Recent cases of data breaches, the most high-profile of which were arguably Talk Talk and Ashley Madison, have demonstrated the growing threat of hackers and cyber-attacks, and have understandably made us all the more precious about who we share our details with.
And for online financial services platforms, the problem of easy access to details translates into a significant threat of fraud. After all, with databases available to anyone for very small sums of money, identity theft is a considerable issue – and not only for the lender itself. Indeed, the consumer whose identity is stolen faces a tremendous amount of anxiety in that it can do serious harm to their credit rating.
Technology may be improving in the fight against fraud, but such technological advancements also improve the tools at the disposal of fraudsters – making it difficult to ascertain who has the upper hand. And online lenders in particular are exposed more than others. So, can we trust them?
‘Smishing’ and the case of Santander
Of course, damage to credit rating isn’t the only problem potentially facing victims of identity theft. Sheffield’s Edward Smith recently lost his life savings as a result of a SMS phishing (or ‘smishing’) scam by fraudsters with his bank, Santander. Essentially they managed to hijack a legitimate text message thread between Smith and Santander, where they messaged him – ostensibly from the bank - to say that there had been some suspicious activity with his current account, and that he should call a number in order to provide a one-time password.
Now, armed with his bank details, the fraudster syphoned all £22,700 of his savings, and, somewhat controversially, Santander are refusing to reimburse him on account of the fact that the bank’s system itself wasn’t hijacked. It’s a technicality at best, and such a cop-out hardly fills customers with confidence.
How safe is peer-to-peer lending?
The case of Smith above is still the exception rather than the norm in terms of customer liability for savers being victims of fraud. More often than not the bank will reimburse, and swiftly too. But what about those lending their savings through fast-growing peer-to-peer lending platforms, whereby funds are matched directly with fellow consumers seeking a loan?
There is no cover from the Financial Services Compensation Scheme for consumer lenders, and they are thus directly exposed if their loans are inadvertently allocated to fraudsters. However, the UK’s platforms are becoming increasingly regulated, and some are really taking the lead in terms of fraud prevention and lender protection.
Aside from having stringent algorithms in place and stress-tested systems, platforms are obliged to adhere to very meticulous credit models and standards of underwriting. In addition, it is also mandatory for them to demonstrate transparency by publishing their loan books, and other selected statistics.
As such, it can be quickly gleaned that industry default rates for peer-to-peer loans are typically lower than 2%, and fraud rates are just a fraction of this figure.
An ongoing battle
It’s good to see financial service providers held to high standards of account, and hopefully it will place further pressure on banks to take the fight against online fraud up a notch. Either way, restoring public confidence in fraud prevention will be a difficult road ahead, as I am sure Mr Smith would testify to.
As consumers, all we can do is be vigilant, and keep our personal details as close to our chest as possible. You don’t want to become entirely paralysed by paranoia, but the online age that we live in is riddled with some very shrewd fraudsters. Be sure to tread carefully in the challenging cyber-world of consumer finance.
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