Month: September 2021

Categories
Payment

5 Strategies Businesses Can Use to Prevent Digital Payments Fraud

digital payment frauds

Digital payments have grown at an exponential rate since the pandemic changed the banking industry into a digital-first. To prevent and detect digital payments frauds, today’s finance and regulatory teams can use a series of tools and technologies. Combining these strategies with techniques like IP whitelisting, VPNs, corporate firewalls and antivirus solutions can allow businesses to build strong digital payment fraud prevention techniques. Here are all the best practices to follow to prevent digital payments fraud.

Physical Payments Fraud: A Gateway to Digital Payments Fraud

Preventing payments fraud is a major priority for financial institutions, and the level of sophistication that fraudsters use makes it almost impossible for financial institutions to uncover and prevent fraud. 

Most of the time, it’s a ransomware-style takeover of a company’s payment systems or the subversive use of credentials to extract funds. The modern era of corporate fraud is being done using digital channels only. 

Digital payment frauds are especially worrisome for banks because the level of sophistication is greater than check fraud or small-level cash fraud, and these digital-first frauds are causing more loss than other types of fraud. A study conducted in 2016 stated that the average loss a financial institution faces during check fraud was only $1,500 compared to almost $130,000 and $1-10 million for account takeover fraud.

The fact that digital payments fraud tends to offer a better payout for criminals, however, there are other factors behind the shift to digital payments fraud. 

For instance, as B2B digital payments have become mainstream, the shift to electronic payment solutions has made it possible for tech-savvy criminals to target companies. Not all customers use physical cash and checks so conducting fraud using these is no longer profitable for businesses. 

Now that customers are using ACH, wire transfers and cards, and even cryptocurrencies, fraudsters love to conduct fraud digitally. The widespread use of mobile payment apps and online banking software are all working in the favor of a criminal. 

Even with today’s heightened sophistication and the rising prominence of remote work, most of the losses suffered by financial institutions are due to gaps in their own compliance or security gaps. Also, the lack of proper employee training of the company’s digital security solutions can also lead to an increased level of fraud. This is why banks and financial institutions need to figure out a way to protect against digital payments fraud.

Structured and Multi-level Approach to Digital Payments Frauds Prevention

Thankfully, just as criminals introduced new frauds, cybersecurity firms, and global payments are working around the clock to develop safer and more robust solutions. Today, most financial institutions utilize a wide variety of tools right alongside each other to ensure complete security.

Solutions like IP Whitelisting and multifactor authentication, VPNs, standard firewalls, and antivirus solutions may be essential for digital security. 

Given the fact that most digital payments are extremely complex, there is no single layer of security that can block every fraudulent attack. To completely prevent digital payments fraud, financial institutions must use a structured and multilayered approach. By implementing multiple layers of security, financial institutions can find the ideal balance. 

So, ultimately what are the most advanced tools and techniques that can help in preventing digital payments fraud in 2021?

Five Major Ways to Protect Against Digital Payments Fraud

1. Regular & Intensive Employee Training

One of the best ways for digital payment fraud prevention is by training your employees. Fraudsters have evolved with time and they utilize the best solutions to stay out of the regulatory body’s eyesight. 

Digital solutions work well only if the employees are operating at 100% efficiency. For instance, if an employee forgets to utilize multi-factor authentication on customer accounts or forgets to delete an old employee’s credentials from the payments system, companies can be exposed to a certain level of risk. If a number of employees are negligent in following company policies, the threat of loss is huge.

Companies have to develop strong internal strategies to ensure that the employees are regularly and constantly educated about the policies and strategies. This education has to cover all the information about growing fraud trends and best practices used to prevent these types of fraud. Teaching customers about the practices in use to detect and prevent these frauds can be extremely helpful.

2. Multi-Factor Authentication

Multi-factor authentication is one of the most secure methods of preventing digital fraud as it is incredibly fast and effective in preventing a fraudulent takeover of customer credentials. 

Criminals can’t utilize stolen credentials as multi-factor authentication requires authorization for making any kind of payment. This could include something that a user knows (passwords), something a user has (a security token), or something a user is (biometrics authentication). In practice, this means that instead of only earning a username and password, employees may be required to submit a fingerprint scan or enter a string of code that is sent to customers via text whenever they try to transact. 

MFA is a tool that is used majorly in the financial industry. To prevent digital payments fraud, MFA is essential. 

3. Multi-User Payments Control

Financial institutions shouldn’t allow a fraudster or a rogue employee to exploit the user credentials to access a payment solution. There are a series of preventive measures that can be used to stop them from deploying funds. To prevent that from happening, dual controls are necessary. 

Dual-controls have been used by financial institutions for ages, and it ensures that the authority to execute a transaction between employees is cut in half. This prevents a single rogue employee from acting on their own. By ensuring that 2-3 employees are required to review every single payment before it’s executed is the best way to prevent fraud.

Financial institutions can assign specific users to initiate and review and approve the truncations that happen in their internal payments systems. Banks and financial institutions can prevent any single employee from having authority over the payments process. 

4. Customer Authentication Software

Another method of preventing fraud is by using transaction monitoring solutions. User auditing software has become a vital part of many financial institutions as it can keep a complete log of every single action. This way, administrators, auditors, and compliance teams have complete transparency in evaluating potential fraudulent actions that happen on any specific user account. 

In situations where fraud has happened, administrators are alerted of suspicious activities and these activity logs can help in training employees for future situations of fraud. Online document verification software helps in ensuring that fraudsters don’t access the financial institution’s internal systems. By proactively preventing customers from entering the systems, fraud can be prevented even further.

5. Payment Safelists and Blocklists

Another way to prevent digital payment fraud is by implementing a safelist and blocklist. These controls can be configured directly within various internal platforms that offer them, and they work by placing internal parameters over which internal bank accounts can be used to send payments. 

Payment safelists and blocklists are incredibly helpful as they give companies total control over individuals and entities that are allowed to engage with the business. Thus helping in digital payment fraud prevention.

Categories
AML

Five Ways to Tackle the Growing Money Laundering Problem

how to deal with money laundering problem

Banks, financial institutions, and other organizations face countless challenges every day to keep their business secure from fraud. Keeping track of all the anti-money laundering regulations and making use of the latest and efficient technology to tackle the money laundering problem can be tough. This is basically an endless battle against fraudsters who try to acquire funds using illicit methods and banks need to learn how to combat money laundering. 

All that a fraudster needs is one bank system to stop paying attention and they gain a new portal to launder money. A single banking institution’s mistake can have a huge impact on the global economy, in a particular industry or the money could be used to fund terrorist activities. All major regulatory bodies like the FinCEN, need to keep updating their regulations to be able to fight the money laundering situation from growing and so that banks and other financial entities can service ways to combat money laundering.  

There are several things that banks and other FinTechs can do to tackle money laundering. Following the ways to combat money laundering to the last point can reduce the chances of online fraud by tenfold.

How Technology Can Stop Money Laundering

1. Improve Searches By Utilizing Technology

The growth in technology can be utilized for providing fake information such as bank statements, wrong proof of address to trick banks. It is becoming increasingly difficult for organizations to filter between potential threats and false positives. 

If a bank or any other financial institution wants to protect their current customers, they need to look at their past mistakes and set up countermeasures for future mistakes. If institutions can reduce the count of false positives, they can expand their scope of fighting money laundering and other kinds of online fraud. 

Using machine learning and AI-based technologies to conduct searches at regular intervals can reduce the burden on AML officials. AI and Machine Learning technologies can help in finding out some false positives while searching through the database. You can even strengthen your process by AI searching on a broader scale and your manual team focused on one specific location. This combination of technology and manpower is one of the answers on how to combat money laundering with the use of technology.

2. Have Regular Cross Communication

Multiple organizations have a quarterly or half-yearly round table meeting with state and local law enforcement and other banks in the area to discuss all the latest trends and how to fight money laundering problem. The primary goal of these meet-ups is to stay up to date on all the methods of fighting fraud that can risk the security of customer data in any way. 

By staying connected to each other, law enforcement can inform banks about the latest schemes opted by fraudsters to trick organizations. While a lot of banks have systems in place that allow them to stay on top of all the new schemes used by fraudsters, this alliance can be really helpful in curbing money laundering activities. 

By having constant meetings, banks and law enforcement can keep each other on top of all the new trends/schemes. Verify any suspicious activities and enhance the business-law relationship. All this is one strong step in keeping customer’s information safe and making sure no one acquires money using illegal methods. While this isn’t the answer to how technology can stop money laundering, it is still an effective method of making sure the fraudsters don’t operate freely.

3. Use Data Analytics to Find Patterns

Making use of data analytics is one of the best methods of fighting money laundering practices. Data analytics helps banks and financial organizations understand the pattern in recurring money laundering or online fraud activities. There can be a pattern like a specific geographical location origin, specific product/service type, and a specific job occupation type. 

Once the AML officials recognize such patterns, they can develop countermeasures or special strategies that can reduce potential risks. The objective of using data analytics is to analyze a customer in “real-time” and reduce the risk for banks before anything happens. Money launderers need less than a week to place the money in the bank and after that, the money is gone, so is the person who deposited it. 

Data analytics deem people with multiple PINs or people with connections to tax frauds as potential threats. Knowing this information during the customer onboarding process can help banks prepare for fraud and learn how to deal with money laundering problems.

4. One Standard System All Across The Institution

 Like any other industry, banks also grow themselves by acquiring their rivals. Constant acquisitions lead to a wide network of different computer systems, different bookkeeping types, and other differences. 

Some divisions may use spreadsheets, some may use ledgers, and this difference in the system can benefit those who are looking for a weakness in the system for fraudulent activities. That’s not all, this can also lead to information breach, customer information loss, and loss in working efficiency. 

This is one of the reasons why all industries are moving towards a complete digital working environment. The growth of the cloud industry can support huge organizations running on digital technology, this also improves the privacy of data.

5. Training Against Fraud Is Crucial

Almost every bank or financial institution has a team of AML officials that ensures finding and getting rid of any suspicious activity. To be able to do that, AML officials need to know what to look out for. That’s why proper training is needed to detect fraud and report it to the right authorities.

Training the staff that’s your first countermeasure against money laundering is crucial. Let’s say some cyber attacker is using an account of a deceased person to launder money, if your staff doesn’t know what anomalies to look out for, this activity would go unnoticed. Training the front-end staff on what they need to notice is one of the best methods to fight money laundering problem and comply with AML regulations.

DIRO’s Assistance to Banks for Fulfilling AML Regulations

DIRO’s award-winning document verification technology aims to weed out fake or fabricated documents. Banks, financial institutions, and FinTechs can use DIRO’s instant document verification technology to verify documents submitted during the KYC and AML Compliance process. 

The technology instantly verifies the document against the original document on any third-party web source. It even provides strong proof of authentic documents that can be used as original documents. DIRO places the document on the blockchain which makes sure the information is provable and unable to temper with. Using the technology, banks can improve the overall customer onboarding process by reducing friction and also reducing the risk for money laundering and other types of online frauds. The utilization of DIRO’s document verification technology is one example of how technology can stop money laundering.

Categories
AML

What Is AML: DIRO’s Role In AML Compliance

aml compliance

Anti-money laundering (AML) is a set of laws, regulations, and proceedings that were made to prevent criminals, cyber attackers, and even businesses from disguising funds acquired using illegal methods as legal money. 

Firstly, the illegal funds are covertly introduced into the legit financial system, then the money is moved around so the government and regulating bodies can’t keep a track of it. Money laundering can usually support crimes such as drugs, trafficking, and terrorism, it can even impact the global economy. 

While the anti-money laundering act covers just a limited range of transactions, the impacts can be wide-ranging. The AML laws require banks, FinTechs, and financial institutions to follow all the rules to reduce the risks of money laundering. Let’s start with learning what AML is in banking so we can move on to how to prevent AML risk with DIRO.

How Anti Money Laundering Works?

AML laws are made to target illegal activities that revolve around manipulating the market, deal with illegal goods, tax evasion, and several other methods to hide the funds that are acquired using illegal methods.

Criminals tend to launder the money that they obtain through ventures like drug trafficking, etc. so the money can’t be traced back to them. One of the most common methods of hiding the money from governments and other regulatory bodies is by moving the money around using legal cash-based businesses. These businesses are either owned by the criminals themselves or they are run by their supporters. These businesses that seem legal upfront then deposit the illegal money which can later be used by criminals for terrorism, destabilizing the global economy, and more. 

Another common way money launderers hide their money is by depositing cash into foreign countries in small amounts as not to arouse suspicion or use the cash to buy assets that can later be converted into cash. A lot of money launderers will invest their money using methods that can provide them with high returns in a limited time. 

One of the major factors of AML regulation is the “holding period”. According to this rule, the deposits made into an account are to remain there for at least 5 trading days. This holding period is set in place to reduce money laundering and mitigate financial risks. How anti-money laundering works is by building a set of rules and regulations that are to be followed by banks and other financial entities.

Reporting Suspicious Activity

It is the duty of financial institutions and banks to keep an eye on customer deposits and other transactions that seem suspicious and could be a part of money laundering activity. All financial institutions have to verify where large sums of money originated from, and report all the transactions that contain cash more than $10,000. If banks want to comply with AML regulations, they must make sure that all their clients are aware of the rules.

If a specific person or organization is under money laundering investigation by regulatory bodies, they will look for inconsistencies or activities that look suspicious in all the financial records. With the financial industry becoming tougher to survive in, extensive records are kept and managed for each and every financial transaction. During the investigation, when law enforcements try to trace a crime, they use specific methods that are better than others to find the origin of funds.

If the law is investigating robbery, embezzlement, or larceny, they often can send money back to the victims. Let’s say that a federal agency uncovers a money laundering crime, the agency has the means to trace it back to those from whom the money was taken.

The Difference Between AML and KYC

The difference between AML and KYC is quite simple to grasp. While both the compliances are closely related to each other, they have some minimal differences. In banking, KYC rules are the rules that organizations have to follow to identify customer identities. 

AML has a much wider application, it is the measures institutions follow to tackle and prevent money laundering, terrorism financing and reduce other financial crimes. Banks follow KYC and AML compliance to make sure their crimes face minimum risks.

History of Anti-Money Laundering

Anti-money laundering became prominent in global financial operations in 1989, it came into existence when countries from all over the globe joined forces and built the “Financial Action Task Force”. The primary objective of this international force is to develop strategies that can be used to fight money laundering and promote the implementation of these strategies globally. After the 9/11 terrorist attack, the FTFA expanded its efforts to diminish or completely stop terrorist financing. 

Another organization that builds upon AML compliance and works tirelessly to fight against money laundering is the International Monetary Fund (IMF), just like FTAF, the IMF has the support of 189 countries to fight money laundering and fight terrorist funding.

How to Control AML Risk With DIRO?

DIRO’s award-winning document verification technology is the ideal solution for smoothening and streamlining KYC and AML compliance. We have worked tirelessly to develop a technology that can verify any document from any third-party web source globally. 

Banks, financial institutions, and FinTechs can make use of DIRO’s document verification technology to mitigate the risk of money laundering & other financial crimes by verifying account holder information and bank statements in mere minutes.

Employing DIRO’s innovative technological solution, financial organizations can cut costs by reducing manual document verification. It can also help in improving the customer onboarding experience by reducing the friction of AML and KYC compliances. Having DIRO’s document verification technology, financial organizations can make a huge impact on KYC & AML compliance.

Categories
Blockchain

Blockchain for Fraud Prevention: How Blockchain Works?

blockchain for business

Blockchain technology has been around for a long time, and it is still growing. A lot of people wonder how does blockchain secure data and how blockchain works. Regardless of all its benefits, there are a lot of mixed feelings towards blockchain technology. It doesn’t matter how mixed the reviews of the technology are, the role of blockchain against fraud and the role in the global economic landscape is great. 

The growth of blockchain first came into the limelight with the rise of Bitcoin. If you’re not into cryptocurrency, you should know about the blockchain for fraud prevention. 

How Blockchain Works?

At first glance, blockchain looks complicated, but the core concept of how blockchain works is really simple. A blockchain is a type of database, to completely understand what is blockchain technology, you need to understand what is a database. 

A database is a collection of information that’s stored on a computer system. Any information that’s stored on a database is stored in a table-type manner for easier searching and filtering of data. Now you may wonder, what is the difference between a spreadsheet and a database. 

The major difference between a spreadsheet and a database is that a spreadsheet is made for a single person or a small group of people. These people can store and access limited information. In comparison to that, a database is designed to store much larger amounts of information, that can be quickly accessed, filtered, and changed quickly by any number of users at the same time. 

Huge databases achieve this functionality by using data on servers that are built on powerful computers. While a spreadsheet database can be accessed by several people, it is often owned by businesses. Now that you understand what is a database, we can move on to “how does blockchain secure data”.

How Does Blockchain Secure Data?

One of the major differences between a typical database and a blockchain is the way the data is structured. A blockchain collects information together in groups that are known as blocks, these blocks hold a set of information. Blocks have a specific amount in which information can be stored, when the storage is filled, they are chained to the previously connected blocks, all of which form a chain of data, which is known as the blockchain. 

So the question remains, how does blockchain secure data? Major blockchain features and benefits account for the issues of security and trust in multiple ways. First, new blocks are always stored linearly and chronologically. The new information is always added to the “end” of the blockchain. 

After a new block has been ended to the back of the blockchain, it is almost impossible to go back and alter the contents of the block unless it is the major consensus to do so. The reason it is considered secure is that it each block contains its own hash, alongside the hash of the block before. A hash code is built using a mathematical function that turns information into a string of numbers and letters. This is how blockchain works in banking and other financial transactions like bitcoins.

Types of Identity Theft

Another common type of online fraud is identity theft, the growing rate of identity theft is alarming. Most people aren’t even aware that their identity has been stolen after the damage has been done. Now that we know how does blockchain secures data, we can discuss how blockchain prevents identity theft. Here are the most common types of identity thefts. 

1. Driver’s License Identity Theft

Anyone that has access to your driving license can make use of your sensitive information and commit fraudulent activities. They can open credit card accounts or use the stolen identity theft if caught for reckless driving. 

2. E-Commerce Fraud

Online identity theft is basically cybercriminals stealing your information like payment details and credentials. Using this information, these criminals can make all kinds of unauthorized transactions. All these transactions will end up hurting your bank balance. This is one of the most common types of identity theft. 

3. Mail Identity Theft

Your mailbox can be vulnerable to all kinds of cyberattacks. One out of 3 identity theft is done via email. Your mailbox contains all kinds of sensitive information including bank information, several login details, or insurance data. This crucial information can be used for all kinds of fraudulent information. 

4. Social Security Number Theft

The social security number is provided to a citizen from the time of their birth. The nine-digit number contains information like financial records, including bank details and a person’s earnings. Now imagine someone gets hold of your social security number, they can use the information for all kinds of purposes. 

If they can use your financial information, they can fill in fake account opening forms or even withdraw money from a person’s account using social security number. More than that, attackers can use your social security number to gain a tax refund. Social security number theft is another common type of identity theft.

5. Synthetic Identity Theft

Synthetic identity theft is a tricky type of identity theft. It is where an attacker mixes stolen information with fake details to create a new fake identity for committing a crime. This newly made identity can then be used to execute all kinds of fraudulent practices. 

How Blockchain Prevent Identity Theft?

Identity theft is a part of online fraud, and it is growing at an alarming pace. A lot of people nowadays are aware of data breaches, but not many are aware that identity theft occurs every two seconds around the globe. In this perilous time, the need for securing one’s identity is crucial, and the way to do that is by safeguarding your documents. Now that you know about types of identity theft, here’s how blockchain prevents identity theft. 

Blockchain against fraud technology has been taken into consideration since the rise of cybersecurity. The incredible technology holds brilliant potential for securing sensitive data from malicious activities.

Since blockchain contains digital assets including documents that are secured via powerful cryptographic keys. This is one of the primary reasons why it is harder for attackers to manipulate information stored in the blockchain. The data is stored on multiple computers on a blockchain network, so if someone wants to access crucial information, they will have to gain access on all computers which is almost impossible in all cases. Even if the hackers happen to gain access to data, any change they make to the data will be highlighted in the information. This is what blockchain unique and suitable to secure data. Now you know how blockchain prevents identity theft.

Storing any identity information on a blockchain will help both government and the public to prevent identity theft. This is how blockchain works, and the blockchain features and benefits are slowly causing it to come into mainstream adoption. 

While blockchain is still a growing technology, it has countless possibilities for securing data. As the current measures for identity information storage are being attacked and breached, the use of blockchain for fraud prevention is at an all-time high. 

Blockchain Features And Benefits

1. Blockchain Is Distributed

A blockchain is a type of distributed digital ledger which contains transaction data that is hosted on a peer-to-peer network. There is no centralized administrator so there’s no one point of failure that can be accessed for information breach. Instead of a single point, the management and authorization are spread all over the network. 

2. Blockchain Is Unyielding

Another blockchain feature and benefit is that any transaction or information recorded on the blockchain is unchangeable as the information can’t be deleted or changed. While you can create a new transaction to change the state of any asset, the new information will just be added to the chain. 

3. Blockchain can be Permissioned

Businesses of all kinds tend to deal with a lot of confidential data and they can’t have just about anyone access the vital information. So they have to find some way to make sure that outsiders can’t access their data. This is where permissions come into play. You should know that not all blockchain is permissioned. This is why permission networks can be a great solution for fraud prevention because they can restrict who can access the data. 

How DIRO Makes Use of Blockchain For Document Verification?

Till now we have discussed, how does blockchain secure data, how blockchain work, the types of identity theft, and how blockchain prevent identity theft. A major part of all the information and the data breach are documented, most of the online frauds are conducted by using fake or tempered documents. 

A person who steals an identity can open a new bank account and use that bank account for many fraudulent activities. That’s where the innovative technology for document verification by DIRO comes in. It verifies any online original information on the web with automatic user consent and impersonation checks. You can verify any bank statements, proof of address, student certificates and so much more.

Once DIRO verifies a piece of information, it provides a trusted certificate that ensures a document is original. This original document can then be shared in the form of a PDF. DIRO provides the digital document with a unique hash, which then is placed on a blockchain. use this information to verify the documents that are already on the blockchain.

So banks, financial institutions, and others can drop this PDF into DIRO’s verification engine, which verifies the information against the blockchain. DIRO’s original documents are much more secure to share as the information can’t be tampered with by attackers or anyone else. Organizations can use DIRO’s software to minimize online fraud.

Categories
KYC/KYB

How to Prevent Fraud in KYC/AML for Online Business?

fraud in KYC

Due to the digitization of the world, the interactions between businesses and consumers are on the rise. As businesses are switching to digital methods of transactions, commerce is becoming global instead of sticking to one particular region. With the rise of digital services, the problem of document verification and how to build trust among your brand and customers also increase. If your business is online, then you will need to learn how to prevent your business from online identity theft. 

According to the global fraud index, the number of frauds is on a constant rise. In the last 12 months, more than 60% of businesses have experienced some kind of fraud or an increase in fraudulent activities. This sudden growth in fraud-related activities calls for swift and secure document verification processes. As a business, you must learn how to protect your business from online fraud in KYC/AML. 

Using the best document verification technology, you can satisfy internal compliance and AML teams, and regulators with a verifiable audit trail of the original source of documents. Almost 80% of businesses that operate on digital models have shown a lot of interest in acquiring greater security measures and using them for document verification processes. Here are our tips for online KYC verification.

How to Prevent Business from Online Identity Theft During Document Verification?

As a business, what kind of investments have you put in place to manage your risks against document fraud while keeping in mind compliance with KYC and AML. If you know that your business is weak in this particular area, then you should make use of the following KYC tips. You should be aware of the main areas you need to focus on to prevent fraud and stolen documents in KYC & AML. Here’s how to do online KYC securely:

1. Make Sure All Your Payment Methods are Secure

It doesn’t matter if your business uses Paypal Credit Cards or any other form of online payment, you need to be aware of all the policies that can affect your business adversely. If you want to start preventing businesses from online identity theft, then you should pay attention to payment method policies. 

As a business, it is good practice to familiarize yourself with all the necessary security measures and apply them to your business. Following up with that can be incredibly beneficial for your business and it can help you protect yourself from document fraud. It is one of the best tips for online KYC verification.

2. Protect Yourself Against Chargebacks

Chargebacks are huge issues for businesses that operate completely online. They happen when a customer reaches out to their bank to claim that a payment hasn’t been authorized properly. 

Different banks, credit cards, and even PayPal have different policies for handling chargebacks, we suggest that you look up these policies so you know what to do to protect yourself. 

In terms of preventing and winning cases for chargebacks, you need to make sure you always have tracking. If you sell physical products then tracking lets you prove the suitable delivery of goods and signature on receipts. This step will help you in preventing businesses from online identity theft.

3. Use Common KYC Practices to Fight Fraud

If you’re wondering how to do online KYC securely, you need to follow the most common KYC practices to fight document fraud. 

  • Verify email addresses.
  • Verify telephone numbers (by sending an OTP via SMS).
  • Check public records while you’re dealing with businesses or individuals (for verifying addresses and other details).
  • Validate any document with the issuing bodies.
  • Ask specific questions that only the customer or the business you’re dealing with would know about. 
  • Try doing the whole KYC procedure on video. Which is also known as the video KYC process. 

Follow these KYC tips for online business, to make sure your business doesn’t get hurt. All of these KYC tests are simple and very easy to implement and all of them are great ways of preventing document and identity fraud. 

4. Use a 3-D Secure System

A 3-D secure system was introduced and adopted by major credit card companies way back in 2010. It’s a secure system that was designed to authenticate at three different levels. Preventing businesses from online identity theft is one of the main purposes of a 3-D secure system.

A 3-D secure system verifies information on the bank and the business of the sender and the information on the bank of the receiver. You can deploy the 3-D secure system as an extra layer of security so you can prevent yourself from document fraud. Using this, the information that is exchanged via intermediary companies can be used to process a transaction that can also be used for verification purposes. 

5. Use AVS Response Codes

Address verification service or AVS has a specific code that can be used to confirm a user or customer’s address. This whole process depends on cross-referencing, the address that a customer has provided is cross-checked with the address provided to a credit card company. Using AVS response codes is a well-known document fraud prevention method in KYC. It can even help a business decide whether they want to go forward with a transaction or not. 

6. Use a Third-Party Document Verification Software

Most businesses that rely heavily on an online business model have shown an increased need for security measures. As a business, you can outsource your document authentication process to a third party that can be affordable. 

Security expectations and requirements for solutions differ greatly based on the type of business. If you want to decrease the fraud levels of your company, there are several things that you can do to achieve that. 

There are a lot of companies out there that offer a manual document verification process for KYC and other things. Others use software solutions for document verification. 

This is where DIRO’s world-class document verification technology comes in. Using their software solution, you can authenticate documents like bank statements, certificates, and other documents anywhere in the world using a single click. This process is secure and can suit the needs of banks, payment services, lending, mortgages, and FinTech businesses. This is one of the greatest tips for online KYC verification, as using a third-party document verification service can be extremely beneficial to your business operations. 

7. Reassure Your Customers that Your Website is Secure

According to reports, the rise in fraud is directly related to weak website security. A website that has weak security measures doesn’t look well in front of your customers. Awareness about identity theft is growing and your customers need to rest assured that you are taking preventive methods to reduce that. 

Lack of visible security is basically a welcome sign for fraudsters. If you can put measures to secure your website then you are assuring your customers while reducing the risk of identity and document fraud. 

Doing this the right way can be a tough thing as you would have to change a lot of things. While doing that, you also need to keep in mind not to add too many layers of security which can increase the risk of customers switching to other businesses. You can’t learn how to protect your business from online fraud if you don’t follow the right online KYC practices.

How DIRO can Save Businesses with Groundbreaking Technology in KYC?

As we mentioned above, the number of online frauds is on a constant rise. Preventing business from online identity theft can be a huge task if you don’t have a solid plan. If you are seeking compliance during the KYC process, you need to make use of DIRO’s award-winning technology. Using DIRO’s software solution, you can verify any document online with automated user consent. The verification happens using a secure browser and you can get results in under 30 seconds. Businesses can make completely authentic documents with a few simple clicks.

Categories
KYC/KYB

Blockchain Technology for KYC Verification

blockchain for kyc

Blockchain is a good solution for KYC verification, not a lot of people would agree with it but using blockchain for KYC is a crucial step in ensuring secure and fast compliance. With the pandemic changing industry standards, KYC automation stands to revolutionize payments, customer onboarding, and so on. It only makes sense to use the most secure technology, “blockchain,” for KYC compliance. 

Blockchain is a decentralized ledger that can help financial institutions, banks, merchants, and so on to streamline the KYC verification process. Here’s why you should use blockchain technology for KYC verification. 

Current Landscape of KYC Industry

It is easy for banks and financial institutions to authenticate customer identities using government-issued ID documents including driver’s licenses, social security numbers, passports, etc. However, the biggest challenge lies in establishing the authentication of other ID sources. Having inefficient KYC verification solutions also leads to an increased rate of financial fraud such as money laundering. 

Regardless of the use case, verifying customer identities using Know Your Customer or KYC verification, is a long and monotonous process. Apart from a huge amount of paperwork, a lack of transparency in the procedure of the use of personal data collected from customers has led to a lack of trust in the process. 

Regulatory bodies all over the world are trying their best to combat financial terrorism and money laundering, which is a highly expensive process. According to reports, firms all over the globe spend over $10 billion on AML compliance annually. 

This volatile environment, with complexity and uncertainty, is the current landscape of KYC compliance. Blockchain KYC verification is a way to fix the problem of less trust and inefficient policies. 

Changes in KYC Environment- Integration of Blockchain

For decades, financial institutions and regulatory bodies have been trying to find viable solutions for KYC and identity verification. Fortunately, blockchain technology came out as a solution.

Blockchain’s role in KYC verification is simple and elegant. As a decentralized ledger technology, blockchain technology will allow for the collection and storage of data from multiple governments and private data portals into a single immutable, secure database. Complying with KYC regulations and authenticating customer identities using blockchain technologies can be faster, easier, safer, and cost-saving than the traditional verification process.

How Can Blockchain Help with KYC Verification?

In the upcoming time, blockchain-based technologies will help bring down cost savings in an industry that utilizes ID verification. Let’s dive deeper into the benefits of blockchain technology for KYC verification:

1. Distributed User Data Collection

A KYC verification system based on blockchain technology will aid financial institutions in enhancing the ID verification process. This is because currently the data is collected and sorted with a centralized system. Access to this data requires KYC providers to share their customer data with companies needing access to it.

With the integration of a blockchain solution to handle the KYC process, customer data for verification is available on a decentralized network and then can be accessed by third parties directly after permission has been given.

2. Centralization of Controls and Risks

By limiting human interference in the KYC and customer verification process, it is easy for FIs to reduce the risk of fraud to a certain extent. This can happen by achieving standardization within the industry overnight. Blockchain allows key regulator concerns to be solved, such as automating the AML customer risk rating process.

Blockchain-based KYC and AML systems have the potential to change industry tides and how banks and financial institutions tackle identity and onboarding.

3. Communication and Transparency

One of the biggest problems with the present KYC landscape is the lack of transparency between customers and businesses. Blockchain will facilitate active monitoring of customers from onboarding till the end of the business-customer relationship.

The immutable nature of blockchain is vital in building trust between all the parties involved in the KYC process. The ability to trust data stored on KYC blockchain software solutions removes the need for secondary validation processes or cross-checking.

Finally, a distributed ledger system makes the reporting and communication processes more efficient, thus saving time and money. Since involved parties can access reliable data, processes, mistakes, and fraud can be detected much more easily.

4. Suspicious Activity Reporting

Currently, doing verification checks during customer onboarding takes weeks at a time, this proves to be extremely expensive for businesses, and staying compliant becomes tougher with the growing costs. 

With a shared ledger, where the data can be managed and accessed by all involved parties, the process of KYC could be easily monitored. Any change to the data of a user will be accessible by all parties, so it is next to impossible to conduct data fraud. Having instant access to a shared ledger will help institutions save time during fraud detection and reporting. 

5. Comprehensive Authentication Process

A decentralized verification technology will help financial institutions quickly verify if a person is who he/she claims to be. This is vital for fraud prevention and compliance with KYC & AML regulations. 

The level of security and trust offered by Blockchain technology reduces the risk of fraud in certain scenarios. It may be possible for fraudsters to get access to sensitive data if a customer’s device is stolen, but they won’t be able to change any data on the blockchain, which leads to fraud prevention. Blockchain KYC verification solutions can change the workflow of the banking industry drastically due to their immutability and increased level of customer satisfaction.

Categories
KYC/KYB

What Is The Complete KYC Procedure For Merchant Onboarding Process?

merchant onboarding kyc

Finishing the merchant onboarding process comes with its fair share of risks such as fraud, excessive chargebacks, and money laundering. To save businesses from this series of frauds, regulatory guidelines and rules are set in place to reduce the risk of fraud. Know Your Customer or KYC is a set of due diligence rules that has to be complied with by organizations to mitigate their chances of getting scammed. Few KYC requirements for merchants have to be followed for a more seamless process. 

Merchant onboarding requires carrying out a lot of due diligence checks for merchants which need to prior to onboarding, and the checks need to continue until the end of a relationship with an organization. Each financial organization may have different step-by-step KYC procedure compliance according to their needs, but the core of it remains the same. KYC compliance is crucial to mitigate risks. 

What is KYC?

Regulated financial organizations such as Banks, Payment aggregators, and investment companies conduct KYC every time a new customer tries to open an account with them. A new client can be an individual, an organization, or a legal entity, the primary focus, and aim of KYC compliance are to verify a customer’s identity, address, and other key factors, they do this verification using a set of documents. 

Combining this verification with other required due diligence checks improves the chances of identifying potential threats before they end up becoming bigger trouble. More than often, non-regulated entities like online markets, etc have to follow up with KYC compliance as a precaution. Following up with the KYC compliance allows banks, financial institutions, and FinTechs to secure themselves, customer information, and the entire system from attackers. Merchant KYC helps businesses to stay away from merchant-related fraud. 

Step-by-Step KYC Procedure

1. KYC Document Check or CDD Process

The foremost step in merchant onboarding KYC is a document check or Customer Due Diligence check, also known as the CDD process. It can be done using either an individual KYC form or a Business KYC form:

  • Individual KYC: If you are a merchant who is an individual, then the organizations will complete an individual KYC or CDD process. Businesses verify your identity using any “officially valid document”, if necessary, the process may require proof of current residence, utility bills, etc. Traditionally, the verification of documents was carried out using human resources, new technologies like DIRO’s document verification have digitized the process and reduced the risk of human error.
  • Business KYC: Whenever a business partners with another business, the business KYC process is conducted. One of the major differences is that the identity check is replaced with an “entity check”. This process differs based on the type of entity a business is. If the businesses partnering with each other are under a trust/partnership, then a trust/partnership deed will be needed. Businesses also conduct UBO checks during the KYC compliance. It is crucial to verify who has the actual ownership of the business, such as the directors, and shareholders,. A separate KYC process can be done for the UBO’s as well.

 2. Verification Against PEP Lists

The next step in the KYC requirement for merchants is to verify the name of onboarding customers, and beneficial owners against specific lists. Lists like the national and international terrorist lists or politically exposed person’s lists. If any of the names match a name that can be a national threat, then businesses need to report them to their respective regulatory bodies. In the USA, the KYC regulatory body is “Financial Crimes Enforcement Network (FinCEN)” 

Apart from that, businesses usually verify these names on blacklists, greylists. Banks, the Office of Foreign Assets Control, etc issue these lists. These lists help the organization fight terrorism and money laundering and reduce the chances of partnering with entities that can end up at a risk. 

3. Onboarding Policies and Merchant Screening

The next step is to do a background check, most organizations build an internal merchant onboarding policy for this step. The aim of conducting a background check is to verify the nature, purpose, and bona fides of a prospective client’s business.

Background research and merchant screening include running a series of tests such as licensing and registration checks, and credit checks. Combining that with verifying publicly available information such as business listings, reviews, and other activities can offer a better idea of how the merchant works. This background check and screening allows for reduced risks. 

4. Ongoing Due Diligence

After onboarding, businesses need to do constant due diligence checks to monitor any changes in merchant behavior. A change in website details or contact information change can be a hint of fraud. If there are a lot of red flags, businesses can review merchant profiles and conduct due diligence checks. Ongoing due diligence checks are crucial for a complete KYC process for merchant onboarding.

5. Transaction Monitoring

One of the most crucial checks after merchant onboarding is to verify the transaction, monitoring transactions can lead to figuring out red flags. Let’s say that a merchant exceeds the maximum permitted transaction limit, and shows an unusual refund pattern then these can be red flags. In case of any suspicious activities that look like money laundering or transactions that exceed the predetermined limit, businesses need to report these red flags to their regulatory bodies. 

6. Record Keeping

The next step in merchant KYC procedure is to maintain records of all the merchant transactions and ID documents collected in the last 5 years. Keeping records is vital, as they have to be presented to authorities upon request. There are regulatory bodies that ensure the effective implementation of rules and regulations by a business. 

7. Periodic Updates

The last but not the least step is to update both merchant risk profiles and KYC profiles at regular intervals. Ongoing due diligence checks assist organizations in improving their chances against financial crimes such as terrorist funding and money laundering. It is a key KYC requirement for merchants businesses are dealing with to keep updating the risk profile. 

DIRO’s Role in Streamlining KYC Procedure

Collecting, verifying, and maintaining records is just one trouble of KYC compliance. Banks and financial institutions spend countless resources to keep up with KYC compliance and mitigate the risks of financial fraud. 

Unfortunately, traditional methods are failing slowly with the rise of sophisticated methods used by criminals to find the weak point in bank systems. DIRO’s online document verification technology is made to eliminate this issue and improve the overall KYC/AML compliance. 

DIRO’s award-winning online document verification technology captures and verifies information right from the original web source. The technology helps check online documents instantly and reduces friction during customer onboarding. It offers 100% proof of authenticity for verified information. Utilizing DIRO’s document verification technology, organizations can improve their KYC compliance and onboarding process. 

Categories
AML

Why Anti-Money Laundering is Important for Financial Institutions?

anti-money laundering

Money laundering is a type of financial fraud, and it affects the global economy in a huge way. Criminals try to hide their illegal money from regulatory bodies, disguising its origin and converting the money into legal funds. Every year, losses due to money laundering equal 2-5% of the global economy ($800 million – $3 trillion). Anti-Money laundering refers to the activities financial institutions perform to achieve compliance with legal regulations to actively monitor for reporting suspicious activities. 

History of Anti-Money Laundering Regulations

The United States was one of the first countries to enact anti-money laundering legislation. The regulation came into existence with the Bank Secrecy Act (BSA) in 1970. BSA was an early effort to detect and prevent money laundering, since then BSA has been amended and made stronger by additional anti-money laundering regulations. The Financial Crimes Enforcement Network is the regulatory body that ensures that AML regulations are followed by financial institutions.

In 1989, companies and organizations formed the global Financial Action Task Force (FATF). FATF’s goal is to devise and promote international standards to prevent the growing threat of money laundering. After the unfortunate attack of 9/11, the FATF expanded its regulation to include AML in its workflows. With 189 member countries, their main purpose is to ensure the stability of the global economy.

Why is Anti-Money Laundering Important?

 Money laundering often accompanies activities like smuggling, illegal arms sales, embezzlement, trading, bribery, and other schemes. Money laundering is a common part of organized crime including human trafficking, arms and drug trafficking, and prostitution rings.  

Anti-money laundering is also related to counter-financing (CFT), which financial institutions use to tackle terrorism financing. AML regulations combine money laundering, with terrorism financing.

Anti-Money Laundering & Counter-Terrorist Financing Laws and Regulations in the EU

The European Union has forced a number of regulations and laws in the past two years including:

  • Sixth Anti-Money Laundering Directive (AMLD6)
  • Markets in Crypto Assets Regulation (MICA)
  • Second Payment Services Directives (PSD2)
  • General Data Protection Regulations (GDPR)

According to industry experts, financial institutions and authorities do even more in their fight against money laundering and terrorist financing. The aim should be to close gaps and loopholes in the current legislation, clarify regulatory details, and toughen criminal penalties across the EU.

The new directive brought better insights and clarification and transparency in regard to some areas:

  • List of offense
  • Money laundering
  • Scope expanded
  • Stricter persecution and punishment (4-year sentences instead of 1 year)

According to some experts, the EU Second Payment Services Directive is bringing change and innovation to the online payment industry. The directive consists of two main elements of popular importance for e-commerce merchants: strong customer authentication and the emergence of two types of new regulated payment providers. Privacy and customer experience are among the most critical aspects that push new bank customers to complete the onboarding process.

General Data Protection Regulation (GDPR)

General Data Protection Regulation (GDPR) is a number of directives for the European Union (EU) that enhance the protection of the personal data of EU citizens. It also requires companies to comply with the latest rules and regulations that enhance the data privacy and security of every individual within the EU. These rules are strict and include many rules that increase the rights of data subjects. 

Three concepts are important under the GDPR:

  • Consent
  • Security
  • Legitimate interest
Categories
Proof of Address

How to Get a Proof of Address in The UK?

how to get a proof of address in the uk

Opening a new bank account or applying for a loan? The first thing that you need to prove is your address. One of the primary things to do is to provide valid proof of address in the UK. Specific documents are needed to prove your ID, such as a passport, a driving license, or by validating a rental/ownership of a property.

For a long time, banks have been relying on address verification as a security measure. It is a regulatory requirement that banks have to perform for each individual that’s opening an account. Although, proving their addresses may not be as simple for some people. There can be instances where someone has just arrived in the UK and therefore doesn’t have a bill or any documentation with their name on it.

Choosing the bank type you want to open an account with may be a deciding factor as different banks ask for different types of information. For Example, some banks may not even want proof of address as part of the account opening process. 

Why Do Banks Ask for Proof of Address?

As financial institutions, banks are required to comply with strict security measures to make sure fraudsters aren’t using new accounts for illegal activities such as money laundering or money embezzlement. 

That’s why the banks have to ensure that the person who is opening an account uses a valid identity. But, of course, it also helps ensure that the person is whom they claim to be, and banks do so by checking the validity of the address.

The two most important documents that a bank asks for before customers open an account are the photo ID of the person applying for a new account or a loan and their registered proof of address. Different banks may ask for a different types of documentation for verifying a person’s address. Usually, 1-2 documents will also be required for verifying your residential address. 

These documents usually have to be from a source, such as a UK photo driving license or a tax return document.

What Documents Required for Proof of Address?

The documents required for proof of address verification differ from bank to bank. Each bank also has different processes for verification in which different documents are provided. Additionally, the verification time required for each document is also a major factor for banks. 

Also, the documents a person provides to banks have to be up to date, and the verification time taken by each document has to be taken into account when supplying these documents. If a bank asks for a credit card statement or a utility bill for address verification, they can’t be older than three months. If the person uses a utility bill, it can’t be older than one year (12 months). And if you’re opening a new account, you need to confirm with your bank what documents they require for proof of address verification.

Some of the most common documents used by the bank as proof of address are:

  • A valid UK driving license
  • Recent utility bill (Gas bill, electricity bill, water bill, or landline phone)
  • Council tax bill
  • Recent credit card or bank statement
  • A recent credit union statement
  • Tenant’s agreement/ rental agreement

If you don’t have any of these documents for address verification, then you can reach out to your bank for additional documents that can be used for verification.

What if you Can’t Supply a Bank With Proof of Address?

If you’ve just arrived in the UK and you want to open a new bank account, it can be tough as you may not have all the necessary documents. The most common documents are utility bills and credit card bills, and new residents may not have either. 

Some banks allow for different types of documents such as:

  • A letter from the college or university, or language school if you’re in the UK for studying. Student documents can be used for verification.
  • A letter from your employer confirming your address.
  • A letter of referral from your existing bank can also be used as a letter of verification. 

As mentioned above, different banks rely on different document verification. So other documents can be used for verification.

Are There Banks in the UK That Don’t Need Proof of Address?

Almost all the major banks in the UK are required to have proof of address before allowing you to open an account with them. If you want to know about the documentation required by several banks, you can visit the website of the bank of your choice and decide if you have those documents or not. You can find a list of options in which a bank may accept documents other than those mentioned above on the Financial Conduct Authority website.

Categories
Fraud Payment

Best Practices to Prevent Credit Card Fraud

credit card fraud prevention

Credit card fraud was the most frequent type of fraud reported in 2020 according to the Federal Trade Commission. And the amount lost annually to credit card fraud is a staggering $149 million. While it’s vital to ensure the security of their financial accounts, if you do end up being a victim of credit card fraud then you should know what to do next. And what would be the best practices for credit card fraud prevention?

What is Credit Card Fraud?

Credit card fraud is when a fraudster uses credit cards without the authorization of the card owner. They can use it to purchase products/services or obtain funds without the cardholder’s consent.

Difference Between Credit Card Fraud vs. Identity Theft

Both of these types of fraud are similar, but identity fraud is broader in reach. An identity thief steals your personal information, such as your Social Security Number, Opens a new account, gets a loan approved, and files for tax returns.

Credit card fraud is a different type of identity theft that happens when your credit card is used for unauthorized purchases. Customers who rarely check their credit card account online may notice some anomalies in the account that you didn’t make. While the majority of credit card issuers offer zero liability on fraudulent purchases, it doesn’t mean that you will turn a blind eye. This also raises the question of how banks prevent credit card fraud.

There are no particular credit card fraud prevention strategies that provide you total credit card fraud protection, but some small actions can lead to an increased risk of fraud, thus you should take time out of your schedule to learn how to secure yourself.

How Consumers Can Prevent Credit Card Fraud?

There are several methods and techniques that fraudsters utilize to steal your personally identifiable information. Fraud reports for 2020 increased over the previous year which isn’t surprising because most of the world went towards a digital transformation. Bad actors always look forward to weak moments for a customer to steal personal information.

Sometimes, being aware of the red flags and things that seem suspicious will help you make better decisions and avoid credit card fraud. Here are some common things to look out for:

1. Don’t Use Unsecure Websites

This is something that you can easily do. If any shopping site is secure you’ll see a padlock on the top left side before the address bar. Also, the web address will begin with HTTPS. Do not enter credit card numbers on a website that you see isn’t secure. And let’s be honest, if a business isn’t offering data security, you shouldn’t invest your time in it. Not using insecure websites is the primary credit card fraud prevention.

2. Beware of Phishing Scams

Phishing scams are very common and they can happen on the phone, email, texts, or anywhere else. The scammers might call and pretend they are from some government body and try to gather your personal information.

Scams as of today are very sophisticated, customers often get scam emails from what seems like their bank. If the email requests you reply with your credit card account number, you know it’s fake.

3. Beware of What You Post on Social Media

While social media is extremely exciting, it does have its downfalls. Fraudsters keep deriving new methods of stealing personal information through social media. Kids often end up sharing sensitive data on social media without being aware of it. To prevent credit card fraud, parents need to have a serious talk about what they share on social media. 

Anything you post about your personal life can be pieced together by fraudsters to build a profile for financial fraud.

4. Use Mobile Payment Apps

There are some chances that your card information may be skimmed by an in-store card reader, but it can still happen. Thus, it is better to increase the protection of credit cards by using mobile payment apps such as PayPal.

All the mobile payment apps use a technology named tokenization, which allows you to pay without exposing the actual card number. This way, your account stays safe from fraudsters even if the transaction data is exposed.

5. Don’t Save Credit Card Information Online

This may take some time to master, you have to stop, find your credit card number, and type it in every time you wish to make a transaction. It doesn’t matter if it’s a retailer that you trust, a data breach can put your private information at risk. This is an effective method of decreasing the risk of fraud.

6. Use a Password Manager

One of the primary rules with using passwords is that you shouldn’t use the same password or a combination of the same passwords over and over again. If a fraudster gets access to one of your passwords, then they’ll be able to gain access to all your accounts.

A password manager can help you generate and remember complicated passwords easily. Having a variety of complicated passwords can assist you in saving yourself from financial fraud.

7. Don’t Use Public WiFi for Financial Transactions

Public WiFi is riddled with fraudsters, trying to steal any information that they can find. If you conduct any kind of financial transaction on public WiFi, you’ll be vulnerable to hackers because these networks are often unencrypted. Whatever financial transactions you need to conduct you should do it on your personal network.

You can also use a virtual private network or VPN to encrypt the public WiFi. A VPN encrypts your incoming and outgoing traffic thus securing the transactions.

How Businesses Can Prevent Credit Card Fraud?

1. Secure Payment Processing

Almost all businesses should have secure payment processing systems. The best options are to use systems that rely on tokenization and encryption to protect sensitive card information during transactions and reduce the risk of data breaches. 

2. EMV Chip Card Technology

Another fraud prevention method is the use of EMV chip cards. Adopting EMV-compliant payment systems can reduce the risk of payment fraud. Chip cards are tougher to copy than magnetic stripe cards. 

3. Address Verification and CVV Checks

Using address verification checks and CVV checks can significantly reduce the number of card-not-present frauds and minimize the risk of fraud.

4. Fraud Detection Tools

Businesses that onboard a lot of customers globally need the help of fraud prevention tools. Technologies like DIRO business verification, proof of address verification, and online document verification can help businesses differentiate between legitimate and fake customers.

5. Employee Training

It is essential to educate your employees to recognize and prevent fraud. If your employees know something is fishy, they can minimize the risk of fraudulent activity, especially in retail environments.

6. Regular Monitoring

Monitoring transactions and customer accounts regularly can help in learning basic fraud patterns and upcoming trends. Identifying patterns is a great way to catch potential fraud early.

7. Chargeback Management

Having a chargeback management process can help businesses track, analyze, and respond to chargebacks. Chargeback fraud can be a major indicator of fraud.

Types of Credit Card Fraud

Credit card fraud can happen in several ways. They’re made specifically to target weak points in payment systems. There are vulnerabilities in each section of a payment system that a fraudster looks to exploit.

Here are some of the most common types of credit card fraud:

1. Stolen or Lost Credit Cards

As the name suggests, this type of fraud happens when a criminal steals someone else’s physical card. The fraudulent actor then uses the card to make unauthorized purchases. Until the legit owner reports the card as missing or stolen, a fraudster can keep on using the card.

2. Card-Not-Present (CNP) Fraud

CNP happens when a scammer obtains credit card information (card number, expiration date, or CVV) and uses the card to make illegal transactions. These transactions can be done online, by phone, or by mail without a physical card.

One of the most common ways to obtain card information is through data breaches, phishing, and other methods.

3. Account Takeover Fraud

Commonly known as ATO, a criminal obtains illegal access to a credit card account or bank account. This is mostly done via ID theft or phishing. Once the account information is obtained, scammers change it, add themselves as authorized users, and request a new card.

They then use the new card to make illegal transactions.

4. Application Fraud

This type of fraud happens whenever a criminal applies for a credit card using fake information. Once the application is approved and scammers receive the card, they use it for illegal transactions. The legit bank account owner then has to deal with the financial ramifications.

5. Skimming

Skimming is another type of credit card fraud. Fraudsters use a small electronic device, known as a “Skimmer”. This small device steals credit card information from the card’s magnetic stripe during legitimate transactions. Fraudsters often place these devices at an ATM or a payment terminal.

Criminals can then use the captured data to create counterfeit cards or carry out illegal transactions.

6. Phishing Scams

These are some of the most common types of credit card fraud. Phishing scams use emails, phone calls, and texts to trick cardholders into revealing their credit card information.

Users receive an email that may look like it’s from a legitimate bank/company/retailer. Most of the time, the motive of the email is to steal the user’s account information.

Emails ask users to “confirm” their account information by clicking a link or a button.

Which Businesses Are Most Susceptible to Credit Card Fraud?

There are specific businesses that are more vulnerable to credit card fraud. Here’s a list of businesses that are more at risk of credit card fraud:

1. eCommerce and Online Retailers

As these businesses conduct CNP transactions, they’re more open to fraud. There’s no way to verify the authenticity of the cardholder, so they’re more exposed to fraud.

Additionally, online transactions are more vulnerable to data breaches, phishing, and malware attacks.

2. Small Businesses

Small businesses don’t have the resources to invest in robust fraud prevention and detection. They don’t even know about the latest development in credit card fraud trends. This makes small businesses more vulnerable to different types of fraud.

3. High-Risk Industries

Businesses operating in high-risk industries like gambling, adult entertainment, finance, etc tend to experience more instances of fraud. Criminals love to target these industries because the volume of transactions is higher than in other industries.

4. Businesses with High Employee Turnover

Businesses that have a high number of employee turnover are more vulnerable to fraud. Why? Because the consistent shift in employees makes it tough to maintain rules and regulations. There are even cases where employees partake in fraudulent activities due to a lack of procedures.

5. Businesses With Outdated Technology

Retailers that use outdated point of sale (POS) systems or payment terminals are more vulnerable to skimming and other types of fraud.

Older technologies aren’t up to the latest protocols so they’re more susceptible to fraud.

How Banks Can Prevent Credit Card Fraud?

While customers don’t have to bear the burden of credit card fraud, financial institutions have to take the brunt of the fraud. To prevent this type of fraud, FIs need to comply with KYC regulations and AML regulations, continuously monitor the transactions, and utilize technologies.

Technologies such as DIRO online document verification solutions can help financial institutions stay on top of acts of fraud.