How safe are online lenders from fraud?

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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The other day I was sat looking at all the wires dotted around my home office that keep me switched on and clued up. Alongside my love of “analogue stationery” there is a multitude of electronic or battery-powered gadgets that seem to be always needed, even though they weren't part of our every day lives a few years back. It's definitely a sign of the times that almost everything I use needs plugging in and most of it needs charging up (me too on the odd occasion). I regularly drain my laptop battery when working in my office because I forget to take the power lead upstairs. I then have to sit at the uncomfortable end of the settee because the wire doesn't stretch any further. Yes, I do realise that buying a second power lead would solve all these problem but I never do things the easy way.

Generally I am quite attached to my mobile phone. It is my alarm clock, my calender alert (yes, as well as my Filofax), it is my substitute watch, a notepad, a camera, a quick link to my email, it houses games for moments of boredom, provides me with newsflashes, it is an mp3 player, a radio, a vital source of information, a sat nav and a Kindle. Occasionally, just occasionally, I send and receive texts and sometimes use it for phone calls. The battery life is none too clever so I am always hooking it up to my portable power bank so that I'm never without!

For all my love of technology I do wonder if I'm a bit too "wired"? I would love to ditch the mobile phone and laptop for a week or so - in fact, when we go on holiday I really do disconnect myself for a full two weeks (OK, I logged on four times using the hotel WiFi but I was taking a break from the sun...). I read about eight books, countless magazines and wrote lists of ideas. It was really good to step back from it all but the temptation is a bit too strong at home.  I love my twitter-and-television time too much! 

What about you? Are you plugged in or switched off at home?

This is a featured post. Please see my disclosure policy

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