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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 In several posts we’ve discussed financial risk management, the role of risk-based capital, measuring profitability based on risk characteristics and the need for risk-based loan pricing (credit risk modeling). I thought it might be worthwhile to take one step back and explain what we mean by the term “risk.” “Risk” means unpredictable variability. Reliable predictions of an outcome tend to reduce the risk associated with that outcome. Similarly, low levels of variability also tend to reduce risk. People who are “set in their ways” tend to lead less risky lives than the more adventuresome types. Insurance companies love the former and charge additional premiums to the latter. This is a terrific example of risk-based pricing. Risk goes to both extremes. It is equally impossible to predict who will win a record amount in the lottery (a good outcome) and who will be struck by a meteor (a very bad outcome for the strikee). Both occurrences represent significant outcomes (very high variability from the norm). However, the probability of either event happening to any one of us is infinitesimally small. Therefore, the actual risk is small – not even enough to bother planning for or mitigating. That is why most of us don’t buy meteor strike insurance. It is also why most of us don’t have a private jet on order. Most of us do purchase auto insurance, even in states that do not require it. Auto accidents (outcomes) happen often enough that actuaries can and do make a lot of good predictions as to both the number of such events and their cost impact. In fact, so many companies are good at this that they can and do compete on their prices for taking on our risk. The result is that we can economically mitigate our individual inability to predict a collision by buying car insurance. Financial services involve risk. Banks have many of the same operational risks as other non-financial businesses. They additionally have a lot of credit risk associated with lending money to individuals and businesses. Further, banks are highly leveraged, borrowing funds from depositors and other sources to support their lending activities. Because banks are both collecting interest income and incurring interest expense, they are subject to market, or interest rate, risk. Banks create credit policies and processes to help them manage credit risk. They try to limit the level of risk and predict how much they are incurring so they can reserve some funds to offset losses. To the extent that banks don’t do this well, they are acting like insurance companies without good actuarial support. It results in a practice called “adverse selection” – incorrectly pricing risk and gathering many of the worst (riskiest) customers. Sufficiently good credit risk management practices control and predict most of the bad outcomes most of the time, at least at portfolio levels. Bad outcomes (losses) that are not well-predicted, and therefore mitigated with sufficient loan-loss reserves, will negatively impact the bank’s earnings and capital position. If the losses are large enough, they can wipe out capital and result in the bank’s failure. Market risk is different than credit risk. The bank’s assets are mostly invested in loans and securities (about 90% of average assets). These loans and securities have differing interest rate structures – some are fixed and some are floating. They also have differing maturities. Meanwhile, the bank’s liabilities, deposits and borrowings also have differing maturities and interest rate characteristics. If the bank’s (asset-based) interest income structure is not properly aligned with the (liability-based) interest expense structure, the result is interest rate risk. As market rates change (up or down), the bank’s earning are impacted (positively or negatively) based on the mismatch in its balance sheet structure. The bank can offset market risk by purchasing interest rate swaps or other interest rate derivatives. The impact of insufficient attention to interest rate risk can damage earnings and may, again, negatively affect the bank’s capital position. So, ultimately, the bank’s risk-based capital acts as the last line of defense against the negative impact from, you guessed it, unpredictable variability – or “risk.” That is why equity is considered risk-based capital. Good management, predicting and pricing for all risks leads to safer earnings performance and equity position.
I’m working with many of our clients in reviewing their existing or evolving Red Flags Identity Theft Prevention Programs. While the majority of them appear to be buttoned up from the perspective of identifying covered accounts and applicable Red Flag conditions, as well as establishing detection methodologies, I often still see too much subjectivity in their response and reconciliation procedures. Here are a few reasons why the “response” portion of a strong Red Flags Identity Theft Prevention program needs to employ consistent and objective process, decisioning, and actions: 1. Inconsistent or subjectively varied responses and actions greatly reduce the ability to measure process effectiveness over time. It becomes increasingly difficult for retro-analysis to identify which processes and specific steps in those processes were successful in either positively or negatively reconciling potential fraudulent activity. Subsequently, it clouds any ability to make effective or necessary changes to specific activities that may not be working well. 2. Examiners may focus heavily on the response portion of your program. During operational side by sides, or even written program reviews, the less ambiguity and inconsistency identified or perceived, the better. A quick rule of thumb for any examination: preempt any questions with exhaustive information and clarity. Examiners that don’t need to ask many, or any, questions are happy examiners. 3. Objective and consistent process allows for more manageable staff training. It is much easier to educate your staff around a justified and effective uniform process than around intuitive and haphazard procedures and consumer interactions. It is tough to set expectations with your staff if there are gaping holes in the activities they are expected to execute. 4. Customer experience will certainly be more positive, and less of a worry for managers, as inequity of treatment is removed from the equation. It is better to have each customer progress through similar steps toward authentication than varied ones from the perspective of time, perception, effectiveness, and convenience. Now, certainly, a risk-based approach allows for varied treatment based on that risk. The point here is more toward the need to apply those varied techniques consistently. 5. Social engineering. Fraudsters are pretty good at figuring out if an operational process is open to interpretation and manipulation. They’ll continue to engage in a process with the goal of landing with the right associate who may be following a more easily penetrable fraud detection method. Bottom line: keep the walls around your business the same height throughout. Until next time, best of luck as you continue to develop and improve your Red Flags programs.
The pendulum has definitely swung back in favor of the credit discipline within financial institutions. The free wheeling credit standards of the past have proven once again to be problematic. So, things like cost of credit, credit risk modeling, and scoring models are back in fashion. The trouble that we have created is that, in an effort to promote greater emphasis on the sales role, we centralized the underwriting function. This centralization allowed the sales team to focus on business development and underwriting, on credit. The unintended result, however, is that we removed the urgent need to develop credit professionals. Instead, we pushed for greater efficiencies and productivity in underwriting — further stalling any consideration for the development of the credit professional. Now we find ourselves with more problem credits than we have seen in the past 20 years and the pool of true credit professionals is nearly gone. Once this current environment is corrected, let's be sure to keep balance in mind. Again, soundness, profitability and growth — in that order of priority.