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Mobile money and the digitalization of financial transactions have proven to be valuable tools around the world for financial inclusion and end-user empowerment, particularly among women. Digital financial services (DFS) can decrease costs to the user to access savings, credit, payment and insurance, increase privacy, control over income, among other longer-term benefits.

Despite these benefits, as women’s use of DFS increases, so does their exposure to fraud from both people they know and don’t know. In some of my early interviews on financial abuse with large financial institutions in the United States, any misuse of a person’s accounts by an unauthorized person is often referred to a fraud department, whether the perpetrator is known (as might be the case in elder abuse or intimate partner violence) or unknown (as might be the case when a criminal halfway around the world scams another person out of their money).

This blog seeks to understand the link between financial abuse and fraud to both understand their relationship (or lack thereof) and to explore any lessons that can be gleaned about addressing fraud that can inform strategies to address financial abuse.

Research by Tavneet Suri of the MIT Sloan School of Management and William Jack of Georgetown University on the impact of mobile money, a financial service that allows a person to store monetary value on their mobile phone and send this money via text messages to other people, found that Kenyans’ access to this service increased their consumption and lifted 2% of Kenyan households out of poverty.

This was especially true for women as it increased their financial resilience and saving behaviors and helped them move out of agriculture into business. Mobile money also allows more efficient transactions between rural and urban areas and in many cases also facilitates cross-border remittances. Similar benefits have been found in several other countries as well. Research has also shown that women’s use of mobile money can help them to gain independence in making financial decisions.

This can be important for women seeking to exit abusive relationships as they can privately open mobile money accounts with few requirements and either in the privacy of their own homes or at places of business where they already have permission to frequent.

But first, let’s look at the definitions. “Fraud occurs when someone uses deceitful tactics to illegally or unethically make a gain at the expense of someone else. The process involves the false representation of facts, whether by withholding information or providing false statements to gain something that would not have been provided without the deception.”

The most pervasive type of fraud is identity theft, which refers to “all types of crime in which someone wrongfully obtains and uses another person's personal data in some way that involves fraud or deception, typically for economic gain”.

Typically, criminals use another’s identity to submit false applications for loans and credit cards, fraudulently withdraw money from bank accounts or use another’s online accounts or to obtain goods or privileges which the criminal might be denied if using his own name.

Experiencing identity theft can leave victims with irreparable damage, often before victims are even aware.

In the most recent Financial Inclusion Compass financial service providers ranked fraud against customers as the second most important priority in the sector, after innovative product design. It is estimated that the worldwide cost of fraud is approximately five trillion dollars per year and businesses lose 5% of their annual revenues to fraud. Those statistics would make anyone take notice.

Now we know what fraud is, let’s compare it to financial abuse.

In our first blog in the financial abuse series, we defined financial abuse as a restriction of “a person's ability to acquire, use, and maintain financial resources, ensuring financial dependency on an abuser. It's often used as a control tactic that ranges from sabotaging work opportunities to restricting access to credit or seizing funds and earnings." Some financial abuse tactics can be considered a form of fraud since “financial abuse is when someone takes or misuses another person’s money or property for the benefit of someone other than that person”.

The main difference is whether the perpetrator is known by the victim.

This raised a few questions for me:

Question 1: To what degree would linking financial abuse and fraud together be the “hook” for the financial services sector to address financial abuse? What lessons can be drawn to inform our work on financial abuse?

In consultations with a few experts and review of the literature on fraud and financial abuse, it seems that while fraud and financial abuse could be linked together when there is misuse of someone’s information to open accounts, drain accounts or take out credit without authorization by the client -- financial abuse stems from intrahousehold/family power dynamics while fraud could be committed by someone from halfway around the world.

The first reaction by many would be that it would be too much to ask financial service providers to engage in intrahousehold and family dynamics--they won’t be equipped.

It would be hard to regulate and it wouldn’t be realistic. However, what we can learn about fraud prevention to inform what financial service providers can do to prevent financial abuse is the importance of educating the customer about how to protect themselves and where and how to seek support when financial abuse occurs. Customers and financial institutions both have skin in the game. In fact, customers expect their financial institutions to take some responsibility when there is fraudulent use of their account--even when the customer authorized a transaction that led to the fraud. For example, a recent LexisNexis report showed that 66% of U.S. consumers would likely close their accounts with a financial institution that failed to reimburse them for losses due to authorized transfer scams.