As part of our 2023 series into the global impact of online scams, we're looking at the wide-ranging reputational impact they are having on financial institutions (FIs).
In this article, through consumer and industry research, we take a look at how online scams are affecting top-line growth – something we feel is often overlooked in discussions around scams.
The financial impact of online scams
The monetary repercussions are significant, and the figures speak for themselves. Scam victims in Singapore lost $660.7m in 2022, up from $632m in 2021 – a whopping total of over $1bn in the past two years, and in the UK £249.1 million was lost to APP scams in the first half of 2022 alone. Indeed, it’s estimated that APP fraud losses will double across the UK, India, and USA over the next four years to a rate of $5.25bn. For financial institutions there is a lot at risk, from the costs of investigating instances of fraud to the resulting reimbursements. And the problem is only set to grow.
However, as our findings show, the financial impact is only one facet of the damage which APP fraud causes. Reputational damage is a key issue, with many consumers (whether a victim or not) are now losing trust in businesses associated to online scams, and in some cases even changing the service providers they use.
Why (and how) scams impact more than the bottom line
We wanted to investigate the reputational impact of online scams on businesses themselves. We commissioned Forrester Consulting to conduct a survey of senior decision-makers from financial organizations across the globe to understand the concerns and challenges which decision-makers are facing.
We found that 62% of respondents lost 1% to 6% of revenue due to consumer-based scams, and 13% lost more than 11%. When it came to customer acquisition and retention, 75% of respondents said online scams affected their ability to attract new customers, with 74% concerned about the reputational damage they suffered and lost productivity. Most striking of all was that 67% of respondents said it affected their ability to retain customers.
In today’s ever connected world, news travels fast and consumers are all too quick to turn online (23% of victims mention the company on social media and 47% told their friends and family). Often, the direct financial losses from online scams form the basis of most discussions, but the ripple effect looms large and organisatons should be considering the operational and reputational impacts.
Our 2023 Scams Research findings confirm that financial institutions (FIs) should be worried about the impact scams are having on their consumers and their brand. We identified four key new trends in the consumer scams landscape that highlight how scams are impacting top line growth (as well as hitting the bottom line):
- There is a scams language gap between FIs and their consumers
- FIs need to think in the language of their consumers. The lack of a common language in scams terminology runs the risk of isolating consumers who are labelling scams differently to FIs
- Reliance on internal fraud classifications could be impeding effectiveness in scam prevention and education
- FIs need to rethink their fraud strategies to fit the current and future scams landscape
- 44% of FIs told us they find it difficult to measure and understand what is effective in combating scams
- The scams landscape has changed, and investment in fraud and threat detection alone won’t protect consumers from the rise of authorized fraud
- Scam prevention should be segmented by age and channel
- Globally, social media is the top channel where scams occur and this is only set to grow as more young people get online
- Young people are being scammed more than any other age group
- The impact of scams on organizations’ reputations has a direct impact on their revenue growth
- Nearly 1/3 of consumers said they would stop using a bank or company associated with a scam
- 67% of FIs said they faced customer retention challenges after being associated with an online scams
The reputational damage from scams is tangible and significant, having a direct impact on revenue and customer retention rates. And when they are combined with the monetary losses from reimbursement or regulatory fines, the losses stack up.
How to protect your customers from online scams
Fraudsters are clever and constantly adapting their methods, and layered solutions which protect consumers and businesses along every stage of the user journey are needed.
Simply investing in in fraud detection technologies, threat and fraud programs and threat intelligence capabilities is not enough. In a complicated and dynamic fraud landscape, these alone will not protect an organisation and its customers from the threat of scams.
When only looking for threats, organizations are unlikely to identify the subtle signs of when a genuine user is being socially engineered, or if a fraudster is using genuine credentials for account takeover – allowing more scams and fraud to slip through the net.
Callsign’s solutions address this challenge, tackling both authorized and unauthorized fraud at any point in a user’s online journey. With our account takeover and authorized push payment protection, businesses and consumers will be protected across all scam and fraud types.