As a whole, the industry does a pretty good job discussing the true cost of fraud. From the obvious fraud losses to false positives to the operational costs to fight fraud, we’ve evolved to a discourse where this is considered. But what about when that conversation shifts to scams? Specifically, to Authorized Push Payment Fraud (APP)? Unfortunately, the true cost of scams is not widely discussed, therefore here is a quick breakdown of key considerations.


Unlike unauthorized payment fraud, banks are usually not liable for authorized payment fraud. Now, “usually” is a loaded word since this depends on a lot of factors, the least of which is the geography you operate it. In the U.K., the Contingency Reimbursement Model (CRM) has shifted some of the liability to the banks, however there is still plenty of debate on how effective this model has been. In the U.S. and many other geographies, that banks are not liable for these fraud losses.
I could spend the whole article debating on who should own the liability. However, that’s not the purpose of this discussion. It’s important to simply know that banks are generally avoiding liability for this type of fraud and consumers are on the hook. But from a moral and business perspective, this does not mean banks should not proactively prevent APP. As you will read, the costs extend well beyond fraud losses.

Customer Acquisition & Retention

Have you ever experienced credit card fraud?

Not fun, but your bank almost always reimburses you the money.

Have you ever had your bank account taken over?

Even less fun, but you still have financial recourse.

Have you ever been manipulated into making a payment to a fraudster?

The absolute worst.

Not only do you have no financial recourse and are out often thousands of dollars, you are left with the shame and resulting psychological damage.

The credit card fraud example might be annoying, but the consumer probably won’t ditch the card. The account takeover will surely have the consumer considering new banking options, but if made whole again, who knows maybe they stick with the bank. If a consumer is scammed into making an authorized payment, losing thousands of dollars and experiencing psychological damage in the process… Well, I cannot think of a person on the planet that will stick with that bank. The retention rate plummets.

As APP becomes more widely understood by the general public, consumers will choose banks that are protecting them from this. This means customer acquisition is on the line as well, impacting top line revenue and growth.

Psychological Damage
I am shifting the focus to a consumer cost now, the psychological damage that comes from being groomed and manipulated into paying a fraudster. While this is a bit more common in vulnerable populations, ANYONE is at risk for this. We live in a digital age, we’re moving super-fast, we have a million things on our plate and frankly, scammers are getting very sophisticated with their tactics. It’s not an obvious email in your inbox you immediately delete. It’s often a well strategized exercise in psychological manipulation and preying on human emotion.

Now, victims don’t simply take solace in well, this could happen to anyone. For starters, they probably don’t even know how common this is. They feel psychologically weak and stupid. They pile shame on top of guilt on top of the stress of losing in some cases life-changing amounts of money. That psychological damage can lead to depression, trauma and even death. This is a cost we surely don’t talk about enough and should be factored in the true cost of scams.

Final Thoughts
As a financial institution, you are not the only one who should be considering this cost. There are other technology companies and platforms that enable scams and should share responsibility in doing everything in their power to protect consumers from this vicious type of fraud. And above all else, we should shift the conversation away from who’s fault it is to how can we all proactively do our part to reduce scams and improve education.

And an important early step in the education process is understanding the true impact of the problem on society.

Originally published on Finextra.