Spot a fraudster - ten more tell-tale signs of a con

What are the things that separate con victims from non-victims? Are victims less educated, intelligent, savvy? Are they more trusting, impulsive or greedy?

Well, it’s none of the above. There is evidence to suggest that those who have experienced a serious negative life event, such as a change in financial status, unemployment or illness, may be more susceptible to a well-timed con.

However, as Maria Konnikova explains in her book The Confidence Game, there may be a simpler reason: we are human. Conmen exploit human psychology. So, in a follow-up to our earlier blog ten tell-tale signs of a con, we get behind the psychology of scams to help you falling victim to them.

1. Fear, uncertainty and doubt

The future has yet to happen so by definition we live in uncertain times. Conmen thrive in times of transition and fast change. They play on people’s yearning for a slower, simpler time when they knew what to expect.

When reviewing your prospective merchant’s sales and marketing materials, think carefully about any offers that seem timely and stoke fear, uncertainty and doubt (FUD). For example, approaches that say customers owe money or stand to lose out, before offering the relief of easy resolution: pay now.

2. A compelling story

“Stories makes things more plausible, more convincing, more fundable,” argues Maria Konnikova in her book. When a fact is plausible, we still need to test it. When a story is plausible, we often assume it’s true.

When mystery shopping your merchants, beware of the priming effect of a story to get victims to drop their guard for the con to come. Similarly, be circumspect if a prospective merchant comes to you with a tale that sounds too good to be true – it probably is.

3. Wishful identification

Wishful identification helps explain the continuing success of get-rich-quick schemes. Any sales pitch, verbal or in writing, that include phrases like ‘picture this…’ or ‘imagine that…’ invites victims to engage in wishful identification. This is sometimes more effective than simply listing the features and benefits of the product or service. We are all human, even at work. So, wishful identification can also be effectively deployed in a business context.

4. Because I’m worth it…

We like to think of ourselves as special, exceptional even. We wouldn’t be human if we didn’t loom large in our own thoughts. This makes us less circumspect when we are singled out for seemingly special treatment.

Of course, the underwear model finds me attractive. Naturally, the Nigerian prince trusts me to look after his inheritance. It stands to reason that a prospective merchant has sought out my acquiring business ahead of my competitors. A typical put-up to a con will disarm the victim – consumer or acquirer – into feeling that they are special and/or deserve their good fortune. Be wary of pitches that blindside in this way.

5. Positivity bias

The positivity bias is a version of the belief in our own exceptionalism. We are almost hard-wired to think too positively about how things will turn out, including things that we have no control over. Pessimists experience it, too.

As Konnikova explains, the positivity bias does not only constitute optimism about the world or people in general, but about oneself. Even the most sour sceptic still thinks he will come out on top. Even the most cynical underwriter thinks that his well-honed methods and experience will help him identify problematic merchants more efficiently than average.

6. It started off so well…

Conmen often feed the positivity or optimism bias by convincing the victim that everything is going well. That’s why investors in financial scams always see some good initial returns before their accounts are locked, they lose access to their funds and their contact disappears. Merchant bust-out frauds are the same. All scams work, until they don’t. That’s part of the con.

For merchant underwriters, this highlights the importance of monitoring. 17% of merchants don’t disclose all their websites to their acquirers, Web Shield research has found. They simply create new ones or sell new products without informing their acquirer. Or aggregate transactions from different merchants or websites under their own account, without their acquirer’s knowledge or permission.

7. Misdirection

Magicians are masters in the art of misdirection. It’s an integral part of their act: the gestures that grab the attention, the glances that draw the eyeline. This encourages the audience to focus on one thing to ensure they are unaware of, or simply fail to notice, something else.

When doing due diligence on merchants, underwriters can encounter misdirection in the form of unknown companies, those with no business activity or lack normal expenses. Some are shell companies, registered in opaque jurisdictions or with no clear connection to the country. What is the misdirection? More importantly, what is the unscrupulous merchant trying to distract a would-be acquirer from?

8. Favours

Reciprocity runs deep. The Hare Krishnas found donations improved when they gave out flowers, compared to when they simply asked for a donation. Beware of sales pitches that request a favour.

The smallest favour could lead to another and another. Meanwhile asking for too big a favour, designed to be refused, could be a precursor to asking for a smaller one that the victim is more likely to grant to assuage their guilt for the earlier refusal.

Consumer pitches that seek to exploit the reciprocity principle should raise a red flag to merchant underwriters.

9. The gambler’s fallacy

We tend to believe – or hope – that chance has a way of evening things out. If a coin has landed tails eight times, the next one must be heads. Wrong. Probability doesn’t care about timing, what we think or what came before. Each coin toss is entirely independent of the one before and will not affect the one after. The probability of heads is 1-in-2. Only a gambler insists that the next one will be the lucky winner.

It sounds simple, but it’s easy to get caught up in the gambler’s fallacy. You may have had a losing streak acquiring merchants in a particular sector or country. Unless you have significantly amended your policies and procedures, don’t think that your luck will suddenly turn.

10. Sunk-cost effect

“Once we’ve invested heavily in something, we no longer see it clearly, no matter the costs,” says Konnikova. The sunk-cost effect gives us a continued, strong motivation to believe in something, even when the landscape has changed.

In theory, we should only care about new, incremental costs. What we’ve already invested in time, money or effort shouldn’t matter because it’s already gone. We should only stick with it if it still seems worthwhile in light of new evidence.

But in practice, we kid ourselves that the end is in sight. All our patient waiting will not be in vain. It will pay off. We fail to cut our losses and walk away sooner because we fall for the sunk-cost effect. Acquirers should consider this when devising their monitoring, termination and off-boarding procedures.

The con is an exercise in soft skills and the art of persuasion as much as the tactics described above. Cons always seem very obvious when they happen to someone else. If you are aware of the types, approaches, methods and techniques, you can improve your powers of precognition and avoid becoming a victim.

Deceptive marketing practices are the subject of the fifth book in the Web Shield ‘Fundamentals of Card-Not-Present Merchant Acceptance’ series launched at last year's RiskConnect conference.