Maintaining confidence: How Australian banks can improve their approach to scams

Compared with their global counterparts, Australian banks reimburse a much lower proportion of scam payments. The UK Annual Fraud Report 2024 found banks reimbursing 62% of Authorised Push Payment (APP) fraud in 2023, compared with just 2 – 5% in Australia. As scammers become more prolific and sophisticated, Australian banks are under pressure from consumer organisations and the media to do more to protect their customers. Based on international trends, banks may soon also be under statutory orders to do so – a highly expensive proposition. 

In the UK, the Financial Conduct Authority has set minimum standards for reimbursing victims of APP fraud. This new regulation requires payment service providers to split the cost of reimbursement 50:50 between the sending and receiving providers, creating incentives for both parties to better detect and prevent fraud. From October 2024 when the new regulations become effective, reimbursement rates will rise from the current level of around 50% to close to 100%. As a result, fraud reimbursement costs across the UK banking industry are likely to double to more than £1bn.

Australian regulators are now also urging banks to do better as they contemplate regulatory changes aimed at providing greater consumer protection. In April 2023, the ASIC report, Scam prevention, detection and response by the four major banks, highlighted the urgent need for improved strategies and measures. Now is a good time for Australian banks to sharpen their approach to managing fraud and scams, demonstrating to regulators that consumers can be adequately protected without the need for an expensive mandatory reimbursement regime.

Guidance from both international industry best practice and ASIC suggests banks would do well to focus in four areas to better protect their customers: 

1. Governance

Have a clearly defined and agreed strategy: ASIC found that most banks do not have a formally agreed strategy for dealing with fraud and scams. This is a complex problem that needs a coordinated response across different areas of a bank. Every bank needs an effective strategy, regularly re-assessed to deal with the dynamic nature of the problem. 

2. Prevention

Train your employees: Conduct regular, comprehensive training sessions for all bank staff on emerging scam tactics and best practices for fraud prevention. Ensure that employees are updated on the latest scam trends and know how to recognise suspicious behaviours or transactions. Consider using simulation exercises to test employees’ responses and improve their ability to detect and handle fraudulent activities.

Educate your customers: Launch a multi-channel campaign to warn your customers about current scams. Implement measures such as messaging on front pages of bank websites, internet and mobile banking alerts, email comms, text messages and targeted scam awareness messaging. Design targeted awareness campaigns around high-risk periods, such as Black Friday Sales and Christmas, to address the increased likelihood of scams during these times, particularly for vulnerable customers.

Increase friction in the payment journey: Introduce additional verification steps in the payment process to give customers more time to evaluate the legitimacy of their transactions. Consider implementing features like delayed payment confirmation or requiring secondary authentication for high-risk transactions. While increasing friction can help prevent fraud, carefully balance it with user experience to minimise customer frustration.

3. Detection

Enhance security measures: Invest in cutting-edge IT security solutions, including firewalls, encryption technologies, and secure communication protocols to protect against unauthorised access and breaches. Implement multi-factor authentication and other stringent verification processes to enhance account security and reduce the risk of unauthorised transactions.

Transaction monitoring and advanced analytics: Introduce real-time monitoring of customer transactions to identify and halt potentially fraudulent activities, using advanced analytics and machine learning technologies. Deploy real-time transaction monitoring systems that use advanced analytics and machine learning to detect and flag potentially fraudulent activities. Ensure these systems can adapt to new fraud patterns and tactics.

4. Response

Reimburse beyond complaints: Don’t wait for customers to report issues. Actively monitor accounts for signs of fraud and initiate reimbursements proactively when suspicious activity is detected. 

Support your customers: Set up dedicated phone lines and support teams specifically trained to handle scam and fraud cases, ensuring they are equipped to manage distressed customers with empathy and efficiency.

Talk to Baringa about how to strengthen your scams strategy and approach.