Are banks overburdened with responsibility for money lost to online scams?

A digital bank boss has called for social media companies to share responsibility for losses to consumers duped into transferring money to fraudsters when buying what they think are genuine goods.

Anne Boden, CEO at digital challenger Starling Bank, called for cooperation between different sectors to clamp down on authorised push payment (APP) fraud, also known as bank transfer fraud.

APP occurs when a consumer sends money to buy something, which turns out to be fake and in fact a criminal steals their money. Banks often reimburse customers through the Contingent Reimbursement Model, introduced in May 2019. This sets out when victims who are manipulated into making real-time payments to fraudsters are to be reimbursed and by whom, and banks usually take responsibility.

In a recent blog post, Boden expressed her hope that other sectors will shoulder some responsibility for such scams, particularly social media platforms.

“Banks invest billions of pounds into tackling economic crime, but we cannot stop it on our own,” she wrote.

Boden pointed the finger at social media platforms and telecoms networks that are used in various financial crimes. “Very often, [social media] accounts are used for advertising for ‘money mules’ for the purposes of money laundering, selling stolen identity and credit card data, phishing, bogus investment scams and impersonation fraud,” she said.

But Boden said banks “seem to have become the underwriter of all kinds of fraud that are not really financial fraud at all”.

She added: “If a consumer buys a pair of trainers online from a site advertised on a social media platform that takes their money and runs, this is not financial fraud, it’s purchase fraud.”

Boden said there are no repercussions for the social media platforms on which the fraudsters advertise. “Criminals wouldn’t be allowed to advertise on traditional media with such impunity,” she added. 

“We fully support the Contingent Reimbursement Model code that we signed up to last year to help customers hit by scams. But this kind of scam is not what the code was intended for.”

Boden called for a cross-industry approach and better law enforcement to stop the organised gangs behind these scams because “banks cannot do this on their own”.

Gareth Lodge, analyst at Celent, said social media does “seem to fall through the cracks” of regulation.

“If you had a builder who did a shoddy job, you’d ring trading standards,” he said. “If you bought something from eBay or Amazon, then eBay or Amazon would sort it and refund you.”

Lodge agreed that there should be a cross-industry approach. “While banks have a role to play, especially as a way of catching suspicious activity, they aren’t to blame, or indeed, even directly involved,” he said. “Social media should have a role to play, and there must be a risk to their reputation. I think, though, that it’s not just a role, but collaboration that is the key – tackling fraud is everybody’s business.”

Figures from UK Finance show that 57% of scam cases relate to purchase fraud, with 45% of those cases being for sums below £300.

Last year, UK Finance said these crimes are not just a problem for the banking industry to solve. “Government, regulators and other sectors need to step up and play their part.,” it said. “That includes those organisations not directly involved in the payment, but who may have facilitated the fraud happening – for example, through a data breach, or by carrying fake adverts on their platforms.”

One IT professional in the banking sector fraud is tough to solve as it is hard to stop people falling for scams. "As soon as an avenue is closed, the fraudsters find new methods of attack. I think education and awareness is key to try and help more people be careful," he said. "There comes a point when bank customers have to take responsibility for their own actions but it is hard to know where that line should be drawn."

"This all happened within a generation I think people will gradually learn and be more careful but it could take years."

He said regulators have a difficult journey to balance consumer protection against consumer behaviour. "In terms of social media, I do think it has become the wild west and strong regulatory action needs to be taken against those firms on a number if levels."