Digital scams have surged tenfold this year in the US and Canada as fraudsters increasingly leverage social engineering to deceive customers, according to cybersecurity firm BioCatch.
This rise highlights the shift in criminal tactics that exploit human behavior rather than bypassing technology, posing significant challenges for financial institutions.
BioCatch’s latest analysis revealed a dramatic increase in digital scams reported by banks during the first three quarters of 2023.
As financial institutions implemented stronger technological controls to prevent account takeovers and other types of fraud, scammers adapted, using psychological manipulation to trick customers into transferring money themselves.
The Tel Aviv-based BioCatch, known for its use of behavioral data to identify fraudulent activities on banking platforms, compiled its findings from 170 US and Canadian institutions.
Prominent financial firms such as American Express (NYSE:AXP), Barclays (LON:BARC), and HSBC are among BioCatch’s clients.
Banks are under increasing pressure from regulators to prevent digital fraud and compensate victims.
This regulatory focus has intensified as digital payment networks like Zelle become key targets for scammers.
In 2023 alone, customers at JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), and Wells Fargo (NYSE:WFC) reported combined fraudulent Zelle transactions totaling $166 million.
The Consumer Financial Protection Bureau (CFPB) has indicated potential penalties for these banks regarding their role in the Zelle network.
Social engineering scams, where criminals use manipulative tactics to persuade victims to transfer funds, have been on the rise over the past five years.
However, the trend has accelerated over the past 18 months. Zelle, favored by fraudsters due to its quick and efficient payment system, has been central to this uptick. “When social engineering scams really started to take off in the US, it kind of coincided with Zelle,” Tom Peacock, BioCatch’s Director of Global Fraud Intelligence said.
“Platforms like Zelle are enabling fraudsters to be a lot quicker and more successful.”
In response, Zelle’s owner, Early Warning Services, stated that while overall transaction volumes increased in 2023, reports of scams and fraud fell by nearly 50%. They emphasized that only a small percentage of transactions are disputed as fraudulent.
Peacock pointed out that part of the rise in reported scams is due to better detection by banks, spurred by heightened regulatory pressure.
A shift in criminal strategies is also evident in the decline of fraudulent new account openings, which fell by 59% among BioCatch’s clients.
Instead, scammers have turned to taking over existing accounts, with reported cases of such fraud tripling in 2023.
This change underscores the evolving nature of cybercrime, where fraudsters continuously adapt their methods to bypass enhanced security measures.
As digital fraud continues to evolve, US and Canadian banks face mounting challenges to protect their customers and maintain trust amid increasing scrutiny from regulators and lawmakers.