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When Jason*, a young executive at a Hong Kong events business, got a recent WhatsApp from Janet*, his friend and colleague, he thought little of it. She was asking him to transfer HK$5,000 (US$641) to pay for equipment for their latest gig. After checking what exactly she needed it for, he logged into his bank account and made the transfer.
But like millions of people around the world, Jason had been duped. Janet’s WhatsApp account had been corrupted when she had clicked on a rogue ID-verification message, and a scammer was impersonating her.
Across the world, billions of dollars are now lost to online payment fraud every year, much of it perpetrated by international organised crime, according to experts, and most of it initiated by WhatsApps, Facebook ads, texts and other digital triggers.
A global hotspot is the UK, where new rules from the Payment Systems Regulator come into force next month obliging banks to compensate scammed customers in many circumstances — something that the largest lenders already do under a voluntary scheme. Of the £1.2bn stolen in the UK in 3mn fraud cases last year, about 40 per cent were the result of this kind of “authorised push payment” scam, according to bank lobby group UK Finance. And more than 60 per cent of those losses were reimbursed.
Some bankers welcome the new rules — they will introduce a new £100 deductible payable by the victim, as an added incentive to be more careful; and they will spread responsibility among a broader range of financial institutions than those that signed up to the voluntary code. The maximum amount covered has also been cut.
In truth, though, Britain’s new regulatory approach is a missed opportunity to deal head-on with a rampant new kind of crime.
The most fundamental problem is that police devote shockingly little resource to tackling fraud. According to the UK Home Office, it is now the single biggest crime category in England and Wales, accounting for 41 per cent of the total. And yet only 1 per cent of the police workforce is assigned to fraud. Bizarrely, much of the funding for the scant policing that does take place is contributed by the banking sector. Little is being done to crack international crime networks because individual thefts are typically small-scale, putting them below the radar for investigation or cross-border collaboration.
Meanwhile, the UK is an outlier both in the scale of the problem and the central role banks play in compensating victims. A report to be published this month by the Social Market Foundation for Santander UK, found British victims of a fraud were twice as likely to be fully compensated by their bank as those in other leading economies. Of 28,000 people surveyed, two-thirds of Britons were partially or fully compensated, the highest proportion of the 15 countries surveyed. (The US ratio is 53 per cent; Japan 31 per cent; and Germany 28 per cent.)
The incidence of UK fraud is higher for a cocktail of reasons: so-called Faster Payments, which make instant bank transfers easy, ubiquitous digital communication and the likelihood that international fraudsters speak better English than they do, say, Portuguese. The relatively easy supply of redress has been a result of Britain’s long-standing consumer protection culture, but also of pragmatism by banks, keen to rebuild trust after the financial crisis and a series of mis-selling scandals.
Other scam intermediaries, by contrast, get off scot free. Telecoms companies and the technology sector shrug off responsibility for compensation. Lobby group TechUK has signed a new “fraud charter”, but insists it would be “neither proportionate nor effective” to pick up a share of the tab.
Online fraud and consumer demands for compensation are only likely to increase from here, as digitisation and instant payments accelerate, and AI gives scammers another tool. Policymakers and all of those connected to fraud chains must work together on prevention. And police must devote serious resources to this pandemic of crime.
But individuals should also bear responsibility — by learning about the risks and how to avoid them, by reporting scams and by accepting at least some losses if they are to blame for incurring them. Jason has certainly learnt an expensive lesson. After seeking a refund from his bank, and reporting the crime to police — both to no avail — he has vowed to be hyper-vigilant in future.
*not their real names