Seniors represent an important customer segment for most banks, constituting a primary source of core funding in an environment where sources of core deposits are scarce. Expanding relationships with this critical market requires developing a differentiated value proposition that does not rely exclusively on premium CD rates. One approach is to install highly effective programs that address an increasingly urgent issue for seniors: financial scams.
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The challenge facing banks is that most, if not all, of these scams involve a willing transaction initiated by the victim. This is fundamentally different than other types of frauds many systems are designed to detect and prevent. Most of the financial scams targeted at the elderly prey on potential vulnerabilities to convince unsuspecting seniors to send money to someone, somewhere, for some bogus reason. And, too often, the victim is forced to absorb the entire loss with little recourse to the financial intermediary that facilitated the transaction.
The dilemma for banks is how to question these types of "willing" transactions without insulting the judgment of their clients, violating their privacy or putting obstacles in the way of legitimate transactions. Navigating this thin line and creating the proper balance between protection and transaction efficiency requires that banks focus resources, systems, training and procedures on specific elements of the most prevalent and pernicious scams being perpetrated today.
Not all scams are created equal, and each has unique characteristics that should be studied thoroughly to develop targeted solutions to protect older customers. There are many types of scams, but according to the FBI, the top producing schemes fall into 5 major categories — investment, tech support, email compromise, confidence and romance, and government impersonation scams.
However, it is not sufficient to just know that these types of frauds exist and have a basic understanding of their structures. Rather, a deeper analysis of the scam components (contact methods, requested payments and amounts, payment destinations, etc.) is required to detect and potentially stop these scams before the transaction is completed.
Most banks have implemented some sort of transaction alerts to notify customers of unusual account activity. Generally, they describe the transaction and instruct the customer to call a designated number if they did not authorize it or do nothing if they did. These generic types of alerts don't work with elder scams because the victim intentionally initiated the transaction. Something stronger is required in the form of a warning. When a potential scam transaction is identified, a personal conversation with a fraud specialist should not be a suggestion, but a requirement. Could this process inconvenience a few customers who initiated legitimate transactions? Sure, but if the conversations are conducted efficiently and professionally, customers will generally appreciate the concern. As the world moves inexorably to a real-time payment environment, these highly targeted warnings will become even more critical.
Banks and consumers report fraud at higher rates than they did before the pandemic, and those cases have continued getting costlier.
While many of these scams have some decidedly low-tech components, they are all supported and powered by highly sophisticated technology. Increasingly, artificial intelligence is being used to make fraudulent communications look and feel far more legitimate and professional. Additionally, many scammers have a deep understanding of bank and payment system capabilities and tailor their methods to circumvent detection algorithms.
Banks must meet these technology challenges head on. Virtually all core banking platforms capture all the data necessary to detect potential fraudulent transactions. The challenge facing most banks, however, is organizing and transforming this data into actionable information that flows seamlessly across all applications, is updated in real time, and is quickly and easily accessible by risk management and customer facing personnel. And AI capabilities are not the exclusive domain of the bad guys. In fact, the role of AI in identifying and preventing many types of fraud, including elder financial scams, is potentially game-changing.
If banks are the first line of defense in fighting the war against elder financial scams, front-line and customer facing employees are the last line. These employees are a critical resource in the fraud management process and need to be equipped to act appropriately and decisively. This means assessing current knowledge levels and developing in-depth training on scam components, targets, techniques and potential warning signs; creating tools that help them communicate with and educate potentially vulnerable customers; and implementing policies that give them the freedom and empowerment to act within broad guidelines.
Effectively combating elder financial scams requires investment of both time and money. Is it worth it? Most current processes and programs meet legal and regulatory requirements and financial liability is generally limited. So, why change? There are many reasons to focus on this issue, but at least two stand out.
The first is that the world is changing, and it is likely that the legal and regulatory environment will change accordingly. As the population continues to age, and scams targeting the elderly population explode further, it is likely that pressure will mount on banks and their regulators to require more proactive efforts by banks to help prevent these scams and/or assume greater financial liability. It is usually better to get out ahead of these trends than play catch-up under the scrutiny of the media, public or regulators.
The second reason is perhaps more important: Doing good is just good business. By responding to an increasingly urgent need of the senior community, these value-added features will allow the bank to achieve competitive differentiation and advantage, expand and retain relationships with current high value customers, acquire new relationships, and ultimately support the bank's brand as a company that not only says it cares about its customers but actually does something to prove it.
