How understanding human behaviour is key to effective prevention of APP fraud

Authorised Push Payment (APP) scams are a major source of fraud losses and banks can use insight into human behaviour to reduce these.

The opinions expressed here are those of the authors. They do not necessarily reflect the views or positions of UK Finance or its members.

Fraud is the most common crime in the UK, with Authorised Push Payment (APP) scams being a major contributor, inflicting significant emotional and financial distress on victims, with financial losses close to half a billion pounds in 2022. Although these frauds initiate outside of the financial services ecosystem, banks suffer a direct impact. And with the advent of PSR rules on reimbursement there for increasingly advanced ways to counteract this crime.

As levels of fraud continue to increase, consumers and regulators are expecting banks to find new ways to defend against the risks and get ahead of the criminals. Research has shown the current static warning messages are no longer effective - fraudsters will pre-emptively coach their victim - regulators are now unlikely to see these as sufficient deterrents.

To reduce instances of APP fraud, banks now need to enhance the relevance and effectiveness of warning messages by tailoring them to customers’ susceptibility to scams. Targeted advice based on risk profile and channel, with clear calls to action, are critical elements in strengthening customer understanding. However, for these enhancements to be truly impactful, they must be accompanied by a deep understanding of the psychological factors influencing customers to fall under the spell of fraudsters.

Sophisticated fraudsters exploit moments of vulnerability and stress, establishing authority bias and urgency to deceive victims successfully. These techniques will be exploited further with the advent of GenAI tools that make these approaches even more convincing. Banks, by delving into psychological underpinnings, can develop interventions to effectively disrupt these tactics and break the spell of fraudsters.

From a human behaviour perspective, we see four areas to look at when designing interventions:

  1. Helping customers in high stress situations: Potential victims are often experiencing moments of stress that can make it difficult to engage with complex information. Banks should prioritise clear and empathetic messaging to effectively communicate essential information.
  2. Undermining authority bias: Fraudsters often adopt a position of authority to legitimise their requests. By designing in-the-moment prompts that elicit enough attention to instil doubt, banks can undermine the perceived authority of fraudsters.  
  3. Negating urgency: Injecting urgency is a common tactic of fraudsters, playing on the victim’s desire to resolve the situation as quickly as possible. Interventions need to introduce enough friction to slow down proceedings, prompting customers to pause and critically evaluate the situation. This also needs to be balanced with delivery of a seamless customer experience.
  4. Leveraging loss aversion: Capitalising on the cognitive bias of loss aversion, where the perceived impact of a potential loss is two times greater than a potential gain, can lead customers towards risk-adverse behaviour. Banks should explore incorporating loss aversion strategies in interventions to counteract other cognitive biases at play.  

These insights can be proactively leveraged as a starting point for designing effective interventions. But a broader reliance on research and insight is imperative to effectively mitigate APP fraud. A comprehensive approach that combines tailored messaging with a nuanced understanding of human psychology is key to reducing the distress caused by this fraud, and the financial impact on banks of reimbursement.

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