Unpicking the anatomy of a crypto scam

Scams are the alternative pandemic

In order to be successful, Authorised Push Payment (APP) scams must constantly morph to reflect current consumer and industry motivations. Consequently, there is one scam that is gaining a disproportionately large amount of momentum - the crypto scam.

The hook of crypto

Public interest in crypto currencies has risen rapidly in recent times. This has been underpinned by a gain in market share, which has increased both its credibility and its media coverage.

Its popularity is fuelled by the potential it can give to make fast and sizeable gains from crypto volatility. Despite hefty falls, it has also had moments of exponential growth, attracting those investors keen to accept the risks for potentially huge rewards.

It is this desire to make money quickly, combined with the fear of missing out, that fraudsters use to their advantage.

How do the scams work?

Crypto scam intricacies vary, from fraudsters posing as Elon Musk to the promise of free sign-up bonuses. Detail aside, the macro level convincer will usually fall into one of two categories: the promise of something for free, or the fear of missing out on an opportunity.   

The diagram shows just one example of how a crypto scam might flow:

Crypto scams create three pillars of hurt

  1. The victim - Consequences can be devastating. However, it's not just the stereotypical older consumer falling victim. Data shows that consumers of any age and background can be lured into scams, such is the level of sophistication.
  1. Most UK banks are signed up to the Contingent Reimbursement Model (CRM), which aims to reduce the impact of APP scams. It is designed to give consumers the confidence that if they fall victim, they will be refunded. While positive for the consumer though, it can significantly impact the bank's fraud budget.
  1. The crypto platforms are the mule accounts, and constant receipt of fraudulent funds could result in irreparable reputational damage. Equally, legitimate users of their services do not want to hear news of their platform being used as a vehicle for money laundering.

How do you stop crypto scams?

  • The bank primarily has a responsibility to protect their customers. A layered approach is critical to success and should include leading edge technology adoption, such as a risk-based approach to transaction monitoring, machine learning and digital intelligence, combined with a robust education and awareness strategy.
  • The crypto platforms have obligations too. As they act as the mule, strong account opening controls are needed to ensure they are fully aware of who they are doing business with. Failure to do this while continuing to facilitate large volumes of fraud will result in business restrictions such as those imposed by a number of major banks. Banks do not enjoy blocking payments, but if certain beneficiaries become a hotbed for fraud, they are left with little choice. There is also an opportunity for the crypto firms to follow the banks lead, and start taking advantage of industry tools available, such as Take Five.
  • Finally, the collaboration opportunity for crypto platforms and banks is genuinely exciting and two-way. The chance to think creatively with the unified aim of better protecting UK consumers is an opportunity both sets of institutions can learn from. While exciting though, it should be acknowledged that there are thousands of players in the space, meaning coordination and execution will need robust planning and time to mature.

If you would like to learn more about data driven & AI focused fraud prevention, please visit https://feedzai.com/industries/retail-banks.