The psychology of fraud in the ME
Almost half of consumers in the region (49.8%) lose trust in a company whose name appears in a fraudulent communication, despite having no actual connection to it.
There is a common perception that humans are to blame for online fraud. However, the root cause for online fraud is technology, because many online service providers have simply not developed authentication methods to meet the needs of the digital age.
According to Deloitte’s 2021 Middle East Fraud Survey report, around half of the 105 regional respondents had witnessed more fraud than the previous year, with 35% attributing it to COVID-19.
In order to delve further into the psychology of fraud, the state of scams in the Middle East ecommerce industry, and the ways in which organizations can foster digital trust, EME had a Q&A with digital trust and identity pioneer Callsign.
Callsign has recently conducted in-depth research into the value of digital trust in the region and how trust in digital services is affected by accessibility, technology, privacy and data, and the incidence of fraud.
EME spoke with Saeed Ahmad, Managing Director for MENA at Callsign, and the following conversation ensued.
1- The psychology of fraud: why are customers so vulnerable to scams?
The internet opens countless opportunities for organizations to offer slick, friction-free services that give customers more control over their lives and their money. But it’s also a prime culprit for the stratospheric rise in the amount of money being lost to fraudsters daily.
As organizations have gotten better at preventing some types of fraud, the fraudsters have found other ways to gain financially. With social engineering, bad actors manipulate victims into unknowingly participating in the scam. There’s a vital psychological aspect to executing the scams, which is why people who feel they wouldn’t be susceptible to being scammed are frequently taken in.
Whilst organizations now deliver warning messages to customers about scams, people typically see these messages when they are in a relaxed or ‘cold’ state. That changes when they believe themselves to be genuinely at risk. In this ‘hot’ state, they’re under stress or panicking and more liable to make an error of judgment. That’s why fraudsters will use every trick to tip their victim over from one state to the other.
2- How prevalent is fraud in the ME in general? Is it most common in the banking sector?
No industry is immune from fraud, with financial gain being the most common motivation.
According to our research, 66% of UAE residents have received messages from fraudsters posing as their bank. Moreover, 44% of UAE consumers claimed to have received more SMS messages from scammers than from their family and friends.
Indeed, banks are always on the front line of digital identification and fraud prevention.
They need robust, effective, and intelligent new ways to tackle the persistent challenge of fraud. And they simultaneously need to avoid the friction that harms experiences and discourages customers.
3- What is being done to fight fraud in the Middle East?
Several governments and regulatory agencies have enacted anti-fraud legislation and enforced stiffer penalties for criminals. Many regional banking and financial agencies, such as the Central Bank of the UAE, focus on training businesses and end-users on best practices and alerting the public to new fraudulent schemes.
Many regional organizations have also adopted a proactive fraud-prevention strategy. According to the Deloitte Middle East Fraud Survey, nearly two-thirds of Middle Eastern companies have completed fraud risk assessments and training.
Organizations in the financial sector are taking aggressive measures and investing in anti-fraud technologies to safeguard their businesses, consumers, and, by extension, their reputations. However, because of changing customer expectations and the desire to improve service, security measures cannot be implemented at the expense of the user experience. As a result, these businesses should strive to provide customers with secure and smooth experiences.
4- How can the ME banking sector fight fraud? With what software, tools, techniques, and education?
Financial institutions need the right technologies to become digital-first. The way they verify and authenticate their users must involve technology that seamlessly integrates into user journeys without causing unnecessary friction.
Using AI to build a picture of normal behavior, technology can identify if a user is at risk and displaying abnormal behavior. For example, hesitation using a mouse might suggest the user is unsure what they are doing. Typing with one hand might suggest they are on the phone – perhaps to a fraudster being coached through warning messages.
Banks can intervene with timely warning messages such as, “are you expecting to pay this bill today?” Or “are you on the phone with your bank?” This jolts the user into rethinking what they are doing, and if the answer is yes to the questions, the bank can intervene and not authorize the payments.
5- Describe the state of scams and fraud in the ME e-commerce industry
Online commerce has seen tremendous growth over the past two years. The UAE’s e-commerce market is forecast to increase 60 percent to more than $8 billion by 2025 from 2021, according to a new report.
However, fraudsters have also moved online, putting retailers on the front line in fighting fraud. Our study revealed that 50% of UAE customers have received a scam message purporting to be from retailers.
The typical response to fighting fraud is introducing more layers such as SMS OTPs to the customer authentication processes to protect consumers and the retailers’ business. But adding unnecessary friction to the shopping experience makes it hard to complete a transaction.
Fraud prevention must be intelligent. The best way forward for merchant businesses involves investing in fraud solutions that provide the appropriate level of passive checks and orchestration abilities and put consumers at the center of the transaction – regardless of the channel or device they’re shopping on. To achieve this, merchants should adopt machine learning (ML) and Artificial Intelligence (AI) capabilities to their full potential.
6- How can organizations foster digital trust with their customers?
About half (49.8%) of consumers in the region lose trust in an organization whose name is used in a scam message regardless of any real association. According to our research, more than a third of customers – 48%, believe that identification is at the root of the fraud problem and that people should confirm their identity when utilizing services.
The solution lies in rethinking how we fight fraud and identify people online. The problem with this strategy is that a fraudster using stolen credentials seems to be a legitimate user accessing accounts or making transactions. Instead, fraud solutions seeking to identify only legitimate users prevent fraud automatically and positively.
Layering behavioral biometrics with threat detection, device, and location data is the most proven approach. Users can be identified with 99.999% accuracy using a simple phone swipe, typing pressure, mouse motions, or device orientations. Organizations eliminate one point of failure in the authentication process and achieve multi-factor authentication with minimal friction.