Why are we such suckers for financial scams?

Figures for January 2023 from the (Australian Competition and Consumer Commission’s (ACCC) Scamwatch report more than $53 million was lost to scams in that month alone.

“Whatever statistics are ascribed to scamming, it is highly likely they vastly underestimate the real amount of money being lost by Australians.”

Investment frauds were the largest category with those over 65 years of age being the biggest dollar losers and social networking and phone being the most common conduits for the fraudsters.

Whatever statistics are ascribed to scamming, it is highly likely they vastly underestimate the real amount of money being lost by Australians.

One human emotion we have in a situation where we have fallen for a scam is embarrassment, bordering on shame. Hence many frauds go unreported and there is a perception that even if we were to report it to our bank or utility, there is very little that can be done to reimburse the lost money.

Recent research conducted by Visa about the language of fraud revealed people who describe themselves as “very knowledgeable” in recognising scams are more likely than others to respond to, or act upon, at least one type of message commonly used by scammers.

Financial fraud has a long history: the debasement of gold coins by using less of that precious metal in the coin, the printing of counterfeit bank notes and the manufacturing of bogus payment cards are just some examples.

Scamming also has been around for a long time – which means there is a lot of cumulative knowledge that has been passed onto the new generation of scammers. These tried and tested techniques and personas have been given a new life through the internet which has both vastly increased the number of potential targets and generated a seemingly bottomless well of personal information that can be utilised by the scammers.

Why do we continue to fall for the scams? Noted psychologist Dr Robert Cialdini has researched the science of influence and there are five principles which scammers use to persuade people to part with their money.

These are:

Reciprocity – the natural tendency to repay others for providing us with something. Scammers use this sort of ‘enforced indebtedness’ to elicit an action from their target. As an example, someone offering an ‘exclusive’ opportunity to invest your money can be perceived as doing you a favour. Studies show when we receive something, we feel obliged to reciprocate.

Authority – people are more likely to believe those they see as authorities or experts. Scammers may pose as authority figures and demand urgent action and people are often afraid to say no to an authority figure. For example, what can appear to be authentic requests for payment transfers from the tax office or from a bank are classic scams!

Scarcity – Scammers will take advantage of our desire for things in short supply by putting a time limit on their offer. Many people will feel they simply cannot miss out on such an opportunity – FOMO, the fear of missing out.

Liking – people are more likely to say yes to someone they like as opposed to a stranger. However even a stranger can be persuasive if they are perceived as being ‘nice’. Hence scammers ‘trawl’ our online data to learn more about us in order to be more ‘personal’ in their approach to us. They use given names, addresses or social ‘friends’, which may make the scammer appear more ‘likeable’.

Consistency – most people value reliability in others and try to be reliable themselves. Thus, when someone makes a choice, they are likely to behave consistently to justify that decision. Scammers can take advantage of this desire to be consistent by initially asking for something small but then asking for more later. As an example, by simply asking people to answer a ‘trivial’ question (How are you today?), this can lead to more personal ones (Who do you bank with?), because then having answered the early question, it would be inconsistent of us not to answer any subsequent questions.

It is unlikely any of these psychological techniques on their own would be enough to persuade anyone to fall for the scammer’s ‘pitch’ but in combination they can be difficult to resist.

One thing we have to learn to accept is scammers already have access to some of our personal information. It can be bought on the ‘dark web’, possibly by having been hacked from a provider of goods and services to us. Scammers may attempt to establish authenticity and authority with their targets by using this personal information that they have already obtained.

Further knowledge can be gleaned from the activities of fraudsters overseas and the regulatory responses. In the USA, fraudsters have begun to ‘industrialise’ what has been called ‘returns abuse’. Here professional fraudsters offer their services to online customers to carry out returns abuse quickly, efficiently and at scale.

The method is very simple – the online customer orders and receives an item; the fraudster then contacts the merchant to claim a refund because the item has not arrived or has arrived damaged; the customer keeps the item and the refund and pays the fraudster 5-20 per cent of the value of the item.

If the merchant’s policy is the item has to be returned, there are ways around this. For example, an envelope/box can be sent with the correct weight in dry ice, which will have evaporated by the time the envelope/box reaches the merchant, leaving it looking like the returned merchandise was stolen in transit.

To add insult to injury, many Item-Not-Received return abusers are double dipping by submitting a request for a refund from the merchant and at the same time issuing a chargeback request through their bank.

This highlights that payments systems were not initially designed for the complexity and intricacy of digital commerce. And that fraudsters are very smart and capable of scaling up their scams as and when they can!

Regulators have also begun to take an interest in financial scams, the increase of which threatens to undermine trust in the financial systems. In the UK, the consumer campaign group Which? has long argued banks need incentives to mitigate the risk for fraud through money transfers, which their customers have authorised, but are subsequently paid into fraudsters accounts.

As a result of this campaign, in August 2019 the Payments System Regulator (PSR) directed the six major UK banking groups to implement Confirmation of Payee which checks whether the name people entered when setting up a payment, matches the other account details of that payment.

This is just one, targeted approach. The challenge is the scam universe is constantly expanding. In Australia at the moment a particularly effective scam involves ‘spoofing’ where fraudsters call or message from a legitimate, often bank, number.

Obviously this is a step up in deception – and again it relies on those five principles inherent in our human nature.

Professor Steve Worthington, Swinburne University