Banking on scam reduction

Published on the 08/05/2024 | Written by Heather Wright

Banking on scam reduction

Anti-scam systems takes shape across A/NZ…

As scam losses bite deep for New Zealanders and Australians, pressure is going on the banks to step up their anti-scam measures – while the banks count the cost of their anti-scam efforts and Kiwi banks call on the government to take ownership of scam prevention.

Australians lost AU$2.7 billion to scammers in 2023, according to Australian Banking Association figures, while it’s estimated that New Zealanders lost nearly NZ$200 million to online scams and fraud during the same period.

“The responsibility for tackling scams sits with everyone – government, industry and consumers”

The pressure is on the banks, as the gatekeepers, to step up to the plate and be more proactive in preventing scam payments. The banks, in turn, say they’re investing heavily in just that.

ASB – owned by Commonwealth Bank of Australia – posted a 12 percent drop in profits in its latest half-year results, something it attributed to rising costs, including tackling fraud, scams and financial crime. Vittoria Shortt, ASB chief executive, says the bank expects to spend almost NZ$100 million this financial year on preventing fraud, scams and financial crime and on cybersecurity, with its team of more than 350 people dedicated to fighting fraud and financial crime.

NAB, which also owns BNZ, also flagged the ongoing issue of scams and fraud in its latest financials, saying in the last half year, it recovered more than AU$60 million in scam losses for its customers. Since September 2021, it has recovered $260 million.

The bank announced earlier this year that it was expanding its payment alert technology to target invoice and romance scams. NAB says on average it’s seeing customers abandon $240,000 worth of payments every day since its real-time payments alerts were introduced to the NAB app and internet banking in March 2023.

But just 13 percent of attempted scam payments in Australia in 2022 were stopped by banks before they took place with an ASIC report noting gaps and inconsistencies in the abilities of banks to detect and stop scam payments.

It’s a similar story in New Zealand where, in February, Minister of Commerce and Consumer Affairs Andrew Bayly published an open letter to the banking industry calling on it to take ‘immediate and concerted action’ to enhance processes and protections to better safeguard Kiwis from scams and fraud.

His letter outlined expectations for the sector, including the implementation of a ‘confirmation of payee’ system, an update to the Code of Banking Practice to provide further measures to help consumers from scams and fraudulent activity, and an investigation into voluntary reimbursement for victims of authorised payments scams.

On the first measure, the confirmation of payee scheme, the New Zealand Banking Association says retail banks are on track for rollout by the end of this year. A preferred provider for the service has been selected, though details haven’t been disclosed yet with contractural arrangements still being finalised.

The ‘confirmation of payee’ system will help people making an online payment from one bank account to another to check whether they’re paying the right account and may help identify payments to scammers, the NZBA says.

Australia too, is working on confirmation of payee services, with financial messaging co-operative Swift, which runs Australia’s National Payments Platform, signed up by Australian Payments Plus to build a system. The Australian Banking Association says $100 million is being invested by banks in the new system.

With 15.4 billion transactions, worth AU$2.5 trillion, occurring every year across the Australian banking sector, the build of the industry-wide system is ‘a major undertaking’ the Australian Banking Association says.

The system will be built and rolled out over 2024 and 2025. (CBA introduced its NameCheck service, using machine learning, last year. It indicates to users whether the account details they’ve entered when making a first time payment match those in the bank’s database. It’s based on the bank’s available payment data, and can’t confirm the name and account are an absolute match.)

Confirmation of payee has been held up as one way of preventing some scams, such as the ‘Hey Mum’ scams asking for urgent transfers of cash, via ‘a friends phone’ after the child has supposedly lost their own phone.

When available, it will compare the name a customer has provided for payment details against the actual name registered against the account number and indicate whether the name matches or not.

Critics of the banks inaction on confirmation of payee services have long argued that by not addressing the issue, banks were making New Zealand an easy target for scammers.

The NZBA says the system required agreement on an account name and number matching solution which could be delivered by all retail banks, and requires banks to build and implement changes to their online banking and mobile app platforms, while complying with privacy laws and banks’ obligations to protect customer confidentiality.

At least one Kiwi-developed payments platform, Dolla, powered by fintech Akahu, offers a confirmation of payee service.

In the UK, where confirmation of payee was adopted by the six major banks in 2020, payment fraud dropped 35 percent in the first year, with fraud values down 10 percent over the same period. The Netherlands has also seen good results from the system, claiming an 81 percent drop in fraudulent domestic bank transfers.

The Banking Code of Practice update has not been prioritised with Bayly noting his displeasure on the matter and warning that if the code isn’t updated within the year, he will consider options for a regulated mandatory code.

“I want to be clear that the responsibility for tackling scams and online fraud sits with everyone – government, industry and consumers,” Bayly says. “However, I consider the banking sector is well placed to take further steps to protect its customers from online fraud and scams. I will be watching your progress closely.”

The NZBA is also working on efforts to combat ‘mule’ accounts used by criminals to move stolen money, and an inquiry into real-time information sharing among organisations affected by scams.

A national anti-scam centre, which currently only involves the banking sector, is also being established.

Last month NZBA chief executive Roger Beaumont called on the government to consider leading scam prevention in New Zealand.

“To truly strengthen New Zealand’s scam defences, everyone in the ecosystem needs to step up – and that includes government, telcos, social media companies and search engines. Banks can’t protect New Zealanders on their own,” Beaumont says.

He says while the banks have gotten the ball rolling with the anti-scam centre by targeting mule bank accounts – with 1500 mule accounts identified between December and April – to take the centre to the next level government support is needed.

That support, initially, would be in the form of operational support from the police and other relevant agencies, along with removal of regulatory barriers which could prevent the centre working effectively, and setting scam prevention expectations for other industries.

Australia’s confirmation of payee plans are part of a ‘Scam-safe Accord’ signed between Australia’s commercial banks, customer owned banks, mutual banks, building societies and credit unions. It also includes more warnings and payment delays to protect customers and the adoption of further technology and controls, such as the use of at least one biometric check for new customers, to help prevent identity fraud. A ‘major’ expansion of intelligence sharing across the sector has also been flagged by the Australian Banking Association.

ABA CEO Anna Bligh says scam-proofing Australia too, will require a collective effort.

“Better protecting Australians from scams can only be achieved if every part of the chain leans in as hard as they can,” Bligh says.

“We need to be hitting scammers from all angles. Banks and telcos have said they will back the government’s mandatory scams code and I strongly encourage the social media platforms to do the same.”

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