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As Valentine’s Day approaches, hearts will melt, but some will inevitably be broken by romance scams. This season of love creates an opportune moment for scammers to prey on individuals feeling lonely or seeking connection. Financial institutions should take this time to warn customers about the heightened risks and encourage vigilance against fraud. In a tale as heart-wrenching as it is cautionary, a French woman named Anne was conned out of nearly $855,000 in a romance scam that lasted over a year. Believing she was communicating with Hollywood star Brad Pitt; Anne was manipulated by scammers who leveraged AI technology to impersonate the actor convincingly. Personalized messages, fabricated photos, and elaborate lies about financial needs made the scam seem credible. Anne’s story, though extreme, highlights the alarming prevalence and sophistication of romance scams in today’s digital age. According to the Federal Trade Commission (FTC), nearly 70,000 Americans reported romance scams in 2022, with losses totaling $1.3 billion—an average of $4,400 per victim. These scams, which play on victims’ emotions, are becoming increasingly common and devastating, targeting individuals of all ages and backgrounds. Financial institutions have a crucial role in protecting their customers from these schemes. The lifecycle of a romance scam Romance scams follow a consistent pattern: Feigned connection: Scammers create fake profiles on social media or dating platforms using attractive photos and minimal personal details. Building trust: Through lavish compliments, romantic conversations, and fabricated sob stories, scammers forge emotional bonds with their targets. Initial financial request: Once trust is established, the scammer asks for small financial favors, often citing emergencies. Escalation: Requests grow larger, with claims of dire situations such as medical emergencies or legal troubles. Disappearance: After draining the victim’s funds, the scammer vanishes, leaving emotional and financial devastation in their wake. Lloyds Banking Group reports that men made up 52% of romance scam victims in 2023, though women lost more on average (£9,083 vs. £5,145). Individuals aged 55-64 were the most susceptible, while those aged 65-74 faced the largest losses, averaging £13,123 per person. Techniques scammers use Romance scammers are experts in manipulation. Common tactics include: Fabricated sob stories: Claims of illness, injury, or imprisonment. Investment opportunities: Offers to “teach” victims about investing. Military or overseas scenarios: Excuses for avoiding in-person meetings. Gift and delivery scams: Requests for money to cover fake customs fees. How financial institutions can help Banks and financial institutions are on the frontlines of combating romance scams. By leveraging technology and adopting proactive measures, they can intercept fraud before it causes irreparable harm. 1. Customer education and awareness Conduct awareness campaigns to educate clients about common scam tactics. Provide tips on recognizing fake profiles and unsolicited requests. Share real-life stories, like Anne’s, to highlight the risks. 2. Advanced data capture solutions Implement systems that gather and analyze real-time customer data, such as IP addresses, browsing history, and device usage patterns. Use behavioral analytics to detect anomalies in customer actions, such as hesitation or rushed transactions, which may indicate stress or coercion. 3. AI and machine learning Utilize AI-driven tools to analyze vast datasets and identify suspicious patterns. Deploy daily adaptive models to keep up with emerging fraud trends. 4. Real-time fraud interception Establish rules and alerts to flag unusual transactions. Intervene with personalized messages before transfers occur, asking “Do you know and trust this person?” Block transactions if fraud is suspected, ensuring customers’ funds are secure. Collaborating for greater impact Financial institutions cannot combat romance scams alone. Partnerships with social media platforms, AI companies, and law enforcement are essential. Social media companies must shut down fake profiles proactively, while regulatory frameworks should enable banks to share information about at-risk customers. Conclusion Romance scams exploit the most vulnerable aspects of human nature: the desire for love and connection. Stories like Anne’s underscore the emotional and financial toll these scams take on victims. However, with robust technological solutions and proactive measures, financial institutions can play a pivotal role in protecting their customers. By staying ahead of fraud trends and educating clients, banks can ensure that the pursuit of love remains a source of joy, not heartbreak. Learn more
As data breaches become an ever-growing threat to businesses, the role of employees in maintaining cybersecurity has never been more critical. Did you know that 82% of data breaches involve the human element1 , such as phishing, stolen credentials, or social engineering tactics? These statistics reveal a direct connection between employee identity theft and business vulnerabilities. In this blog, we’ll explore why protecting your employees’ identities is essential to reducing data breach risk, how employee-focused identity protection programs, and specifically employee identity protection, improve both cybersecurity and employee engagement, and how businesses can implement comprehensive solutions to safeguard sensitive data and enhance overall workforce well-being. The Rising Challenge: Data Breaches and Employee Identity Theft The past few years have seen an exponential rise in data breaches. According to the Identity Theft Resource Center, there were 1,571 data compromises in the first half of 2024, impacting more than 1.1 billion individuals – a 490% increase year over year2. A staggering proportion of these breaches originated from compromised employee credentials or phishing attacks. Explore Experian's Employee Benefits Solutions The Link Between Employee Identity Theft and Cybersecurity Risks Phishing and Social EngineeringPhishing attacks remain one of the top strategies used by cybercriminals. These attacks often target employees by exploiting personal information stolen through identity theft. For example, a cybercriminal who gains access to an employee's compromised email or social accounts can use this information to craft realistic phishing messages, tricking them into divulging sensitive company credentials. Compromised Credentials as Entry PointsCompromised employee credentials were responsible for 16% of breaches and were the costliest attack vector, averaging $4.5 million per breach3. When an employee’s identity is stolen, it can give hackers a direct line to your company’s network, jeopardizing sensitive data and infrastructure. The Cost of DowntimeBeyond the financial impact, data breaches disrupt operations, erode customer trust, and harm your brand. For businesses, the average downtime from a breach can last several weeks – time that could otherwise be spent growing revenue and serving clients. Why Businesses Need to Prioritize Employee Identity Protection Protecting employee identities isn’t just a personal benefit – it’s a strategic business decision. Here are three reasons why identity protection for employees is essential to your cybersecurity strategy: 1. Mitigate Human Risk in Cybersecurity Employee mistakes, often resulting from phishing scams or misuse of credentials, are a leading cause of breaches. By equipping employees with identity protection services, businesses can significantly reduce the likelihood of stolen information being exploited by fraudsters and cybercriminals. 2. Boost Employee Engagement and Financial Wellness Providing identity protection as part of an employee benefits package signals that you value your workforce’s security and well-being. Beyond cybersecurity, offering such protections can enhance employee loyalty, reduce stress, and improve productivity. Employers who pair identity protection with financial wellness tools can empower employees to monitor their credit, secure their finances, and protect against fraud, all of which contribute to a more engaged workforce. 3. Enhance Your Brand Reputation A company’s cybersecurity practices are increasingly scrutinized by customers, stakeholders, and regulators. When you demonstrate that you prioritize not just protecting your business, but also safeguarding your employees’ identities, you position your brand as a leader in security and trustworthiness. Practical Strategies to Protect Employee Identities and Reduce Data Breach Risk How can businesses take actionable steps to mitigate risks and protect their employees? Here are some best practices: Offer Comprehensive Identity Protection Solutions A robust identity protection program should include: Real-time monitoring for identity theft Alerts for suspicious activity on personal accounts Data and device protection to protect personal information and devices from identity theft, hacking and other online threats Fraud resolution services for affected employees Credit monitoring and financial wellness tools Leading providers like Experian offer customizable employee benefits packages that provide proactive identity protection, empowering employees to detect and resolve potential risks before they escalate. Invest in Employee Education and Training Cybersecurity is only as strong as your least-informed employee. Provide regular training sessions and provide resources to help employees recognize phishing scams, understand the importance of password hygiene, and learn how to avoid oversharing personal data online. Implement Multi-Factor Authentication (MFA) MFA adds an extra layer of security, requiring employees to verify their identity using multiple credentials before accessing sensitive systems. This can drastically reduce the risk of compromised credentials being misused. Partner with a Trusted Identity Protection Provider Experian’s suite of employee benefits solutions combines identity protection with financial wellness tools, helping your employees stay secure while also boosting their financial confidence. Only Experian can offer these integrated solutions with unparalleled expertise in both identity protection and credit monitoring. Conclusion: Identity Protection is the Cornerstone of Cybersecurity The rising tide of data breaches means that businesses can no longer afford to overlook the role of employee identity in cybersecurity. By prioritizing identity protection for employees, organizations can reduce the risk of costly breaches and also create a safer, more engaged, and financially secure workforce. Ready to protect your employees and your business? Take the next step toward safeguarding your company’s future. Learn more about Experian’s employee benefits solutions to see how identity protection and financial wellness tools can transform your workplace security and employee engagement. Learn more 1 2024 Experian Data Breach Response Guide 2 Identity Theft Resource Center. H1 2024 Data Breach Analysis 3 2023 IBM Cost of a Data Breach Report
By: Tom Hannagan Part 2 Return on Equity (ROE) ROE is the risk-adjusted profit divided by the equity amount associated with the loan in question. ROE = Risk-adjusted profit Equity amount of the loan There are two large advantages to using ROE. One, you can use it to compare profit performance across asset-based and non-asset-based products. This can’t be done with ROA – if there’s no “A”, you can’t create the ratio. This seems to be a crucial consideration if you are serious about cross-selling non-asset-based products (such as deposits and a long list of non-credit financial services) and if you are serious about being a truly client relationship oriented organization. Second, by using ROE you have the possibility of risk-adjusting the amount of equity used in the denominator of the calculation. Adjusting the equity amount based on risk, in a credible manner, creates risk-adjusted ROE, or what is referred to as risk adjusted return on capital (RAROC). The equity amount applied to the loan represents all of the remaining risk or unexpected loss (UL).instance that we did not account for in the steps that got us to the risk-adjusted profit result. RAROC, or risk-adjusted ROE, is a fully risk-adjusted representation of relative value. This level of risk-based performance measurement also has the advantage of relating pricing and relationship management activities to the bank’scapital management process. So far, we have covered several of the key parts of how risk-based pricing can work. In doing so, we have discussed how the various elements involved in pricing relate to the bank’s books and policies. The loan balance, rate and fee data relates to the banks actual general ledger amounts. The administrative costs are also derived from actual non-interest expenses. The cost of funds is aligned with the policies used in ALSO and in IRR management processes. The cost of credit risk is related to the bank’s credit and provisioning policies. The taxes are the bank’s actual average experience. And, for banks using ROE/RAROC, the equity allocation is related to the bank’s overall risk posture and its capital sufficiency policies. I stated earlier that “Risk-based pricing analysis is a product-level microcosm of risk-based bank performance”. It is that and more. In addition to pricing’s linkage to financial figures and results, risk-based pricing should also be a reflection of the bank’s most critical risk management policies and governance processes.
By: Tom Hannagan Part 1 In my last post about risk-based pricing, we started a discussion of the major elements involved in the risk adjustment of loan pricing. We got down to a risk-adjusted pre-tax profit amount. Not to divert the present discussion too much, but we often use pre-tax performance numbers for entity level comparisons to avoid the vagaries of tax treatments. Some banks are sub-S corporations, while most are C corporations. There are differences in state tax levels and, there may be other tax deferral strategies such as, leasing activity and/or securities adjustments that can affect these after-tax numbers. So, pre-tax data can be very useful. After-tax profit and profitability ratios For internal comparisons across loans, client, lenders and other lines of business; and to better understand how the risk-adjusted profit from a loan or a relationship relate to overall bank performance, we prefer to get to an after-tax profit and profitability ratio. This is also necessary to compare loans or portfolios involving tax-exempt entities to loans with taxable interest income. To do this, we apply the bank’s average effective income tax rate (including federal and state) to the pre-tax result, with the exception of tax exempt loans. This gives us risk-adjusted net income (or profit) at the loan level. By arriving at risk-based profit estimates at the product level, we then have the opportunity to accumulate these for multi-product client relationships, or at lender or market segment levels. Clients can then go on to analyze the profit results in comparison to their distribution of risk ratings and break the risk-adjusted returns down by loan/collateral type, client geography or industry. Some banks have graphical displays of these results. In addition to profit level, and to assist with comparative capability, we continue to one or more profitability ratios. You can divide the profit amount by the average loan balance to get a risk-adjusted return on assets (ROA). ROA = Profit amount Average loan balance This is very helpful for looking at asset product performance and has been used historically by the banking industry for risk-based pricing. Many banks have moved beyond ROA and now focus on return on equity (ROE). For a more comprehensive discussion of ROA and ROE see my post from December 6, 2008. I will continue in my next post about Return on Equity.
Part 2 To continue the discussion from my last post, we also must realize that the small business borrower typically doesn’t wait until we are ready to perform our regularly scheduled risk management review to begin to show problems. While a delinquent payment is a definite sign of a problem with the borrower, the occurrence of a delinquent payment is often simply too late for any type of corrective action and will result in a high rate of loss or transfer to special assets. There are additional pitfalls around the individual risk rating of the small business borrower or the small business loans; but, I won’t discuss those here. Suffice to say, we can agree that the following holds true for portfolio risk management of small business loans: Active portfolio management is a must; Traditional commercial portfolio management techniques are not applicable due to the cost and effectiveness for the typical small business portfolio; and Collection efforts conducted at the time of a delinquency is too late in the process. One last thing, the regulators are starting to place higher demands on financial institutions for the identification and management of risk in the small business portfolio. It is becoming urgent and necessary to take a different approach to monitor that portfolio. Just as we have learned from the consumer approach for originating the loans, we can also learn from the basic techniques used for consumer loan portfolio risk management. We have to rely upon information that is readily available and does not require the involvement of the borrower to provide such information. Basically, this means that we need to gather information (such as updated business scores and behavioral data) from our loan accounting platforms to provide us with an indication of potential problems. We need to do that in an automated fashion. From such information we can begin to monitor: Changes in the business score of the small business borrower; Frequency and severity of delinquencies; Balances maintained on a line of credit; and Changes in deposit balances or activity including overdraft activity. This list is not exhaustive, but it represents a solid body of information that is both readily available and useful in determining the risk present in our small business portfolio. With technology enabling a more automated assessment of these factors, we have laid the groundwork to develop an efficient and effective approach to small business portfolio management. Such an approach provides real- time regular assessment of the portfolio, its overall composition and the necessary components needed to identify the potential problem credits within the portfolio. It is past time to take a new approach toward the proactive portfolio management of our small business loan portfolio retaining the spirit of commercial credit while adapting the techniques of consumer portfolio management to the small business portfolio.