Banks are failing to protect customers from scams

Sunday, 10 September 2023

The public believe banks’ payment systems lack critical anti-fraud protections.

There’s a huge gap between public expectations of fraud protection at their banks, and the much weaker protections banks have in place, new public polling shows.

New Zealand has been hit by an unprecedented crime wave of overseas scammers trying to defraud them, with the estimated number of fraud and deception crimes having risen to 510,000 from 288,000 the previous year.

But a poll by Horizon Research reveals how badly the public feels let down by their banks.

Once told of that banks do not even check that payee names and payee account numbers match before allowing electronic payments to be made, just 30% of people felt banks were doing enough to protect their customers, while 43% felt they weren’t doing enough.

However, an overwhelming 83% expected banks to at least check that payee name and account numbers matched before payments were allowed.

And 72% felt that if banks missed “red flags” that should have alerted them that a customer was being defrauded, they should pay compensation to them, Horizon found.

A new scam has already costs Kiwis millions in two weeks, Cert NZ's incident response manager tell you how to avoid becoming a victim. (First published February 2023)

A smaller majority (53%) would accept a short time delay on larger payments of $10,000 or more, if it would give banks time to check whether people were being scammed.

Graeme Colman from Horizon said this was groundbreaking as it was the first time the public’s expectations on bank protections had been sounded since the scam crimewave became “one hell of a big bank robbery”.

Banks are finally coming under political pressure, with MPs on the finance and expenditure select committee last month calling on banks to adopt the stronger protections banks in the United Kingdom have, including matching payee names and account numbers.

It’s a gap that was first recognised as much as a decade ago, but which was allowed to continue, despite banks overseas moving to close it, and banks recognising it in their 2020 payments system modernisation strategy.

“The banks are starting to appreciate that this is required,” said Banking Ombudsman Nicola Sladden.

Fraud victim Borja Ares said banks were “doing very little, but were very good at covering their backs to pretend they were doing something”.

“The UK is way father ahead than we are,” Ares said.

Borja Ares is a victim of the Citibank investment scam, and is calling for action from politicians.

Scam victims are beginning to rebel against the idea that they should hide their losses, or be entirely blamed for them, and calling for political action for a legal duty of care on banks to protect their customers.

Ares said Bank of New Zealand (BNZ) should have recognised several “red flags” that he was being manipulated by criminals into sending them over $300,000 in the Citibank scam.

But Ares said when he told BNZ he was transferring money to invest in Citibank, the bank didn’t stop the payment despite the Citibank scam having been known to it for months.

Ares was heartened by public support for banks to pay compensation to scam victims.

“I would not have expected that. I would have expected the attitude of ‘man up, harden up’,” he said.

Multiple scam victims have complained to Sladden, who told the select committee banks had an obligation to “act with reasonable care and skill”.

As part of this, they must identify and act on any warning signs or indicators of fraudulent activity that they witness, she said.

When people fell victim to “authorised payment” scams, banks did not typically have to reimburse consumers, Sladden said.

Authorised payment scams are scams which involve consumers making payments to bank accounts that they believe are legitimate, but actually belong to scammers.

But the select committee said “if banks have not acted with reasonable care to identify possible indicators of fraud, they may be liable to reimburse consumers”.

Ares said fraud victims had little trust that the Banking Ombudsman would make their banks pay compensation.

They had been in contact with MPs, but gained the impression that politicians did not consider it a “hot” topic compared with things like the cost-of-living crisis.

Ingrid Leary, chairperson of the finance and expenditure select committee, says Australian banks have a voluntary code compensating scam victims, but it only works in Australia, not New Zealand.

MPs on the select committee thought problems would be fixed by voluntary action from banks.

Chairperson Ingrid Leary urged the bank-controlled Bankers’ Association to change its Code of Banking Practice, and to follow UK and Australian banks in setting up a voluntary compensation scheme for fraud victims.

Fraud expert Bronwyn Groot said the Horizon poll should be a wake-up call for banks.

“The Australian anti-fraud initiative questions are not rocket science. They are already in use overseas, but New Zealand doesn’t seem willing to implement them any time soon.”

There are signs New Zealand banks are beginning to take scam protection more seriously.

On August 24, Kiwibank chief executive Steve Jurkovich said the public was right to expect more from banks.

The same day staff from three banks jetted out on a fact-finding trip to the world-leading Singapore scam centre, and the technology heads of the biggest six banks, including Kiwibank and TSB, met to discuss the big security gap in the bank payments system.