In January of 2024, an employee at a Hong Kong-based firm unwittingly sent $25 million to fraudsters after being instructed to do so by her chief financial officer on a video call that also included other colleagues. It turned out, however, that her colleagues weren’t really on the call. Fraudsters had created a deepfake that replicated their likenesses to trick her into sending the money.1
The Frightening Rise in Authorized Fraud
In the banking space, fraud is categorized into two primary types: unauthorized fraud and authorized fraud. Understanding the distinction between these is crucial for both consumers and financial institutions in managing risks and responsibilities.
Unauthorized Fraud occurs when a transaction is made without the account holder's consent or knowledge. This typically involves a third party gaining illicit access to an individual's account through methods such as hacking, phishing, or identity theft. For example, if a fraudster obtains a customer’s bank account details and initiates a payment without their permission, this constitutes unauthorized fraud. Two of the most prevalent forms of unauthorized fraud are Synthetic Identity Fraud, where fraudsters create fictitious identities by combining real and fabricated information, and Account Takeover (ATO), where fraudsters gain access to a customer’s account through a method such as phishing in order to steal that individual’s identity.
Authorized Fraud, also known as authorized push payment (APP) fraud, on the other hand, involves transactions where the account holder knowingly initiates the payment, but is deceived into doing so by a fraudster. The rise of push payments, also known as “fast payments” or “real-time payments”-- thanks to the prevalence of online and mobile banking – has made this form of fraud the tactic of choice for bad actors. Why? Once a fast payment transaction is completed, with the funds reaching the recipient, the transaction cannot be reversed and the funds, irretrievable.
Evolving Tactics of Fraudsters and the Irony of the Solution
Leveraging AI and ML can enhance a bank’s fraud detection capabilities by analyzing vast amounts of data and identifying patterns indicative of fraud. These technologies enable real-time monitoring and swift response to potential threats. Ironically, they are the same technologies that fraudsters are employing to execute complex schemes with greater precision.
A notable example of fast pay fraud that has recently garnered the industry’s – and the CFPB’s attention – is "pig butchering,” where fraudsters build trust with victims over time, often through social engineering, before defrauding them of substantial sums. These scams have been increasing significantly in number. This is due in large part to AI’s ability to generate deep fake videos and enhance the “reality” of phony websites, as we see in the deepfake video scam that netted fraudsters $25 million. Bad actors can also use generative AI to improve the content of scam communication, such as phishing emails and texts. “Pig butchering” has even prompted the Office of the Inspector General/FDIC to issue this alert:
“The FDIC Office of Inspector General has issued new scam alerts to inform banks and consumers about a common type of scam known as ‘pig butchering.’ It is a type of confidence and investment fraud in which the victim is gradually lured into making increasing monetary contributions.”
Last year, US fraud losses totaled a staggering $12.3 billion, and the emergence of new technologies, as we’re seeing, is playing a significant role in their proliferation. Based on their research, Deloitte anticipates US fraud losses to grow to $40 billion by 2027,2 and it’s likely we will reach that number given the increased sophistication of the attacks.
Steps Community Banks Can Take
Strengthen Fraud Detection and Anti-Money Laundering (AML) Programs: Continue to “fight fire with fire.” AI and ML are still a bank’s best fraud-fighting tech weapons. Leveraging AI and ML can enhance a community bank’s fraud detection ability by analyzing vast amounts of data and identifying anomalous patterns associated with fraudulent activity, such as pig butchering.
Leverage Data Analytics: Utilizing advanced data analytics enables community banks to monitor customer behavior effectively. By establishing baseline behavior patterns, banks can swiftly identify deviations that may suggest fraudulent activity. This proactive approach allows for early detection and prevention of potential scams.
Enhance Cross-Industry Collaboration: Working closely with social media platforms, telecommunications companies, and regulatory bodies can help in identifying and shutting down channels that scammers use to reach potential victims. This collaborative approach ensures a more comprehensive defense against the multifaceted nature of pig butchering scams.
Collaborate Across the Industry: Sharing information about known scammers and emerging fraud trends with other financial institutions enhances the collective defense against pig butchering scams. U.S. law permits banks to share personally identifiable information about suspected fraudsters, facilitating a unified and effective response to these threats.
Enhance Fraud Detection with Dark Web Intelligence: In addition to knowledge sharing, community banks can proactively leverage dark web intelligence to identify compromised financial data before fraud occurs. Solutions like FraudXchange from Finovifi enable banks to detect stolen check data, account numbers, and personally identifiable information (PII) being trafficked in underground markets. With real-time insights into emerging threats, banks can swiftly notify affected customers, close compromised accounts, and prevent fraudulent transactions before they happen. Incorporating dark web monitoring into a bank’s fraud prevention strategy strengthens its ability to combat evolving scams like “pig butchering” and deepfake fraud, ensuring stronger financial security for customers.
Educate Employees: Frontline staff play a vital role in identifying and preventing fraud. Regular training programs can equip employees with the knowledge to recognize red flags associated with pig butchering scams, such as customers making unexpected large investments or frequent transfers to unfamiliar accounts. Empowered with this awareness, employees can take appropriate actions to protect customers.
Educate Customers: Raising customer awareness is a critical preventive measure. Banks can provide resources and information about the nature of scams, common tactics used by fraudsters, and protective steps customers can take. Encouraging vigilance and skepticism toward unsolicited investment opportunities – through messaging and workshops, for example, can significantly reduce the likelihood of customers falling victim to such scams.
Here’s where Bank Marketing Center can help – with its intuitive content library that empowers bank marketers to swiftly create and deploy "scam awareness" campaigns across their social media platforms. Designed specifically for the banking industry, the platform provides a wide range of customizable templates tailored to fraud prevention and customer education. Marketers can effortlessly incorporate their institution's logo, brand colors, and imagery, ensuring consistency with their brand identity. The user-friendly interface allows for quick edits and personalization, with an efficiency that can be critical when alerting customers to emerging scams or promoting in-branch educational workshops focused on fraud.
By implementing these strategies, community banks can enhance their resilience against fraud, protect their customers, and maintain the trust of the communities they serve.
Bank Marketing Center
We’re Bank Marketing Center, the leading, subscription-based provider of automated marketing services to community banks. Our goal is to help bank marketers with topical, compelling communication with customers that builds trust, relationships, and revenue. And we do this through automating critical bank marketing functions, such as content creation, social media management and digital asset management, as well as regulatory and brand compliance.
We also want to share what we know – and learn along the way – with all our community banking friends. Whether it’s the latest on AI technology, suggestions on how to attract and retain top talent, or the importance of data protection, we’re here to make bank marketing the best that it can be.
Want to learn more about what we can do for your community bank and your marketing efforts? You can start by visiting bankmarketingcenter.com. Then, feel free to contact me directly by phone at 678-528-6688 or via email at nreynolds@bankmarketingcenter.com. As always, I welcome your thoughts.
1Heather Chen and Kathleen Magramo, “Finance worker pays out $25 million after video call with deepfake ‘chief financial officer,” CNN, February 4, 2024.
2Deloitte.”Generative AI is expected to magnify the risk of deepfakes and other fraud in banking.” May 29, 2024.