“Criminal groups are migrating from physical to virtual crimes because it is a better, more lucrative and less risky business.”
It is gradually becoming clear that the trend away from cash and toward digital-only payment systems may not be quite as smooth or as seamless as some may have wished or expected. In May, we posted the article, World’s Oldest Central Bank Keeps Sounding Alarm on Fragility of Cashless Economies. Are Other Central Banks Listening?, in which we explored the growing concerns among central bankers in Sweden, one of Europe’s most cashless economies, about the unintended consequences of driving cash out of the economy.
There are “serious fraud problems that could undermine trust in the payment system,” Sweden’s central bank, the Riksbank, cautioned in its 2024 payments report. Digitalization also makes payments “more vulnerable to cyber attacks and disruptions to the power grid and data communication,” the bank points out. These developments suggested “that we should concentrate more than before on the challenges of digitalization.”*
A month after we posted that piece, a spate of articles appeared in the English-language press warning about the recent explosion of digital fraud in Sweden. The Daily Telegraph reported that criminals were “having a field day” after Sweden has more or less stopped using cash:
Criminals profited to the tune of £543m (SEK 7.5bn) in 2023 from fraud, according to the Swedish police. Online fraud and digital crimes have proved lucrative, with organised gangs stealing £89m (SEK 1.2bn) in 2023, double the loss in 2021.
Common frauds focus on the personal ID code used by most Swedish citizens, BankID. It is so trusted that if it has been inputted correctly, transactions will take place immediately. If fraudsters can harvest this number, then they can easily empty accounts. In combination with some basic personal data, fraudsters can even take out loans in the victims’ name.
It is apparently not quite as simple as The Daily Telegraph suggests. As long-time Naked Capitalism commenter fjallstrom points below the line, you also need the hardware on which a time-limited file has been downloaded and installed in the program as well as the person’s password.
“Thus scams tend to involve tricking the person being scammed into signing (and ignoring all the red flags like the name of the recipient not matching the stated purpose) then both stealing their hardware and getting your hands on — or guessing — their password.”
In its report “Going cashless Has Turned Sweden from One of the Safest Countries into a High-Crime Nation“, Fortune magazine provided an example:
Ellen Bagley was delighted when she made her first sale on a popular second-hand clothing app, but just a few minutes later, the thrill turned to shock as the 20-year-old from Linköping in Sweden discovered she’d been robbed.
Everything seemed normal when Bagley received a direct message on the platform, which asked her to verify personal details to complete the deal. She clicked the link, which fired up BankID — the ubiquitous digital authorization system used by nearly all Swedish adults.
After receiving a couple of error messages, she started thinking something was wrong, but it was already too late. Over 10,000 Swedish kronor ($1,000) had been siphoned from her account and the thieves disappeared into the digital shadows.
“The fraudsters are so skilled at making things look legitimate,” said Bagley, who was born after BankID was created. “It’s not easy” to identify scams…
Law-enforcement agencies estimate that the size of Sweden’s criminal economy could amount to as high as 2.5% of the country’s gross domestic product.
To counter the digital crime spree, Swedish authorities have put pressure on banks to tighten security measures and make it harder on tech-savvy criminals, but it’s a delicate balancing act. Going too far could slow down the economy, while doing too little erodes trust and damages legitimate businesses in the process.
Sweden’s recent explosion in digital fraud needs to be set against the rash of bank robberies the country was suffering roughly a decade ago, which have apparently fallen to zero in the last couple of years. However, as fjallstrom points out, while bank robberies by definition impact banks, the recent digital scams are mostly affecting bank customers. As such, an argument can be made that banks, having pushed for digital transactions for everything, no longer have to bear the risk of bank robberies while at the same time foisting responsibility for the new risks posed by digital crimes onto their customers — a new example of socialising the losses.
A $34 Billion Problem
Sweden is not the only largely cash-free economy that is grappling with a surge in digital theft. Brazil, one of Latin America’s most cashless economies, is suffering “an epidemic of cell phone theft and cyberfraud,” reports El País:
One in ten Brazilians have had their mobile phone stolen in the last year, according to a survey, while cybercrime skyrockets and the economic cost is estimated at $34 billion.
It happens in the blink of an eye. You take out your cell phone, which was well protected in your fanny pack, stretch your arms to take a quick photo in the middle of the carnival crowd and bam! someone grabs it from you and disappears with it into the crowd. It also happens while you’re talking from your car. At a traffic light, the motorcyclist next to you suddenly smashes the car window, grabs the device and drives off with it. Or on a quiet backstreet while you look at how long it will take for your Uber to arrive. Suddenly a guy on a bike appears and snatches it from your hand while you watch, dumbfounded, as he rides away, dodging pedestrians and cars. The kind of non-violent crime is the order of the day in the epidemic of cell phone theft that Brazil is experiencing. One in ten Brazilians has had at least ome smartphone stolen in the past year, according to a survey commissioned by the NGO Forum Brasileiro de Segurança Pública to Datafolha and published on Tuesday.
These days, the thieves are less interested in the phones themselves than they are in the possibility of emptying the digital wallets on them.
“A Cyberfraud Paradise”
“Brazilians are adopting digital payments faster than anyone else,” trumpeted an article by the World Economic Forum last year. In 2020, 44% of bank customers had a digital-only account, compared with less than 20% in the US and Canada, according to the consultancy firm Accenture. But its success as a “fintech hub” has attracted hordes of cyber criminals…
Read the full article on Naked Capitalism
Nick Corbishley 