‘Tis the season for greater fraud awareness

Just as for shoppers, the holidays are a busy season for fraudsters.

Brian Keefe from NICE Actimize joins us to talk about heightened volume and patterns of fraud during the holidays, and what banks can do about it.

A few takeaways from the conversation:

• Scammers are able to kick it up a notch during the holidays to take advantage of the elevated commercial activity and many distractions of the season.
• Many types of fraud this time of year are the same as in other months, though there tends to be more counterfeit products and non-delivery of purchases.
• To try to cut down on fraud incidence, banks and credit unions should be in touch with customers to educate them and remind them of the risks.‎

Interview Transcript

So Brian Keefe, senior pre-sales consultant at NICE Actimize. Welcome to the BAI Banking Strategies podcast.

Terry, thank you very much for having me.

So Brian, we’re in the thick of the holidays now – the many millions of pings from card transactions, they’re making their own merry music for businesses across the country. It’s common knowledge that this is the make-or-break time of year for most retailers, but how important is this time of year to the income statement of the fraud enterprises?

So I think this time of year is crucially important as you said for the consumers as well. They’re spending their well-earned money over the holidays, saving up throughout the year. But on the fraud side with the enterprises and financial institutions, this is as crucial as any for the fact that the fraudsters have many different ways they try to get their schemes through. Could be the holiday season or any other time of the year, crucially important to save face at this crucial time of the high transaction amounts and the variety of other transactions that happen within an institution with the consumers as well.

Do you have any numbers that might help us understand the scope and the scale of fraudulent activity related to the holidays?

Over the holidays in particular, you know that people ramp up spending over the holiday to get that crucial item or the many certain things that people love to have, the kids love to have, or you want to go on a vacation, or… You name it, the numbers are extremely staggering throughout the holiday season. People are going to spend between $1.45 to $1.5 trillion, and over that timeframe, e-commerce itself is expected, with the digital age and people utilizing laptops and other things, to go from 12% to 14% and that means $240 billion to $260 billion in fraud alone. Year after year these figures tend to increase with the frauds or schemes. They tend to have better knowledge of the consumer’s activities and their behaviors. So it’s just astounding, the figures that you can have.

What makes the holiday season different fraud wise from the rest of the year? It seems to me that the fraudsters are at it 24/7 all the time, working every angle, every channel, every geography, anything that they can do to steal a buck. How are they able to turn it up to 11 for the holidays?

The digital age, people are looking to buy things faster, quicker, and they’re not being as smart as they used to be. They’re trying to get that last-minute item at the 11th hour and not really putting it to the mindset of using the due diligence they should, that they did the other 11 months or 10 months out of the year. They’re quick to get that perfect item at the perfect price or the perfect vacation. Then the scams run a variety of different ways, so it’s people not having that due diligence, not paying attention to those red flags. If the offer is too good to be true, it probably is. There’s probably some fraudulent scheme behind it or fraudulent mechanism or mindset. We’re all working and you have very limited time to get those perfect items. The Black Fridays, I know they extend a lot of these particular shopping times to make more money, but that means that the fraudulent individuals have more time to utilize their scheme. So the biggest thing I think is people just don’t pay attention to those red flags as we should in the other 10 or 11 months out of the year.

No doubt trying to find that super-hot toy or game or whatever, it will make some people do crazy things. That sense of desperation is there to be exploited and with virtually everyone in retail mode there are more targets than ever, kind of as you were just saying. In this environment, how much easier is it for fraudsters and scammers to do their criminal thing?

It’s extremely easy. I think, believe it or not… You mentioned people picking up red flags. We love these digital devices we have in our hands. It’s easy for people, these frauds as a social engineer, whether it be a fraudulent website or a phishing expedition, which may lead to theft of personal identification, credit card numbers, you name it, bank accounts. I’ve been subject to it. Thankfully I’d seen the red flags as you probably have as well, Terry. I think just understanding these particular things when you utilize that device, whether it be over the net or in your home network, you need to be aware of these particular things. So I think it’s made it very easy for the fraudsters to change their schemes to match the behavior of the consumers today, and that ultimately, as well as it injures not just the consumers but the financial institutions as well, that back these particular transactions or the platforms maybe that the consumers are working on, be it a Zelle or another proprietary payment platform. I think the fraudsters know well enough. They’re smart, they have knowledge in the game, they understand the behaviors of the consumers at this time of year and that we’re very vulnerable to those particular schemes.

You mentioned a couple of types of fraud that we might be seeing, but what are some of the other ones here that we might see during the holiday season or that we might see more of this time of year compared to say the other 10 or 11 months of the year?

I think people need to be certainly aware of what goes on all year round, but really maybe pay attention to what is only available maybe during the holidays. We had mentioned that hot item, but that hot item may be a counterfeit or a stolen merchandise. That I think is one of the big factors we see today and during the holiday season is counterfeit products where you think you’re getting that Gucci bag at a hot, hot price, but when you get it in the mail – if you get it in the mail, because there are schemes both ways where you may pay for an item off of a website and you end up not getting it but you had already paid for it. Or the other side of the coin is you’ve paid for it – you’ve paid a pretty penny, but maybe not the retail value — and you get it and it’s a counterfeit product. Maybe it’s made in a sweatshop or made overseas, so that way they get duped out of it. The counterfeiter, I think, is a huge piece and we had seen it during major events such as maybe the Super Bowl or other international events where they’re looking to sell merchandise in relation to that event and you end up getting a fraudulent piece of product. It’s not the authentic NHL or NFL gear that you expected. You’re getting a knockoff of it, but you still paid the hefty price for that particular item.

Brian, can you share some specific examples of fraud incidents that might help us better understand maybe how the better actors pull off their thefts?

What we had seen during my investigative experience, you see that they run the gamut. If they’re a very sophisticated fraud ring, it’ll be from the phishing expedition of an email to an individual where they’ll click on it thinking it’s a valid link and it takes them to a nefarious site where they’re providing their PII, whether it be credit card information or God forbid date of birth and other information where now these fraudster can utilize that, pass it on maybe to another ring internationally that will create fake identities. And then that takes it a level further where now the fake identity is being utilized for a variety of nefarious activities, whether it be credit cards, loans, you name it. You’ve seen it in the headlines every day of what happens to these individuals who have their identity stolen. It takes years to recover from that, if you ever do. And the institutions and others are smartening up and understanding what is involved and the risk and how they can help their consumers. But it comes down to consumers assisting the institution. So I think it goes from the phishing emails to the fraudulent websites to the counterfeit dealings of the merchandise, as well as holidays or seasonal scams. So there’s a variety of examples, but I think that is the biggest one, is how layered these fraudulent activities can be. It’s not just one particular fraud. They’re usually layered in one another to really get the biggest bang for their nefarious activity.

Now that we’ve kind of laid out the problem, what should fraud teams at banking institutions be thinking? What should they be doing during the holidays that they might not need to do when the pace of commerce is slower, perhaps. There’s still a week and a half to go of peak shopping so things will get more frenzied from here. What you say now could be news they could use.

I think the institutions and the consumers need to educate themselves where perhaps the institutions need to put out some sort of documentation or education for the consumers. What red flags to look for, to remind us of those red flags and how we can work safer online whether it be a digital media or in person. Because it’s not just a digital problem, you may walk into the store and you may have card skimmers or a variety of other mechanisms that could steal your identity. But I think within the institution itself, they’re as responsible and they need to get educated, whether it be the front-office individuals or those that perform the investigations to really understand and learn these particular patterns over the holiday season – the increase in activity in particular accounts. And that’s where, not just the education of the investigators or the analysts, but you need technology to assist that because the speed of activity today, especially in the digital world, is in the milliseconds if not quicker, where this activity can go through and to have that software that’s got artificial learning and behavioral analytics and machine learning. You need all that to really understand a consumer and their behaviors. So again, it goes from the consumer’s knowledge, maybe with advertising by the institution, to the investigator’s understanding of these patterns, utilizing the technology to help their workflow, and bring the investigations or these alerts to the analysts in the quickest possible time so these things can be averted and attention can be drawn to them.

You bring up a good point there. For banks of credit unions there’s the customer-facing side of fraud prevention and there’s also the behind-the-scenes part, the middle office, the back office, that provide that vital support. Institutions of course don’t have unlimited budgets, they don’t have unlimited people to get things done. So given what you know, where do you think the balance is in allocating those limited resources to have banks protect themselves and to protect their customers?

That’s a great concern. I think it takes the investigators, the analysts and the institution as a whole to truly understand where the money should go, where the resources should go. And I think it’s every institution’s responsibility to utilize and understand perhaps what products they offer and what resources they can utilize to defer the fraudulent activity. Those that are larger that offer a wide variety of products, whether it be digital, credit card, checking, and others, would certainly want to spend a lot of their time utilizing technology and educating the analysts to really get an understanding of the trends maybe that’s happening in their institution, or discussing it in consortiums where people talk about these trends. We want to learn from one another. So I think it’s not just the institution itself, it’s a group effort between the institutions to really understand the trends that are going on so we can learn from them. We can take valuable criticism on the technology side and the investigative side to make everybody’s job better and less friction on the client. Because more friction on a customer is maybe going to drive them to go somewhere else, but at the same time that lack of friction may increase the fraudulent activity. So I think you need the perfect balance between the two, between educating those that don’t handle the investigations, maybe that could help defer that fraud, to those that do handle the actual fraud events and understanding how they can get from the alert through the case and maybe saving the institution some money and reputational risk at the same time.

While we’re on the topic of limited resources, are you seeing any indication in your research or elsewhere that certain types of banking institutions are more vulnerable to fraud attacks based on their size or their location or some other distinguishing feature?

There’s a few factors that may be included in this where if you have institutions, large or small, that may offer a particular product and they don’t have the correct preventative mechanisms in place, I think that’s where you see it. But geographical areas, maybe those with lax laws, would certainly see an increase. But I think a lot of those are getting smarter now with a lot of the new regulations and pressure that’s coming in to really clamp down on fraudulent activity or nefarious activity as a whole. Because nobody wants to be in the limelight, in the news, with their maybe lack regulation or compliance standards. There’s no one main area or reason behind it. I think people are really now getting smarter in bringing in the well-trained analysts and investigators as well as the technology that can complement those skills so they can utilize and find these activities and clamp down on them before they cause much harm or financial damage to the institution.

Brian, we’ve been discussing the heightened activity of the shopping public leading up to the holidays, but should it also be a time of heightened activity for bank fraud teams in terms of learning about customers and transactions and security, stuff that they could then apply and improve for the other 11 months of the year?

That’s a great point you bring up because I think during this conversation we had just talked about the holidays and the velocity of transactions that happen, but I think any institution that has a fraudulent mechanism in place, it needs to be what we consider a seasonless approach. You shouldn’t only concentrate your resources on those high-volume months, those high-volume times. It should be across the board for the fact that behaviors change and you need to understand your consumer’s behaviors throughout the year. You just don’t want to look at it through blinders. You want to get a full understanding, so that’s why we say this seasonless approach or holiday-less approach where you really get a true understanding of your customers so you can get that behavioral mapping. When you see things that are out of the norm within maybe a consumer’s activity, you’re going to pick up on that more than it just being in those two to three month time period where we again see that increase in velocity and activity where the fraud may have happened during the summer months. And we have that fraud fatigue which contributes to it as well because we’re looking at it just from the lens of a three-month period and you’ve already had it, you’ve already looked at it through that lens for the other eight or nine or 10 months. So you need to have a full holistic approach to this risk that your institution faces throughout the year, not just on those high-volume months.

That makes a lot of sense that you would want to have a holiday-less approach to this, right? Fraudsters work all the time, but where we are now here in the midst of the holidays, I think we sum up our conversation by saying ’tis the season to be merry, and at the same time for banks and customers, ’tis the season to be wary. So Brian Keefe from NICE Actimize, many thanks again for joining us on the BAI Banking Strategies podcast.

Terry, thank you very much for having me. I hope everybody has a lovely and happy holiday and fraudless if we can.

And all the best in 2023.

Thank you, Terry.