New Publication on Financial Fraud
The recent expansion of digital financial services (DFS) leads to severe consumer protection issues such as fraud and scams. As these potentially decrease trust in digital services, especially in developing countries, avoiding victimization has become an important policy objective. In our latest publication, we examine in an online experiment how well individuals in Kenya identify phone scams using a novel measure of scam identification ability.
Fraud is detrimental to consumers both in terms of direct monetary costs and indirect costs such as erosion of trust in financial services, loss of confidence in financial matters, and mental health problems including depression and stress. One common type of fraud is phone scams using text messages or calls. The goal of scammers is to trick consumers into sending money or revealing private information such that their accounts can be accessed. Since scammers often target random phone numbers, all segments of society who have a phone and use basic DFS are at risk.
But what can prevent fraud? The existing recipe for avoiding consumers’ scam victimization is to pursue education and awareness campaigns. In this paper, we study susceptibility to scams and the effectiveness of a light-touch scam education in Kenya. First, we develop a novel measure for an individual’s scam identification ability (SIA) and confidence in their ability. Second, we test experimentally if common tips for scam detection (see Figure 1) improve SIA and confidence.
In a representative online survey (N=1,000) we show respondents 12 different messages and ask them to indicate whether these messages are scam or not. Each classification decision is followed by a confidence rating. The messages include both common scams and genuine messages sent by, e.g., banks or telecommunication companies in Kenya and collected from social media. After having classified the first six messages, a random half of the respondents receives tips on fraud prevention that are commonly provided by banks or telecommunication companies.
Our analyses reveal several reasons why scam tips, despite being a common approach, might not be the silver bullet in addressing the human factor in scam victimization. First, we find no significant average effect of tips on SIA. This this null effect can be explained by an increase in correctly identified scams and a decrease in correctly identified genuine messages, i.e. an increase in caution. Second, our findings suggest that tips only benefit the highly educated. This may be related to providing the tips in writing. Moreover, since scams are constantly evolving, tips and guidance would need to be regularly revised and updated, which further complicates the communication of tips.
Read the full paper: https://doi.org/10.1016/j.jdeveco.2023.103147
Citation: Kubilay ⓡ Raiber ⓡ Spantig ⓡ Cahlíková ⓡ Kaaria (2023): Can you spot a scam? Measuring and improving scam identification ability. Journal of Development Economics, 165: 103147.