Greg Hancell, Head of Product Fraud at AI-based security firm Lynx, explains why there is an emergence of romance scams plaguing the industry, the impact it is having and how financial institutions can tackle this rising threat.
In an age where technology has redefined the landscape of romance, a paradoxical reality has emerged. The very innovations designed to facilitate meaningful connections have also paved the way for a new breed of fraudster seeking to exploit the vulnerabilities of the modern romantic.
Online dating — once a fringe concept — is now mainstream, with a quarter of new flames sparked online. However, this new norm and convenience carries a dark secret – the pervasive threat of romance scams. This is an increasingly common risk that has ensnared 31% of Americans, according to research from McAfee. In the UK the victim count increased by 22% last year alone.
How do romance scammers operate?
Romance scammers create fake identities to forge emotional bonds with their victims through social media and dating apps. They employ tactics such as fake photos, fabricated stories, and showering targets with affection and excessive attention to cultivate relationships. These fraudsters often dodge in-person meetings or video calls, citing reasons like work commitments or charitable efforts.
Over time, the scammers gain the trust of their victims and begin soliciting money, starting with small amounts and gradually escalating their demands. Requests vary from family emergencies and medical bills to travel expenses to go and “meet” their victim. The scammers exploit the emotional attachment they have cultivated, leaving their victims both emotionally and financially devastated.
The financial impact of romance scams
All too often, romance scams end in substantial financial and emotional losses. Statistics reveal that men are slightly more likely to fall victim to romance scams, comprising 52% of cases in 2023. However, female victims report higher average financial losses, with women falling prey to an average of £9,083 in loss, compared to £5,145 for men.
Lloyds research notes individuals aged 55-64 as the most susceptible group, with those aged 65-74 losing the highest amount of money – an average of £13,123 per victim.
Victims of romance scams, like all fraud victims, are not to blame, but it still often leaves them feeling ashamed and reluctant to seek support. As a result, it’s likely that the true financial impact of romance scams likely far exceeds these figures.
How banks can tackle romance scams
Fraudsters are highly adept at creating highly believable narratives. But banks — equipped with the latest technology — have a moral imperative to proactively identify customers who are falling victim to social engineering.
Despite the complexity and highly evolving nature of romance scams, banks are well-positioned to fight back, thanks to their unparalleled access to data, patterns, expertise, and technologies that can accurately detect and prevent financial losses.
Currently, Authorised Push Payment (APP) Fraud is the primary method used by romance scammers to fraudulently obtain funds from victims. In APP fraud, a victim is tricked into authorising a payment to an account controlled by the scammer. Identifying and blocking these payments in real-time presents a real challenge for banks, as they must monitor and intervene in both outgoing payments from victims and incoming transfers to mule accounts. Failure to do so results in the additional cost of reimbursing undetected APP fraud for both incoming and outgoing transactions.
The new Contingency Reimbursement Model (CRM), effective October 7th, requires banks to reimburse victims for all cases of APPF, with certain exceptions. The reimbursement costs are to be equally shared between the sending and receiving banks.
Unveiling digital deceivers with advanced AI
While banks possess their own internal defence mechanisms, effectively combating the insidious threat of romance scams demands specialised solutions that leverage extensive data resources, advanced analytics capabilities, and cutting-edge artificial intelligence (AI) technologies.
These dedicated platforms analyse a vast tapestry of data points – consumer spending behaviour, uncharacteristic patterns, unusual credits, online fraud scam signals, and a multitude of other indicators – using sophisticated machine learning models. The most advanced among these solutions are Daily Adaptive Models, which shift their behaviour daily to meet emerging threats, preventing data drift and providing financial institutions with a crucial line of defence against the onslaught of romance scams.
To solidify their defences and keep pace with the ever-shifting fraud landscape, banks must explore strategic partnerships with AI companies offering advanced risk detection software. This is intrinsic to staying ahead of the curve and identifying the latest fraud characteristics and confirmed instances.
As online dating becomes more ingrained in the fabric of society, banks find themselves in the vital role of safeguarding the integrity of digital courtship. The synergy between Banks and Daily Adaptive Models are a match made in heaven for combating emerging types of fraud and protecting modern daters from significant financial harm.