Digital Transformation and Customer Vulnerability Goes Hand in Hand: How FinTechs and Digital Banks Can Safeguard Their Senior Users?

Online scams targeting individuals 60 and older (‘elder fraud’) are becoming an increasingly alarming issue as digital transformation leaves older adults more vulnerable to online scams.

In 2023 alone, losses from elder fraud surged to $3.4 billion, driven by sophisticated scams such as investment fraud, often involving cryptocurrency. An example highlighted by Forbes in a recent case involved an elderly woman nearly falling victim to a complex inheritance scam. The scammer, who posed as a friend, tried to manipulate her into paying fees for a fake legal process, exploiting her trust and unfamiliarity with digital communication tools.

The case underscores a broader issue: as more seniors go online, their limited familiarity with digital technology makes them prime targets for fraud. According to the FBI, seniors are particularly susceptible to tech support scams and fraudulent investment opportunities, often losing significant amounts of money before realizing they’ve been deceived.

Can FinTechs and digital banks prevent these scams? Let’s discuss.

Image: Ravi Patel (Unsplash)

Increasingly Digital Equals Increasingly Vulnerable 

As the world becomes more digitally integrated, seniors, the less tech-savvy and digitally illiterate customers, are at greater risk. These scams frequently exploit technology, such as cryptocurrency and fast money transfers, making recovery of stolen funds nearly impossible.

In 2023 alone, elder fraud resulted in over $3.4 billion in losses, doubling since 2021.

As investigative journalist Kelly Phillips Erb notes, “Elder fraud is exploding while crypto and speedy money transfers are making it tougher to recover stolen funds.” Scammers use a variety of tactics, from fake investment opportunities to tech support schemes, exploiting the trust and social isolation of older individuals.

For example, many elderly victims are manipulated into wiring money or sending cryptocurrency under the false belief that they are assisting a legitimate cause or helping a friend in need.

One of the most alarming aspects of this trend is the speed with which these crimes are committed. Once a victim transfers money, it can be moved out of the country within hours, making it nearly impossible to trace and recover.

The introduction of fast money transfer apps like Zelle has only exacerbated this problem, with banks struggling to protect customers or reimburse losses effectively.

The Responsibility of Digital Banks and FinTechs

With the rise in elder fraud, digital banks and FinTech companies have a growing responsibility to protect their more vulnerable and less tech-savvy customers. As these institutions facilitate faster and often irreversible money transfers, they must implement safeguards to prevent such scams from occurring in the first place.

In this scope, digital banks and FinTechs can engage in preventive measures as well as continued support and reporting for immediate response to fraud.

Proactive Measures:

• Transaction Alerts: FinTech and digital banking apps should provide real-time alerts for transactions, especially for high-value or unusual payments or instructions, giving users a chance to confirm or cancel potentially fraudulent activities.

• Scam Warnings: Apps can incorporate AI-driven tools to detect unusual transaction patterns or flagged keywords that could indicate a scam, prompting the user with warnings before they proceed.

• Education Modules: Integrating educational content directly into apps, which can help users identify common scam tactics and understand safe online practices. However, for less tech-savvy users, such educational content should be also provided via the website as well as other active channels (e.g., phones, flyers made ready at branches or sent via post).

• Digital and Non-Digital Validation Channels: FinTechs and digital banks should remember that a significant portion of less digital-savvy customers use their apps via their family members, making app-based crisis management a less likely option for them. Banks and FinTechs should enable a non-digital channel for immediate communication, reporting, or validation for these less digital customers. A recent example of this is the confirmation of bank calls via apps, which might be good in theory but will not work well during a confirmed case of fraud as the user won’t be able to access the app to confirm the validity of the call. Therefore, banks and FinTechs should invest in non-digital channels or confirmation methods (e.g., OTP call validation or calling bank personnel using a code). 

Responsive Measures:

• Dedicated Fraud Lines: Establishing a hotline specifically for reporting and discussing potential fraud can give users a direct line of defense.

• Trusted Contact Features: Like the “trusted contact” option required by FINRA for investment companies, digital banks can offer similar options, allowing customers to designate someone they trust who can be contacted if suspicious activity is detected.

• Fraud Prevention Teams: Building robust, dedicated teams within customer support to monitor and respond to potential fraud cases swiftly. Ideally, these teams should act as the general intelligence hub, and collect data about fraud and compare, educating the whole team and management.

Building Trust and Confidence

The goal for FinTechs and digital banks should be to build a platform of trust, where users feel confident that their assets are secure. Offering features that enhance security and providing clear, accessible information on how to avoid scams are essential steps in protecting the elderly from fraud.

As fraud continues to rise, using sophisticated AI tools, it’s imperative that banks and financial institutions take a proactive role in prevention and create a budget for ongoing education. By doing so, they not only safeguard their customers but also foster long-term loyalty and trust in the digital financial ecosystem.