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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
In my last blog, I talked about the overall need for a vision for your loan portfolio and the similarity of a loan portfolio to that of an investment portfolio. Now that we have that vision in place, we can focus on the overall strategy to achieve that vision. A valuable first step in managing an investment portfolio is to establish a targeted value by a certain time (say, our targeted retirement age). Similarly, it’s important that we establish our vision for the loan portfolio regarding overall diversification, return and risk levels. The next step is to create a strategy to achieve the targeted state. By focusing on the gaps between our current state and the vision state we have created, we can develop an action plan for achieving the future/vision state. I am going to introduce some rather unique ideas here. Consider which of your portfolio segments are overweight? One that comes to mind would be the commercial real estate portfolio. The binge that has taken place over the past five plus years has resulted in an unhealthy concentration of loans in the commercial real estate segment. In this one area alone, we will face the greatest challenge of right-sizing our portfolio mix and achieving the appropriate risk model per our vision. We have to assess our overall credit risk in the portfolios next. For small business and consumer portfolios, this is relatively easy using the various credit scores that are available to assess the current risk. For the larger commercial and industrial portfolios and the commercial real estate portfolios, we must employ some more manual processes to assess risk. Unfortunately, we have to perform appropriate risk assessments (current up-to-date risk assessments) in order to move on to the next stage of this overall process (which is to execute on the strategy). Once we have the dollar amounts of either growth or divestiture in various portfolio segments, we can employ the risk assessment to determine the appropriate execution of either growth or divestiture. Stick with me on this topic because in my next blog we will discuss appropriate risk assessment methodologies and determine appropriate portfolio distributions/segmentations.
By: Tom Hannagan I was hoping someone would ask about this. Return on Equity (ROE) is generally net income divided by equity, while Return on Assets (ROA) is net income divided by average assets. There you have it. The calculations are pretty easy. But, what do they mean? ROA tends to tell us how effectively an organization is taking earnings advantage of its base of assets. This used to be the most popular way of comparing banks to each other — and for banks to monitor their own performance from period to period. Many banks and bank executives still prefer to use ROA…though typically at the smaller banks. ROE tends to tell us how effectively an organization is taking advantage of its base of equity, or capital. This has gained in popularity for several reasons and has become the preferred measure at larger banks. One huge reason for the growing popularity of ROE is, simply, that it is not asset-dependent. ROE can be applied to any line of business or any product. You must have “assets” for ROA, since one cannot divide by zero. This flexibility allows banks with differing asset structures to be compared to each other, or even for banks to be compared to other types of businesses. The asset-independency of ROE also allows a bank to compare internal product line performance to each other. Perhaps most importantly, this permits looking at the comparative profitability of lines of business like deposit services. This would be difficult, if even possible, using ROA. If you are interested in how well a bank is managing its assets, or perhaps its overall size, ROA may be of assistance. Lately, what constitutes a good and valid portrayal of assets has come into question at several of the largest banks. Any measure is only as good as its components. Be sure you have a good measure of asset value, including credit risk adjustments. ROE on the other hand looks at how effectively a bank (or any business) is using shareholders’ equity. Many observers like ROE, since equity represents the owners’ interest in the business. Their equity investment is fully at risk compared to other sources of funds supporting the bank. Shareholders are the last in line if the going gets rough. So, equity capital tends to be the most expensive source of funds, carrying the largest risk premium of all funding options. Its deployment is critical to the success, even the survival, of the bank. Indeed, capital allocation or deployment is the most important executive decision facing the leadership of any organization. If that isn’t enough, ROE is also Warren Buffet’s favorite measure of performance. Finally, there are the risk implications of the two metrics. ROA can be risk-adjusted up to a point. The net income figure can be risk adjusted for mitigated interest rate risk and for expected credit risk that is mitigated by a loan loss provision. The big missing element in even a well risk-adjusted ROA metric is unexpected loss (UL). Unexpected loss, along with any unmitigated expected loss, is covered by capital. Further, aside from the economic capital associated with unexpected loss, there are regulatory capital requirements. This capital is left out of the ROA metric. This is true at the entity level and for any line-of-business performance measures internally. Since ROE uses shareholder equity as its divisor, and the equity is risk-based capital, the result is, more or less, automatically risk-adjusted. In addition to the risk adjustments in its numerator, net income, ROE can use an economic capital amount. The result is a risk-adjusted return on capital, or RAROC. RAROC takes ROE to a fully risk-adjusted metric that can be used at the entity level and that can also be broken down for any and all lines of business within the organization. As discussed in the last post, ROE and RAROC help a bank get to the point where they are more fully “accounting” for risk – or “unpredictable variability”. Sorry about all of the alphabet soup, but there is a natural progression that I’m pointing to that we do see banks working their way through. That progression is being led by the larger banks that need to meet more sophisticated capital reporting requirements, and is being followed by other banks as they get more interested in risk-adjusted monitoring as a performance measurement. The better bank leadership is at measuring risk-adjusted performance, using ROE or RAROC, the better leadership can become at pricing for all risk at the client relationship and product levels.
We get the following question quite a bit: Would the regulators expect to see a log of detected activity and resulting mitigation? Short answer: The Red Flags Rule does not specifically require you to maintain a log, nor do the guidelines suggest that a log should be maintained. However, covered institutions are required to prepare regular reports around the effectiveness of their program. Additionally, there exists the requirement to incorporate an institution’s own experiences with identity theft when reviewing and updating their program. Long answer: Think now about the value of incorporating robust (and, optimally, transaction level) reporting into your program for a few key reasons: 1. Reporting allows you to more easily and comprehensively create and disseminate board-level reports related to program effectiveness. These aren’t a bad thing to show a regulator either. 2. Detailed reporting provides you an opportunity to more accurately monitor your program’s performance with respect to decisioning strategies, false positives, false negatives, fraud detection and prevention rates, resultant losses and legitimate costs. 3. The more historic detail you have compiled, the easier it will be to make educated, analytically based, and quantifiable updates to your program over time. Without this, you may be living and dying with anecdotal decision making….never good. 4. Finally, maintaining program performance data will afford you the ability to work with other service providers in validating their capabilities against known transactional or account level outcomes. We, at Experian, certainly find this useful in working with our clients to deliver optimal strategies. Thanks as always.