Online Banking Fraud Losses Decline in the UK

Online banking fraud losses in the U.K. fell 32 percent in the first half of the year, according to figures from U.K. banks released on Wednesday. The decline is due to the increased use of fraud detection software by banks, an industry group said.

Fraud losses in online banking totalled £16.9 million (US$26.2 million) for the first half of the year, compared to £24.9 million a year earlier, according to figures from the U.K. Cards Association and Financial Fraud Action U.K.

Banks are increasingly using more layers of security for transactions, said Doriena Koldenhof, spokeswoman for Financial Fraud Action U.K. For example, many U.K. banks have now issued devices to their customers that generate one-time passcodes, used to authorize some kinds of transactions.

Another reason for the drop is increased awareness of computer security among consumers, Koldenhof said. People are more aware of the need to update computers with the latest patches, she said.

The figures come as U.K. police announced earlier this week the sentencing of the last defendant in an extensive online banking fraud ring composed of 13 individuals living in the U.K. from the Ukraine, Latvia, Belarus and Georgia.

Police said the ring the ring stole at least £2.8 million from online bank accounts between September 2009 and March 2010, and attempted to steal as much as £4.3 million.

The U.K.'s Police Central e-Crime Unit said in September 2010 that the gang infected banking customers' PCs with an advanced piece of malicious software called Zeus, using it to steal their passwords as they logged in to banks including HSBC, RBS, Barclays and Lloyds. The gang then used those credentials to transfer money to accounts they controlled.

While online banking losses fell, another type of fraud rose: phone banking scams. That fraud totalled £8.6 million for the first half of the year, a 48 percent rise over the same period a year before.

The scam involves calling banking customers and tricking them into believe they are speaking to either bank staff or law enforcement and there are a few different variations. A scammer will call the victim and say that their card is due to expire, and to activate their new card, the victim should enter their PIN into the phone.

On the scammer's side, the audio tones are then analyzed to figure out the PIN. Another bolder variation is when the scammer shows up at the victim's home pretending to deliver a replacement card, which is a fake. The person's real card is collected, which is then used for fraud when the victim is tricked into divulging its PIN.

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Online Communities Carry Risks

Online community groups are enticing because the members share common interests. But they also can cause people to make risky financial decisions.

www.netbanker.comThe reason: active community members believe if their risky behavior backfires, the community will come to their rescue -- which, in reality, isn't likely.

That’s according to a recent study authored by a quartet of professors from three universities.

According to the researchers, this study is the first to show that participation in an online community influences a person's financial decision-making in a systematic way, leading them to make riskier choices and behave in riskier ways.

Taking risks because you believe your virtual buddies will cushion any bad outcomes is a bad idea, warn the researchers -- Rui Zhu and Utpal M. Dholakia, of Rice University; Xinlei Chen, of the University of British Columbia; and René Algesheimer, of the University of Zurich.

Online bonds are much more tenuous than those found in the real world, the study explained. Members of online communities will likely not know each other offline and have no connections other than their virtual relationship. "Indeed, in many cases, they might not even know the real names or geographic locations of these individuals," the study says.

"Thus," it continues, "online community members are unlikely to offer actual financial assistance, such as a loan or a gift of money, to community participants when negative outcomes occur as a result of their financial decisions."

A moderating influence on a community member's risky behavior is how active they are within a community. If a member isn't very active in the community, they're less likely to engage in the riskier behaviors of active members, the study finds.

The researchers looked at three settings.

One was Prosper.com, a peer-to-peer online lending community, which has 1.11 million members and has created $249 million in personal loans. After tracking a group of 600 Prosper members -- some in communities, some not -- the researchers found that, over an 18-month period, community members engaged in riskier financial behavior than non-members.

Another setting was eBay in Germany. There, for 22 months, the researchers studied the behavior of 13,735 customers with an interest in collectibles -- stamps, coins, books, art, and toys. Again, they found riskier behavior by community members compared to non-community members, as measured by the number of bids placed on an item and amounts paid for an item.

A lab was used for the third setting. It allowed researches to test in a more controlled environment what they learned from the other settings.

The researchers note that their study has implications beyond financial decision-making.

It “raises the possibility that joining an online support group sponsored by a hospital, foundation, or advocacy group may make patients choose riskier treatments or courses of action," they say. "Similarly, members of an online (or offline) adolescent club may become more likely to engage in high-risk behaviors, some of which may be detrimental, relative to comparable non-members."

Follow freelance technology writer John P. Mello Jr. and Today@PCWorld on Twitter.

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