verbal cues that could identify if their customer may be a victim of a scam. Here are some training points to go over if their customer:

  • Mentions an ad, commercial, or an infomercial that led them to believe they could make a lot of money in return for an investment
  • Wants to wire or send items to a love interest they have never met in person—usually out of the country
  • Wants to withdraw a large sum of money to invest with someone they just met to get a large ROI, usually with crypto
  • Wants to transfer a large sum of money where the funds need to flow through multiple banks throughout multiple countries

How Can You Educate Your Customers?

  • Make sure your customers are aware of the possibility of being scammed
  • Consider providing examples and education at the point of potential risks, such as within mobile banking when the customer initiates a P2P transfer to a new contact
  • Help customers research the investment or advertisement opportunity
  • Ask non-probing questions about their investment opportunity, where they are sending money, and how they got the information

Key Takeaways:

Anyone can fall victim to fraud. Unfortunately, it’s a lot more common than many realize. It’s important to:

  • Stay alert to customers’ needs, requests, and stories
  • Share popular and relevant scams with your employees and equip them with the proper training so they can help their customers
  • Empower employees to be able to spot when a customer is potentially a victim of fraud and provide employees with the necessary information where they can direct questions or escalate the situation

Financial institutions have a responsibility to not only educate employees, but also be the trusted advisors your customers need. Be sure to stay aware, stay up-to-date, and stay informed!

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