PYMNTS MonitorEdge May 2024

Senators Press Banks for Better Defenses Against Wire Fraud

The looming specter of wire fraud has spurred lawmakers to press big banks for better defenses against bad actors — and a detailing of the impact the scams have had on consumers.

On Thursday (April 18), in a letter to the CEOs of JPMorgan ChaseBank of AmericaWells Fargo and Citi, Sens. Sherrod Brown, D-Ohio, Chairman of the Senate Committee on Banking, Housing, and Urban Affairs, and Jack Reed, D-R.I., said that the banks should provide more data on wire fraud at their banks and more information about their current anti-fraud policies. 

“Consumers use wire transfers to send large dollar amounts, often to purchase a home or make significant investments, meaning wire fraud is often a life-changing event that can wipe out consumers’ savings or irreparably damage their finances,” the senators wrote.

“Banks have a responsibility to proactively monitor and prevent unauthorized and fraudulently induced transactions,” they continued. “We believe banks should reimburse their customers when they fail to meet these obligations. … With improved fraud prevention and reimbursement practices, consumers would no longer be left on the hook to the tune of billions of dollars annually.”

A Looming Deadline

The letter requests that data be provided by May 2, covering unauthorized and fraudulently induced wire transfers — and whether fraud has increased in the wake of the introduction of mobile/online banking wire transfer access. The senators also requested data on disputes about unauthorized transfers and fraudulently induced transfers and whether the banks were able to stop or reverse fraudulent transfers.

The Federal Trade Commission found that consumers lost $10 billion to fraud last year, estimating that bank transfer fraud was among the costliest of scams. The FTC said that bank transfer/payment scams represented almost half a billion dollars in fraud last year.

PYMNTS Intelligence found late last year that 45% of FIs with assets of more than $5 billion reported seeing increased levels of wire fraud, while nearly 55% said they’d seen increases in Zelle-related fraud.

For banks with up to $5 billion in assets, as many as 35% said they’d seen accelerations in bank account fraud, more than a third had cited gains in wire fraud, and about 36% had seen increases in losses tied to Zelle.

But the data also showed that more than two-thirds of FIs with assets topping $5 billion are using machine learning (ML) and artificial intelligence (AI) technologies to battle these schemes. Advanced ML and AI technologies identify anomalies in authorized user profiles and block bad actors before they reach their targets, resulting in fewer fraud incidents.

Tokenization can help bolster defenses against all manner of fraud, including bank transfer and wire fraud, where account details may be unwittingly shared with bad actors.

That’s done by protecting sensitive data by replacing that data with randomized numbers. Last year, Mastercard joined forces with nine British banks — including Lloyds Bank, NatWest, Monzo and TSB — to fight fraud, leveraging the company’s AI-powered consumer fraud risk solution to spot real-time payment scams and block a payment before money leaves the victims’ accounts.

Also read: Making Sense of Why FIs Are Tokenizing Real-World Assets