Editors note: This post is contributed by David Lukić, an information privacy, security and compliance consultant at IDstrong.com
Before Covid-19 hit, U.S. financial services and lending firms had already reported a rise of over 12% over the previous reporting period.
For every dollar that was lost to fraud in this period, the U.S. financial services spent almost $4 in costs. Losses come from transaction fees that firms are still often liable for. There are also a lot of costs around legal fees and investigating what happened in the first place.
Lenders have the highest costs, at $3.90 per dollar lost to fraud.
As you can see, it is sensible for any financial services company and lending firm to spend time and money on their anti-fraud departments in order to avoid identity theft and other fraud, and the associated costs. Getting scammed out of $100,000 means losses of almost half a million dollars to these companies.
What is a Financial Scam?
Financial scams come in so many varieties, scammers can target individuals to gain access to their accounts, or they might attack a company database or other systems to target customers of a financial services company.
Identity fraud, account takeover fraud, and financial scams go hand-in-hand a lot of the time. People who steal customers’ personal details can use these to apply for lending in their name, which can greatly damage their credit score, and leave the financial services company to have to investigate or even take legal action.
Financial scams do come in some other forms, such as ransomware. Some advanced hackers might steal customer data or sensitive information and demand money to release this data.
Hackers are becoming more sophisticated, and scammers will always be persistent. You only have to let your guard down once and you might find yourself in trouble.
Reasons Why Financial Scams in Lending Firms are on the Rise
There are a number of reasons why financial scams are growing. Scammers are getting more sophisticated, and the returns of financial scams can be far higher than in-person crime. Some of the organizations that are carrying out financial fraud are actually quite large and constantly looking to find opportunities. We’re talking about large criminal enterprises, not chancers in their bedrooms.
Covid-19 has had a lot of different effects on the world. It has meant less chances for in-person fraud and crime and some criminals have taken to the internet. Covid-19 has led to a significant increase in fraud. One way this is happening is by fraudsters pretending to offer support or financial schemes that help with Covid, when in fact they are just trying to steal your information.
Many Covid scams pose as financial organizations. Because people don’t know exactly what the repercussions of Covid-19 will be, they may be at risk of falling for them.
As more and more people are having to log into systems online for work or are managing finances remotely, there are more chances of breaches. For financial services, this means employees working remotely. Every computer that is connected to your network remotely can pose a risk. As the world becomes more digital, third-party apps and devices can all provide potential backdoors for hackers.
Warning Signs of Financial Fraud
As an individual, the warning signs of financial fraud often involve your interactions with others. Pushy sales, or websites looking for personal details that they should not require.
In a bigger firm or company, the risks to security often come from cyber attacks, and warning signs can be spotted within company culture. A lot of firms are starting to use mock attacks, for instance sending falsely suspicious emails to their employees and ensuring that they don’t fall for these “scams”. Company culture is key here, as is education. If your employees don’t know much about financial fraud then you will be at much higher risk.
Warning signs in your interactions with others can include people being pushy, and trying to request access to systems, for personal details or even to try and get your employees to download programs that could be malicious.
How Financial Firms Can Fight Financial Fraud and Improve Their Cybersecurity
For individuals, monitoring your credit is a good way to check whether anyone has stolen your information. Some credit monitoring services are able to check whether your details are being used to apply for lending. Financial service companies should encourage their customers to use these systems.
Cybersecurity firms can be employed to share their expertise. These kinds of firms know how to implement security on cloud services and to store data securely. When you are handling customer data, losing it can be catastrophic. Financial firms can even end up facing legal action as a result.
We’ve already mentioned company culture. It’s a good idea to offer regular training to employees, to ensure that everyone involved in a financial organization is doing the right things such as changing passwords regularly.
Fighting fraud isn’t just about protecting yourself, either. If you suspect that criminals are trying to gain access to your systems and data, report it. The police force will be able to help, and this can prevent these criminal operations from hitting other companies and services.
Of course, it helps to have antivirus software. This is not a catch-all though, and malware and other scams can still achieve the goal of stealing data even if precautions are taken.
Data breaches are sadly not uncommon, but they can cause a lot of distress and cost to the companies targeted. It makes far more sense for companies to invest in their security, rather than risk incurring costs and hassle after being targeted. In extreme cases, it can even force a financial firm out of business.
Fraud is probably not going to go away anytime soon. It is a case of preparing yourself, adapting to ensure that the effects are minimal, and that your own affairs are protected even if you are targeted.
David Lukić is an information privacy, security and compliance consultant at IDstrong.com. The passion to make cyber security accessible and interesting has led David to share all the knowledge he has.