Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
This article is the latest part of the FT’s Financial Literacy and Inclusion Campaign
If it seems too good to be true then it probably is, goes the old maxim, and so it proved in the dying days of my summer holiday when, after an enjoyable dinner and in a moment of weakness, I began idly flicking through Instagram on my phone.
There, among the clips of people falling off surfboards or jaguars fighting alligators that Instagram’s algorithm has determined I enjoy, was an ad for a clearance sale at Paul Smith. I once bought a raincoat online in a Paul Smith sale and ever since, ads for the brand had regularly appeared in my Instagram feed.
But none offered the discount I was seeing now — 80 per cent off everything in the shop. I quickly began filling the shopping cart with cut-price shirts, socks, a questionable hat and even a suit bag, excitedly telling my family that I had stumbled across the deal of the century.
“Sounds like a scam,” said my son, looking over my shoulder as I put four loud ties into the cart. Silently despairing at his youthful cynicism, I showed him the website, the detail on each page — it was clearly legitimate! And I’d been sent to it by an Instagram ad. So it had to be Paul Smith.
Except of course it wasn’t, as I found minutes after completing my order when an email in badly written English from a peculiar address arrived in my inbox confirming the purchase. I’d been had, conned, done up like a kipper. This sparked an anxious call to my bank, shame at being duped and relentless mockery from my family. Their jibes landed with extra potency as I have a new job overseeing the Financial Times’s digital output, which they were keen to highlight.
It turns out that social media advertising, in the UK at least, regularly breaches rules set by the Advertising Standards Authority, the independent UK advertising regulator, on ads that make misleading claims. There is much more rigour around television advertising: broadcasters in the UK can be referred to the media regulator Ofcom and ultimately lose their licence unless they enforce ASA rules on their advertisers. This is why you’re unlikely to see a fake commercial during Coronation Street for a fake shop selling stripey socks.
The ASA has fewer tools to force social media companies to comply with its rules. It has in recent years spent more time ensuring that social media influencers disclose when they are being paid to hawk products than clamping down on outright fraud. Still, its rules clearly prohibit misleading advertising. “Marketing communications must not materially mislead or be likely to do so,” states item 3.1 of the ASA code.
Instagram’s owner, Meta, denies that it allows scam ads on its platforms, which judging by my experience is patently untrue. On Instagram, all ads are subject to a review system, “which relies on automated, and in some cases manual review, to check ads”, a spokesperson tells me. She adds that “this is an industry-wide issue . . . scammers are constantly finding new ways to trick people, which is why our systems aren’t always perfect”.
This is putting it mildly. Days after falling for the Paul Smith scam I was being shown other fake ads, with Ray-Ban sunglasses particularly popular. A colleague found a very convincing one for cut-price kitchen goods at Wilko — convincing because it touted a clearance sale at the retail chain, which is going bust in real life. At least the scammers are keeping up with the news agenda.
Such ads must work for the fraudsters, or why would they spend money with Instagram? Fakes are promptly removed once detected but the company’s automated systems are seemingly not up to the task, judging by the number I found.
Instagram is projected this year to generate more than 40 per cent of owner Meta’s ad revenue, which hit $113.6bn in 2022. It is unclear how much of this is from fraudulent bookings but it is also unclear how long the company can continue to hide behind claims that it is doing all it can to stamp out scam ads.
Maybe the social media companies will get their act together when regulators finally sharpen their teeth. Until then, be wary of ads for amazingly priced sunglasses, suit bags or food processors. If it seems too good to be true, then . . . well, you know the rest.