Love Bites: Romance Scams Hit Record Heights
Banks strike back with data, AI and advanced analytics
- Written by Thomas French, SAS
The Covid pandemic created ideal conditions for romance scammers. Forced into isolation by lockdowns and longer-term efforts to limit community spread, millions of lonely hearts sought virtual connection – through dating apps, social media, chat rooms, video game forums and more. In the US, online dating services alone attracted 44.2 million users in 2020, a number expected to climb to 53.3 million by 2025.
While millions no doubt found and forged authentic relationships online, a growing number weren’t so lucky. In fact, the Federal Trade Commission (FTC) declared 2020 a record year for romance scam losses, topping $304 million – a 50% leap from 2019.
Sadly, this record was quickly shattered. The FTC’s recently released romance scam statistics reveal a staggering $547 million lost to these scams in 2021. According to the FTC, “That’s more than six times the reported losses in 2017 and a nearly 80% increase compared to 2020.”
Anatomy of a romance scam
My dearest Darling: I want you. I need you. Please wire money . . . XOXOX
In an online romance scam, the fraudster adopts a fake identity to gain the victim’s emotional affinity and trust with the goal of stealing from the victim.
The anonymity of digital engagement enables the fraudster to assume multiple identities at once, from anywhere in the world. They troll popular dating sites like Tinder, Plenty of Fish, and Match.com for victims – but social media has emerged their favorite hunting ground. More than a third of victims who lost money reported their scam started on Facebook or Instagram.
The romance scammer often plays a long game, stretching for weeks or months before the fraudster feigns a crisis to elicit financial help. Common ruses include health emergencies or temporary inability to access their own funds for various reasons.
Love is blind, as they say. Eager to help a loved one in need, the hapless victim complies with the plea for money, wiring funds, sending gift cards or, increasingly, transferring the requested cryptocurrency. Only later, when the promised reimbursement doesn’t come or the repayment check is deemed fraudulent, does the victim connect the dots. The fraudster ultimately disappears, leaving the victim both heartbroken and with a lighter bank balance. The median individual reported loss last year was $2,400, according to the FTC.
On the front lines of thwarting romance scams
For individuals looking for love, the FTC has many tips for avoiding romance scams. Applying this simple formula to online interactions may come too late to prevent a broken heart, but it could certainly save victims the added humiliation of being financially defrauded:
Online Love Interest + Asks for Money = Scam
As an industry, banks and financial services firms are on the front lines identifying and stopping illicit payments of all kinds, and they should strive to do more to unravel romance scams. Indeed, some already have such scams in their anti-fraud crosshairs, as explored in this 2021 conference session.
For those not as far along, here are four things all financial firms should consider to better protect their customers from rampant romance scams:
- Education and awareness programs. It seems basic, but a little awareness can go a long way. Banks are in a unique position to make customers more risk-aware through customer communications and online content, and they shouldn’t miss the opportunity to spotlight romance scam red flags and warning signs. Beyond building externalawareness, banks should invest in employee awareness. Robust internal training in branches and contact centers, for example, can help tellers and customer service agents recognize scams-in-the-making, allowing them to intervene before it’s too late.
- Set reasonable daily/weekly thresholds/limits for money transfers. Be it a wire transfer or a payment app transaction, banks can segment and set thresholds and limits for daily and weekly transactions. Limits can be set as high as $10,000/day for some segments, but most start with $1,000/day, which is adjusted as the account matures. Banks can also set thresholds and limits on the number of transactions per minute/day/ week – a veritable “velocity check” that can help them spot suspicious activity.
- Apply advanced rules to detect unusual behaviors. Today’s banks must have a real-time fraud scoring engine and the automated ability to say “yes” or “no” in real time. What looks risky? For starters, a substantial first payment going to a new payee outside the country may warrant a closer look. Banks should have a process to confirm a new payee’s digital identity. Also, a recent password change followed by payment to a new payee within five days could signal possible account takeover. Institutions can combine simple rules into complex ones to improve detection rates.
- Leverage advanced analytics to boost fraud detection and discovery. In a recent cross-industry fraud technology study by the Association of Certified Fraud Examiners and SAS, 31% of anti-fraud pros from the banking sector reported they currently use AI and machine learning for fraud detection – the highest of any industry group. Advanced analytics are helping banks speed through large amounts of data to quickly discover unusual behaviors that may indicate fraud. Automated prediction of risky transactions can help them stop fraudulent monetary events in progress. Moreover, they can use link analysis to identify relationships between data variables to uncover sophisticated fraud rings.
Winning customers’ hearts and loyalty
Falling prey to a romance scam is a distressing, if not devastating, experience for the victim that can have spillover consequences for the bank. For example, a 2017 study by Carnegie Mellon University revealed that customers were 3% more likely to terminate their banking relationship within six months of a fraud incident, even if fully reimbursed by their bank. Losses larger than $500 and the customer’s perception that the bank was somehow to blame were both factors that increased the likelihood of churn.
Beyond potential customer churn, the inevitable friction posed by any fraud investigation gives financial firms plenty of incentive to better protect their customers against romance scams. After all, happy customers are loyal customers.
Leveraging the data and technology at their disposal, banks and financial firms can help ensure the broken hearts and empty pocketbooks belong to fraudsters, not customers.
About the Author
Thomas French is a Senior Advisor in the Fraud and Security Intelligence Practice at SAS. He has nearly three decades of experience in consumer and commercial bank fraud prevention and detection, customer service, claims and recoveries. His expertise includes enterprise consumer authentication strategies and bank fraud threats across consumer and small business segments, products and channels.
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