Technological advancement has changed the way we do things. There’s no denying its benefits. However, its innovation also transformed how scammers defraud unsuspecting victims.
One modern approach scammers use is creating an appealing return condition to trick victims into paying an upfront or advance fee in exchange for a reward or future service.
In South Africa, financial scams are becoming a fast-growing epidemic. As victims become desperate to recover their defrauded investment, advance-fee fraud found an entry point to pique the interest of their potential victim.
In this TRU Insight, we’ll uncover the basic operation of advance-fee fraud. Learn how to spot advance fee fraud red flags and protect yourself from these scams.
Additionally, discover how these fraud operators used the Banxso regulatory scandal to target new victims.
What Is Advance-Fee Fraud?
As the name suggests, advance-fee fraud solicits advance payments from unsuspecting individuals in exchange for a service or return. This targets the emotions of the unsuspecting victims by offering a future benefit.
However, victims will eventually find themselves not getting the return or the service because the operator didn’t plan on delivering them in the first place.
Advance-fee fraud can go on different forms – as long as it can present an appealing or problem-solving benefit, the public would take the bait as they’re desperate for the service or benefit.
Here are the four common advance-fee scams you need to watch out for.
Loan Scam
The South African public has been experiencing an extended period of severe wealth inequality. Thus, taking loans has become a primary way for the public to make ends meet.
However, since most South African public is unbanked (no access to basic banking services), they can’t access a reliable loan product. This makes them too optimistic when someone offers them an easy loan.
In the case of advance-fee scams, they target people who tried to get a loan from a bank but got rejected. Or those who used a loan product from another loan provider.
They promise a guaranteed loan with high credit and low interest if the victim pays an advance fee when processing the loan application.
To prevent this, beware of cold calls from an alleged representative of a trusted financial service provider.
Lottery or Giveaway Scam
Who doesn’t want to win a lottery or get a free item from a giveaway? No one! And advance fee scammers surely know that.
This is why the lottery or giveaway method has effectively solicited advance payment and defrauded unsuspecting victims. Through this scheme, an alleged representative of a reputable brand will contact you to relay the good news. However, there’s one condition to claim your prize.
And you guessed it right – by paying an advance fee!
Remember, one simple way to prevent this is to ensure you’re only joining a giveaway of a reputable brand. If the giveaway comes from a pop-up ad, it’s likely a phishing campaign to get your personal information.
Also, recall if you join any sort of giveaway or wager on any type of lottery to win anything.
Romance Scam
Romance scam is a tale as old as time. And its risk and pervasiveness intensify now that a new scam emerges.
Romance scams involve using fake identity to pose as a victim’s relative. They create a sense of relationship, which is gradually weaponized to defraud the victim.
The operator will create a crisis, say a medical or legal emergency, that requires a hefty sum of money. They encourage the victim to give monetary assistance to resolve the issue. However, they disappear once the money is received.
Fraud Recovery Scam
Fraud recovery scams are new forms of financial scams. And their pervasiveness is undeniable now that they ride the increasing number of financial disputes that lead to losses.
This type of advance-fee scam involves looking for fraud victims who seek assistance to recover their lost funds. They pose as a reputable fraud recovery firm with impressive credentials to address the distrust of the victim.
This type of scam is particularly insidious as it doubles the financial ruin of the victim.
The scammer goes through social media to look for victims complaining or buys personal information of the scam victims. After that, they contact them to solicit an advance payment to access the fund recovery service.
The Banxso Scandal Breeds the New Scam in South Africa
In 2024, the South African financial markets witnessed a year-long feud between the Financial Sector Conduct Authority (FSCA) and Banxso.
Banxso, once an FSP-license bearer, dealt consecutive blows from the regulator after it was confirmed to benefit from the deepfake advertisement from multi-millionaire celebrities like Elon Musk and Johann Rupert.
Related: Banxso 2025 Review: Is It a Regulated Trading Platform?
According to the regulator, thousands of investors invested in a multimillion-rand poll. Notably, a South African independent media received multiple complaints and affidavits that showed the significant financial losses brought by Banxso. A few examples of the publicized losses are:
- 75-year-old Stellenbosch resident who lost R2.6 million
- Gauteng-based couple who lost R5.5 million
- 72-year-old Johannesburg pensioner who lost R828 thousand
- Pretoria-based legal professional who lost R500 thousand
Unpublished claims were said to lose an amount between R4,700 and R100,000.
These significant losses have become the entry point for recovery scammers because most Banxso victims were left unbacked and uncertain that they would recover their lost funds.
