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Identifying Fake Bank Statements: How to Fight Fraudulent Applications

fake bank statement

Bank fraud is getting harder and harder to spot, especially with so many free-to-use AI tools. Fraudsters today have an easier time conducting fraud compared to fraudsters a decade ago. Banking fraud increased by 11% between 2023 and 2024, which is concerning for both businesses and individuals. This is why it’s crucial to identify fake bank statements.

Manual verification methods can’t keep up with the standards set by bad actors. Identifying fake bank statements is the need of the hour to reduce fraud as much as possible. Some common methods can be utilized to identify fake bank statements.

Identifying Fake Bank Account Statements

Fake bank statements have one aim – to mislead individuals and businesses from getting legitimate account information. Fraudsters use a combination of fake and real information, with new technologies, to make fake account statements. Most bank statements are made to mislead the second party into thinking the financial situation is something else than it actually is. 

A legit bank statement would typically include specific details, such as:

  • Account holders’ names
  • Account number
  • Transaction history
  • Bank contact information

A legit bank statement’s goal is to provide a comprehensive overview of financial activities, such as:

  • Deposits
  • Withdrawal
  • Service charges
  • Transaction history over a specific time period
  • Opening & closing balances

Businesses require these bank statements to assess an individual’s financial health. Generally, this information comes in handy when an individual applies for a loan. 

Why Do Fraudsters Make Fake Bank Statements?

There can be multiple reasons for building fake bank statements. The primary reason individuals make bank statements is to secure a loan. For instance, an individual may show their account balances or fabricated deposits to appear more financially healthy than they are. 

Another reason could be to pay lower taxes or not pay taxes at all. Bank account statement fraud can also be used to meet rental requirements, secure job positions, or build business partnerships.

How to Fight Fraudulent Applications?

Unfortunately, the problem of fake bank statements is still prominent, and it has grown even bigger with the pandemic putting millions of people out of jobs. As a matter of fact, the problem with fake banks has become an even bigger nuisance for banks, financial institutions, building owners, and so on. The percentage of fake bank statements used increased from 15% to 29% in September 2020.

What makes this situation worse is that one in every 4 applications tends to go unnoticed. The increase in the number of undetected fraudulent applications can be allotted to the lack of proper verification solutions. Also, manual methods of verification can’t detect highly sophisticated forged bank statements. Automation and data utilization can be used to fight fraudulent applications.

Identifying Fake Bank Statements

1. Ensure that All The Figures Match Up

One common mistake that fraudsters make is that they don’t put in too much effort to ensure that all the numbers on the bank statements add up. If there is no money for automated verification processes, then you’ll need to take up your time to figure out if the numbers add up.

While identifying the bank statements, it is always a good idea to keep one thing in mind: people who fake bank statements will often use round figures. Proper round figures are usually a red flag while identifying if a bank statement is real or not. 

2. Take to a Bank Rep

If, as a business, you’re uncertain that you have received a fake or genuine bank statement, then one way to be sure is to reach out to a banking representative. Call the bank yourself, don’t rely on any information that’s listed on the bank statement. Once you get through to a banking representative, confirm all the details you want to confirm. 

In most cases, a banking representative will ask for a copy of the document. Chances are that you may not get much support from the bank. Various banks will try to prevent the manipulation of documents by adding some kind of digital signature to the PDF files, although this feature is usually used to protect investment accounts.

3. Search for Inconsistencies and Errors in Documents 

The first potential red flag regarding the bank statements is the major & minor inconsistencies in the documents. Are the font size and the font type consistent with other document types of the same bank? Is the bank’s logo accurate and up to standard? People who create fake bank documents often get lazy, and these inconsistencies can help in preventing online fraud. Do the numbers add up in the document, and does the ending balance make sense? Are there any suspicious withdrawals? If the bank statements contain any of these inconsistencies, then you may need more research.

4. DIRO’s Online Document Verification

While you can rely on manual methods of verification for a lot of things, they still have some limitations. By utilizing technologies, you can easily distinguish between fake and real documents. DIRO’s bank document verification software verifies documents instantly and provides strong proof of verification backed by verifiable credentials. DIRO’s online document verification tool can verify over 7000 documents from all over the world by cross-referencing document data from an original web source.

The technology can eliminate the barriers of manual verification and enhance the overall document verification process, and eliminate document-related fraud.

5. Irregular Transactions

Another red flag to notice is transactions that are irregular, numbers that don’t match up, or bank statements that don’t include a clear timestamped record of financial activity. Some red flags that are most common include:

  • Rounded or repeated deposits: Multiple transactions that have identical payments or identical transactions with rounded figures ($5,000) each month.
  • Unusual activity patterns: No record of utility bills, groceries, standard monthly expenses, especially for personal accounts. 
  • Backdated transactions: Be on the lookout for transactions that don’t match public holidays or weekends, or during bank holidays.
  • Inconsistent running balances: Check the opening and closing balances of the account after deposits and withdrawals.
  • Deposit descriptions: Look for transactions that don’t match the stated employer.

How to Prevent Bank Statement Fraud?

Prevention is better than a cure is not just a saying; for businesses dealing with bank statement fraud, it is a must-do. Some key strategies for preventing bank statement fraud include – conduct regular reviews, education & awareness, and advanced technologies for fraud detection (check DIRO). Let’s break these steps down one by one:

1. Conduct regular reviews and systematic vigilance

The first thing to prevent bank statement fraud is to set up a framework for regular review of financial statements. Having a framework in place with early detection of discrepancies or anomalies can help businesses and individuals identify risks of fraud. 

Audits should become a regular part of businesses and financial institutions to prevent fraud. These audits can help identify inconsistencies that may go undetected otherwise. 

2. Educate and aware employees

Businesses should make it a habit of educating their teams to prevent fraud. Basic education practices include regular communications, workshops, and providing resources that help employees identify risks of fraud.

Anyone who deals with bank statements in the company should be able to understand the common red flags of fake bank statements. Train employees about common practices fraudsters use, mistakes to spot in bank statements, and teach them how to use software for bank statement verification, such as DIRO.

3. Leverage AI and Technology

If fraudsters can use AI and the latest tech to conduct fraud, businesses should fight them on equal footing. Businesses should integrate AI and fraud-combating tools in their frameworks to ensure that no fake documents can be used to conduct fraud.

Tools like DIRO’s bank account verification solution can verify bank statements in real-time by comparing the data from the issuing source, proving the legitimacy of the documents. 

Conclusion

Verifying fake bank statements is crucial for businesses to prevent financial fraud. Bank statement verification is a must-have part of the loan underwriting, tenant screening, compliance, and fraud prevention processes. Businesses should build solid processes that can help in bank statement verification and reduce the risk of online fraud.

Frequently Asked Questions

What is the Difference between a bank statement and a bank letter?

Individuals often get confused between bank statements and bank letters. They’re both issued by banks and used for verification, however, they serve 2 different purposes in financial and compliance workflows.

Here’s a breakdown:

  • Bank statement: A detailed record of financial activity over a time period. Issued by the account holder’s bank, either through online banking portals or mailed statements. 
  • Bank letter: Sometimes also called the bank reference or proof of account. It is a formal confirmation that an account exists and is in good standing. It’s issued by the bank but only when it’s requested by the account holder.

How serious is bank statement fraud?

Bank statements fraud can have a serious impact on both businesses and financial institutions and can have severe consequences. Individuals who fall prey to bank statement fraud sometimes end up taking steps that can compromise their integrity and financial health. This is why businesses need to set up a framework for combating fraud.

Who needs to verify the integrity of bank statements?

Bank statement fraud is a huge problem for both individuals and banks. A lot of industries and businesses rely on bank statements to identify the income, financial history, and financial health of an individual. This is why a lot of fraudsters try to use bank statements as a means of fraud. 

Here’s a list of industries and businesses that often use bank statements for financial verification:

  • Lenders: Loan providers, payday lenders, or mortgage providers use and verify bank statements to assess financial situations and make lending decisions.
  • Landlords and tenant screening: Landlords often use bank statements to verify income or financial responsibility.
  • FinTech platforms: Often need document-based onboarding, so they verify bank statement verification.
  • Insurance companies: A lot of insurance companies that request bank statements as part of the claims process, especially during fraud investigations. 
  • Employers and HR teams: Employers and HR teams ask for bank statements for proof of income verification.
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NeoBanks vs Traditional Banks – What’s the Difference?

Neobanks vs traditional banks

Have you noticed new companies popping up out of nowhere, offering great credit cards, bank accounts, and other financial services? Companies with a massive digital footprint but almost zero physical footprints.

Welcome to the world of digital banking. Digital banking or Neo-Banking is the next natural step that the financial industry will take, at least according to some industry experts.

Every now and then, there’s someone who asks what digital banks are, how they operate, and how Neobanks are different from Traditional banks.

The word Neo comes from a Greek word that basically translates to “new.” So, Neobanks is a clever way of saying that this is the new age of banking. Similar to traditional banks, they offer savings accounts, current accounts, loans, money transfers, credit cards, and more.

So what’s the actual difference between the two? That’s what we’ll help you figure out.

Quick Overview of Traditional Banks vs Neobanks

Comparison FactorsNeobanksTraditional Banks
Physical BranchesNo physical presencePhysical branches and ATMs
Fees/RatesVery low or no fees at all. High-end rates on depositsMultiple fees for different services. Lower rates on deposits
Products/ServicesUsually focused on one particular financial serviceComplete banking service
Customer ServiceSupport is available online, in person, and on the phoneSupport is available online, in person, on the phone
Tech FeaturesLeverages advanced technologiesSlower adoption of new technologies
FDIC InsuranceOnly online support is availableFDIC insured
Target AudienceAvailable if partnered with an FDIC-insured bankAlmost every kind of individual and business

What Are Traditional Banks?

Traditional banks are the brick-and-mortar institutions that offer physical banking & non-banking services. Most traditional banks have decades of experience under their belt and have multiple branches in towns and cities. Traditional banks offer these services:

  • Bank account opening & closing
  • Locker facilities
  • Money transfer services
  • Loans and investments
  • Credit cards
  • Cash withdrawal through ATMs

Pros of Traditional Banks:

  • Comprehensive banking services
  • In-person customer services offer better guidance
  • Established reputation and trust
  • Wide network of ATMs for cash disbursal

Cons of Traditional Banks:

  • Legacy systems don’t offer the flexibility tech-savvy customers want
  • Higher fees for various services & account maintenance
  • Service processing times are slower than those of Neo banks
  • Customers have to visit physical branches to get things done

Key Features of Traditional Banks:

1. Physical Presence

Traditional banks have several branches across multiple cities. Customers can access financial services from their bank at any of the branches. Also, customers who want in-person assistance, traditional banks are the best option.

2. Wide Range of Financial Services

Traditional banks, unlike Neo banks, offer a wide range of financial services. Banks provide a range of services, such as loans, credit cards, investment services, foreign exchange, locker services, and more.

3. Regulatory Oversight

Traditional banks have to operate under rules and regulations set by their governing bodies. This ensures that banks offer financial stability and work towards protecting depositors and financial information.

4. Customer Service & Relationships

Traditional banks offer in-person customer service at all their branches. This makes customers feel safe. In-person experience also offers cultivate long-term relationships with their customers, offering personalized service & financial advice.

What are NEO Banks?

Neo banks are the banks of the technological era. Their primary mode of offering banking services is online. Neo banks don’t have any offline branches; all banking services offered can be accessed via a website or an app. Customers choose Neo banks over traditional ones because of the flexibility and agility they offer. 

Common Neo bank services include:

  • Bank accounts
  • Credit cards
  • Loans and investments
  • Money transfer services

Pros of Neo Banks:

  • Lower fees or minimal fees for transactions, account maintenance, and other financial services
  • Neo banks offer higher interest rates compared to traditional banks
  • More convenient and accessible because of their online mode of operation
  • Fast and streamlined account opening
  • Ideal for tech-savvy users who want financial services at their fingertips

Cons of Neo Banks:

  • No physical branches, so there’s a lack of in-person guidance
  • Neo Banks offer limited financial services compared to traditional banks
  • Not suitable for non-tech-savvy users; moreover, technical issues can cause a complete stoppage of services
  • As Neo banks are primarily digital, there may be concerns regarding the security of financial and personal information.

Key Features of Neo Banks:

1. Digital-First Approach

Neobanks offer better flexibility and accessibility to financial services for users of all kinds because of their digital-first nature. Customers can access financial services through mobile apps and web platforms, making it easy to access financial services.

2. User-Friendly Interfaces

As they are digital-first, Neo banks often offer user-centric design that makes accessing financial services easy.

3. Personalized Services

Neobanks offer more personalized banking services and experiences to customers as they rely on AI & data analytics. Common personalized services include:

  • Tailored saving plans
  • Budgeting strategies
  • Customized financial tools

4. Lower Cost

As Neo banks don’t have physical branches, overhead costs, Neo banks offer more affordable banking services compared to traditional banks. This can make them an attractive option for users who want to save money.

The Banking Landscape in the Digital Age

Technology, especially the rise of smartphones, has completely changed the banking landscape in recent years. Traditional banks, while still relevant, are facing serious competition from Neobanks.

Neo banks are offering faster, more seamless, and more affordable banking services compared to traditional banks. The banking sector is heading towards a major digital-first shift, with both Neo Banks and Traditional Banks fighting for a place at the top.

Difference Between Neobanks and Traditional Banks

There’s a huge list of similarities between Neobanks and traditional banks, but they’re still fundamentally different. Let’s go over the list of differences between Neobanks and traditional banks.

Neo Banks are slowly but steadily shaping the financial landscape, impacting traditional banks and how they have been operating in the past. Let’s take a look at the key differences between Neo Banks and Traditional banks.

1. Neobanks have no physical presence

Unlike traditional banks that have branches all over a location, neobanks have no physical locations you can visit. The entire infrastructure is online, and you can handle every setting of your account with an app.

This online-only model helps in saving thousands of dollars on operational costs and costs that come along with running physical locations.

Traditional banks historically have had a physical presence, and in recent years, they’ve started to get into digital banking more deeply. Compared to digital banking services offered by traditional banks, Neobanks’ services are more user-friendly and easier to use.

2. Neobanks are not regulated

While they’re called banks, neobanks are actually financial institutions. The difference between neobanks and traditional banks is that traditional banks need to have banking licenses. Neobanks are not recognized as official entities by regulatory bodies, and thus, they don’t have to follow regulations.

They utilize this saved money to provide better services at a lower cost to customers.

Some neobanks may have partial, full range, or a special banking license. A banking license allows neobanks to offer all kinds of banking services. 

3. Neobanks are more affordable

As neobanks have no physical operations to run, they can save more money, which allows them to be more affordable. They have no opening fees, low maintenance costs, no minimum requirements, no hidden fees, and they offer higher savings interest rates.

Neobanks also tend to be more transparent with their fees upfront. Traditional banks tend to have a lot of hidden charges that consumers may not understand at first.

4. Neobanks offer more flexibility

Compared to traditional banks, every single activity in neobanks is easier to do. Opening up a new account and signing up is far easier than with traditional banks. It is also easier to borrow money from a neobank compared to a traditional bank.

Signing up for a credit card or applying for a loan at a traditional bank means you’ll have to pass a range of checks.

5. Traditional banks have more services

The biggest difference between a neobank and a traditional bank is the number of services offered. While Neobanks are faster, more user-friendly, and flexible, they often have one or 2 main services.

Comparatively, traditional banks have a wider reach, all thanks to their physical locations. People who don’t yet trust online banking, or haven’t had exposure to online banking services, still prefer traditional banking over newer methods.

6. Traditional banks are more accessible

The popularity of Neobanks has grown tremendously over the years. This is because of those who want the convenience of online banking. At the same time, traditional banks use their old methods of maintaining quality relations with their customers.

Neobanks are going through a great phase throughout the world. Millions of customers rely on their services, and industry experts are waiting for the future. Currently, the situation is that more users prefer traditional banks over neobanks as they’re more easily available and more reliable. 

Customers can actually go to a physical office or talk to a representative when they have a grievance. The same can’t be said for a neobank.

Similarities Between Neobanks and Traditional Banks

While Neobanks and traditional banks are fundamentally different, there are some similarities between the two:

  • Account types: Both Neobanks and traditional banks offer basic banking services like checking & savings accounts.
  • Online and Mobile banking: Similar to Neobanks, traditional banks have also started offering online and mobile banking.
  • Security: Both Neobanks and traditional banks invest in state-of-the-art safety infrastructure to keep customer data safe.

Frequently Asked Questions

1. Which bank is better? Neobank or traditional bank?

The better bank depends on your needs. Based on your service requirements, the better bank for you can differ greatly. Neobanks have lower fees, they’re easier to sign up with, and they’re great for tech-savvy people. 

Traditional banks are more reliable, have physical accessibility, and are regulated. But they’re more expensive, offer lower interest rates, and more.

2. What are the services of a traditional bank?

The most common traditional banking services include:

  • Providing a savings account
  • Providing a checking account
  • Issuing debit cards
  • Issuing credit cards
  • Wealth management
  • Giving out loans
  • Insurance

3. Which bank is safer, a Neobank or a Traditional bank?

It comes down to the level of due diligence an institution has employed. Being more tech-friendly, neobanks generally offer better security. They have simpler onboarding, yet they do ID verification and KYC checks. 

However, traditional banks have huge infrastructure and years of experience under their belts. Moreover, they have to follow regulations set by regulatory bodies. 

In the end, it comes down to the level of customer due diligence an institution employs.

4. Do Neobanks have banking licenses?

No, most neobanks don’t have a banking license. Although there are chances that some neobanks may have a partial, full, or special banking license. With these licenses, neobanks can offer services that a traditional bank can, with more focus on user experience and affordability.

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Open Banking: The New Era of Financial Auditing

open banking and financial audit

The world of auditing is changing rapidly, and Open Banking is driving the change. For decades, auditors have relied on traditional, manual processes—chasing down client records, cross-referencing financial statements, and making sense of fragmented data. It’s a system that works, but it’s far from perfect.

Traditional audits are slow, prone to human error, and often limited by incomplete data. However, with open banking, auditors now have direct access to real-time financial data, cutting out inefficiencies and reducing the risk of inaccuracies. This shift is more than just a technological upgrade—it fundamentally rethinks how audits should work in a digital-first world.

In this guide, we’ll explore:

  • Why traditional auditing methods struggle with accuracy and efficiency.
  • How Open Banking streamlines the process by providing real-time, verified financial data.
  • The key ways auditors can use Open Banking to detect fraud, verify revenues, and improve financial reporting.
  • The future of auditing in a world where automation, AI, and blockchain are changing the game.

Why Traditional Audits Are Due for an Upgrade

Auditing has always been about ensuring financial transparency, but let’s be honest: the way it’s been done for decades has some serious flaws.

1. Too Much Paper, Too Many Spreadsheets

Even in the digital age, many audit firms still rely on clients providing PDFs, Excel sheets, or even paper-based statements. These records have to be manually checked, entered into systems, and reconciled. This isn’t just tedious—it’s a breeding ground for errors and inconsistencies.

2. Time Constraints and Endless Follow-Ups

Auditors are constantly racing against the clock. Gathering financial data from clients can take weeks, with multiple follow-ups needed just to get complete information. Meanwhile, auditors are left waiting for documents, chasing missing records, and trying to piece together the full financial picture.

3. A Small Sample, A Big Risk

Traditional audits don’t analyze every transaction—there simply isn’t enough time. Instead, they use sample testing, reviewing only a portion of transactions to draw conclusions. While this has worked for years, it also means that fraud, misstatements, or inconsistencies can slip through the cracks.

4. Data That’s Already Outdated

By the time an auditor receives financial statements, they might already be weeks (or months) old. In a world where transactions happen instantly, relying on outdated data means auditors are always playing catch-up.

How Open Banking Transforms Auditing

Open Banking is exactly what it sounds like—a system that allows secure access to banking data through APIs (Application Programming Interfaces). Instead of relying on client-supplied documents, auditors can now connect directly to real-time, bank-verified financial data.

What does that mean in practice?

  • No more waiting for clients to send over bank statements.
  • No more questioning whether the data is accurate or up-to-date.
  • No more manual data entry that introduces errors.

Imagine starting an audit and instantly having access to every bank transaction from the past year, fully verified, without having to request or manually check a single document. Instead of working with old or incomplete data, auditors now get a full, real-time picture of a company’s finances, allowing them to work faster, more accurately, and with greater confidence.

The Key Benefits of Open Banking for Auditors

1. Faster and More Reliable Transaction Analysis

Traditionally, checking transactions meant manually going through bank statements and comparing them with financial records—a slow and painstaking process. With Open Banking, auditors can automate this entire workflow, instantly matching transactions with accounting records to spot discrepancies.

2. Smarter Fraud Detection

Fraud often hides in the details—unusual payments, duplicate transactions, or vendors that don’t quite add up. Auditors used to scan for these manually, but Open Banking enables AI-powered tools that automatically flag suspicious patterns, helping auditors catch fraud before it becomes a major issue.

3. Revenue Completeness Testing Made Easy

One of the biggest challenges in auditing is ensuring that every dollar of reported revenue is actually backed by a bank deposit. In traditional audits, this is done through sampling. But with Open Banking, auditors can verify 100% of transactions, ensuring complete accuracy without guesswork.

4. More Effective Expense Verification

Matching expenses to supporting invoices is another time-consuming audit task. With Open Banking, auditors can instantly confirm whether payments align with invoices, detect duplicate payments, and flag any irregular spending.

5. Real-Time Access to Year-End Transactions

One of the biggest frustrations in auditing is verifying post-year-end transactions, essential for ensuring revenue and liabilities are reported correctly. Open Banking allows auditors to access this data instantly, making adjustments faster and more accurately.

6. Significant Time Savings and Efficiency Gains

By removing the need for back-and-forth communication with clients over missing documents, Open Banking can cut audit completion times by weeks. Auditors spend less time chasing paperwork and more time doing what they do best—analyzing financial data and providing valuable insights.

The Future of Auditing: AI, Blockchain, and Real-Time Insights

Open Banking is just the beginning. As auditing becomes more data-driven and automated, we can expect even bigger changes, including:

  • AI-powered predictive analytics can detect financial anomalies before they become problems.
  • Blockchain-based verification reduces fraud risks and makes financial records tamper-proof.
  • Continuous, real-time auditing, where audits aren’t just an annual process but an ongoing, automated review of financial health.

For auditors, this means a shift from manual number-crunching to a more strategic, technology-driven role—one that focuses on insights, risk analysis, and future-proofing financial integrity.

Final Thoughts

Open Banking isn’t just a new tool for auditors—it’s a fundamental shift in how financial audits are conducted. By embracing this technology, firms can deliver audits that are faster, more accurate, and far more insightful than ever before.

The future of auditing is here. The only question is: are you ready to be a part of it?

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How Do Mortgage Lenders Check & Verify Bank Statements?

how do mortgage lenders verify bank statements

If you seek a mortgage for buying a new home or for refurbishing, it has to be approved by a mortgage lender for you to get your loan. One of the major factors involved in loan approval is the verification of the borrower’s financial information, but how do mortgage lenders verify bank statements for loan approval?

Banks and other financial institutions may demand a “proof of verification deposit” form to be filled in and sent to the borrower’s bank for process completion. A proof of deposit may also require the borrower to provide a minimum of 2 consecutive months’ bank statements. During the loan approval process, if you’ve ever wondered “Why is verification of bank statements for mortgages required?” the answer is to reduce the chances of people with fake documents acquiring funds for illegal activities.

With thousands of sophisticated technologies out there, it doesn’t take more than minutes to forge bank statements and other documents. Keeping this in mind, mortgage lenders are legally obligated to identify and authenticate bank statements.

In recent years, there have been multiple instances where mortgage lenders have been scammed out of their money with fake bank statements. To save themselves from such cases of financial fraud, mortgage leaders need to find ways to check and verify bank statements.

Understanding How to Verify Bank Statements?

To approve a mortgage application, mortgage lenders need to verify a series of details. These include current income, assets, savings, and borrowers’ creditworthiness.

During the process of applying for a mortgage for a property purchase, the lender can and will ask the borrower for proof of deposit on the property. The lender then is asked to verify that the funds required for the home purchase have been transferred to a bank account and can now be accessed by the borrower.

Proof of deposit is the only way for a mortgage lender to verify if any sort of transaction has taken place before applying for the mortgage. Proof of deposit serves another purpose for the lender. Using the proof of deposit, the mortgage company can verify if the borrower has enough funds in their account to make a downpayment. If they have insufficient funds, it’s generally considered a red flag during the lending verification.

Usually, a borrower pays a 20% down payment for the home. If the full cost of the home is $200,000 then the borrower will need to pay $40,00 upfront. The lender has to verify if the borrower has enough in their account to make the closing costs that are included in a new mortgage. 

The borrower has to provide the lender with the two most recent bank statements to confirm they have enough money for a downpayment. The mortgage company then reaches out to the borrower’s bank to verify if the information available on the bank statement is authentic or not. This is one of the most common ways how to verify bank statements during mortgage approval. The digital age has made it easier for fraudsters to fabricate fake bank statements and documents which can be hard to distinguish from original statements.

Types of Documents in Mortgage For Verification

A lender has to submit a POD (proof of deposit) form to a bank to receive the confirmation of the loan applicant’s financial information. There are other ways a lender can verify if the borrower’s financial information is authentic or not. However, the document required for verification can differ from bank to bank. Here are the most common types of documents in mortgage approval:

  • Account number
  • Account type
  • Open or closed status and opening date
  • Account holder names (these are the official owners of the account)
  • Balance information. (Including current account balance, account balance over two months/periods, or average bank account balance)
  • Account closing date and the balance at the closing time (if required).

A lender has the right to refuse a mortgage if the documents don’t satisfy the verification requirements.

Why is Bank Statement Verification Needed?

Why do mortgage lenders need bank statements? To reduce the risk of the use of acquired funds by the borrower for illegal activities such as terrorist funding or money laundering. Lenders have the right to ask for a borrower’s bank statements and seek POD from the bank; some cautious lenders can ask for both of them. Lenders use POD and bank statements to ensure that the person is eligible for a mortgage.

Some lenders tend to ignore a once-in-a-lifetime overdraft on the borrower’s account during the account history verification. Although if a consumer has numerous overdrafts, then giving a loan to the consumer may be considered a risk for the bank.

Importance of Frictionless Lending Process in Banking

Removing friction from the lending process has been one of the biggest challenges for banks. The latest report suggests that banks that have been using digital methods for lending have seen better customer-business relationships.

Digital methods can help banks address the pain points customers face during their lending journey.

The banking industry has seen an upward growth toward digital adoption in the past 5 years. But, the lending industry has been left fairly untouched till now.

Consumers want the same level of convenience while lending as they get with other parts of their financial journey. Banks can do a lot of things to make sure that the lending experience is as seamless as possible.

How Banks Can Make Lending Frictionless?

FinTechs all over the world are offering incredible solutions that banks can leverage. Take DIRO’s bank verification solution, for example. It can cut down the customer verification time by more than 70%.

100% proof of verification combined with reduced time can lead to a great customer experience. Here are some things that financial institutions can do to reduce friction in lending:

1. Keep a Customer-Centric Approach

More and more customers are moving to digital banking channels. Banks have quickly transformed to keep up with demands. Most customers want all their borrowing data in a single place, especially if they trust their bank. 

More than anything, a customer wants convenience and a time-saving process. Banks need to do more than just build an online lending application. If the process is too complicated, or way too long, then customers won’t fill it. 

A financial institution’s approach should be focused on making a customer’s journey easy. 

2. Make Use of Established Trust

While FinTechs offer better options, more control, and flexibility, customers are more likely to approach a bank for borrowing. The reason is simple, banks have a better reputation than newly set-up FinTechs.

Over 40% of customers would always choose their bank for borrowing, 27% are not sure, and others may be inclined toward FinTechs. This data comes from a report conducted by DepositAccounts.

Financial institutions should look forward to leveraging their reputation while working with consumers. They can use their existing platforms, integrate the latest tech into them, and make them more consumer-friendly.

The rest of the stuff is what banks have been doing for years, I.e., compliance, customer financial health management, mitigating credit risks, and more. 

3. Leverage Technologies

As customers want convenience, there’s nothing better than using technology. To build a frictionless lending experience, financial institutions need to focus on building a flexible, cloud-based platform that can support all kinds of integrations. 

Using open banking APIs allows banks to merge all the sections of the process into a single platform. Without these technological advancements, banks will be left behind in the past while FinTechs win the race.

If a financial institution can implement these strategies, it’ll be able to offer its customers what they want.

How does DIRO verify Bank Account Statements?

As we mentioned above, it is getting easier and easier to fabricate fake bank account statements. With DIRO, you can verify bank statements with automated user consent and secure impersonation checks anywhere across the globe. DIRO can verify all account information, including bank statements. Banks, financial institutions, and FinTechs can verify these statements using the DIRO bank verification service.

DIRO’s incredible technology can verify any kind of bank document using simple steps. All a user has to do is log in and verify bank statements online on a secure browser. It facilitates improved user experience, reduces the risk of financial crime, and provides instant bank verification. 

That’s not all you can use DIRO’s document verification technology for, users can access and verify any kind of bank information from any web source. One of the major ways to verify bank accounts is by processing micro-deposits, DIRO’s technology reduces the account verification time from 3-5 business days to mere seconds.

Mortgage lenders, banks, financial institutions, and FinTechs can make use of the DIRO’s award-winning document verification technology to streamline their process of bank account and bank statement verification.

FAQs

1. How do Mortgage lenders verify bank statements?

Some mortgage providers ask you to submit bank statements which they verify either electronically or manually. Other lenders may contact your bank directly and ask for verification.

2. What do mortgage lenders look for while verifying bank statements

The primary factor mortgage lenders are looking to verify is your financial health. To do this, mortgage lenders verify your financial accounts, balance information, account holders, interest information, and account transfers.

3. How does DIRO help in verifying bank statements?

Mortgage lenders can use the DIRO bank account verification solution to prevent using fake bank account statements for mortgage applications.

4. How do underwriters look at bank statements?

The exact information required by the underwriter may depend on individual to individual. Some underwriters will be satisfied with just 1 or 2-month bank statements, while some will require proof of deposit.

Summing Up

Bank statements are a crucial part of getting a mortgage approved. While getting your mortgage approved by a lender may be a challenging process, having the right information can make all the difference. Lenders can use DIRO’s bank account verification solution to reduce the risk of fraud involved in mortgage lending and offer a superior experience to the end customer.

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Open Banking Tools to Prevent Audit Breaches

Prevent Audit Breaches

Audit breaches & failures have become a normal occurrence. However, most of the breaches are unintentional, they’re caused by inadequate audit tools. Recent audit failures are teaching businesses that a lack of proper audit frameworks can be catastrophic. Failing audit breaches leads to huge fines for non-compliance. 

Businesses can avoid financial, legal, and reputational damages by implementing open banking tools to overcome many common failures. 

Open banking tools have matured in recent years and auditor adoption can improve the quality of audits.

How Audit Failure Damages Businesses?

Audit failures can have severe implications for firms in multiple ways. Reputational damage is one of the biggest challenges for firms that fail audits. News coverage and press coverage make it harder for firms to be trusted again by customers and win new clients. 

Among the Big Four, instances of audit litigation make national news because the audit companies are well known. 

There is a significant need for audit improvement as audit breach cases are becoming common. Failing to hold on to high-profile audit clients can lead to firms losing revenue in the imminent and future years.

Audit Failings Are Unintentional

Most of the audit breaches are not intentional. In most cases, audit failures happen because auditors do not have access to adequate tools and resources to analyze large datasets that modern businesses produce.

For audit firms, this must be extra frustrating as businesses with remedial measures designed to address the shortcomings in the audit work still end up with audit failures due to inadequate tools. 

The only thing that can fix this issue is based on audit firms showing a willingness to remedy their audit methods and no repeat mistakes. Audit firms have to be provided with better tools to do their job successfully.

How Open Banking Tools Overcome Many Audit Failings?

Most audit failures can be avoided with the use of open banking-enabled audit tools. Specifically, the audit breaches related to inventory, journal entry testing, customer verification, revenue recognition, defined benefit pension scheme, going concern, and the review and supervision of the audit. All of these audits can be improved with the combination of open banking audit tools.

Open banking technology allows firms to access a complete data set of banking transactions.

How Open Banking Can Improve Audit Breaches?

Integrating open banking tools like balance confirmation can significantly enhance the security, accuracy, and efficiency of audit breaches. Instead of relying on limited or sampled financial data, businesses can access a complete, real-time view of bank transactions, ensuring more reliable verification.

By verifying 100% of transactions rather than just a small sample, businesses can detect inconsistencies, reduce fraud risks, and improve compliance with financial regulations. This also helps bridge the gap between what customers expect from verification services and the actual checks being performed.

To drive adoption, businesses need greater awareness of how open banking can strengthen verification processes. One way to encourage this is by demonstrating how it helps prevent fraud and meets regulatory requirements, reassuring both customers and industry regulators.

FAQs

  1. How can open banking help prevent audit breaches?

    Open banking facilitates real-time data sharing and enhanced transparency between financial institutions and auditors. This reduces the likelihood of errors or fraudulent activities going unnoticed and ensures that all financial transactions are accurately tracked and verified.

  2. What are the main security features of open banking that aid in preventing breaches?

    Open banking employs strong customer authentication (SCA) and secure APIs to safeguard sensitive financial data. These security measures ensure that only authorized parties can access data, minimizing risks associated with unauthorized access or tampering.

  3. How does open banking improve transparency in financial records?

    With open banking, financial data is standardized and easily accessible, enabling clearer insights into cash flows and transactions. This transparency helps auditors identify discrepancies quickly and supports compliance with regulatory standards.

  4. Can open banking help detect fraud earlier?

    Yes! Open banking’s real-time data access allows financial institutions to monitor transactions continuously. This proactive monitoring helps detect suspicious activities sooner, allowing for quicker intervention and reducing the impact of potential fraud.

  5. Does open banking comply with regulatory audit requirements?

    Absolutely. Open banking frameworks are designed with regulatory compliance in mind, ensuring that financial data handling meets strict audit and security standards. This compliance simplifies the auditing process and helps organizations maintain good standing with regulators.

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What’s Next for US & Canada in Open Banking?

open banking in usa canada

Open Banking is an ever-changing industry. Financial institutions can benefit greatly from implementing open banking solutions. Several things are afoot in the open banking industry. On October 22, the US Consumer Financial Protection Bureau (CFPB) released the first-ever open banking rule, and the same day, a lawsuit was filed challenging the rule.

Open banking regulations are now in place for several countries and jurisdictions across the globe, including – UK, EU, Australia, Brazil, Japan, Singapore, and others. A lot of financial institutions and FinTechs benefit from the rich data. According to a study, 82% of banks in the UK were expected to be using open banking by the end of 2023.

Right now, the open banking regulations vary greatly based on the market and the region.

What’s New in Open Banking?

As we mentioned, the Consumer Financial Protection Bureau has proposed the Personal Financial Data Rights Rule under Section 1033 of the Dodd-Frank Act.

In Canada, the Financial Consumer Agency is working on open banking and named it consumer-driven banking. 

As of now the US & Canada have nearly identical goals for the new regulation:

  • Give consumers greater control & ownership of their financial data.
  • Make security and consumer protection the primary focus.
  • Foster innovation and competition in the financial sector.

Right now, the US has the most mature financial aggregation environment globally. Most US banks are using “bank account linking” during their onboarding process for new accounts and/or in their account management to improve:

Canada is behind the US in terms of open banking regulation and in the usage of data. That’s because of 2 primary factors:

  • Banks are trying to limit access in a defensive effort
  • Security & privacy concerns, as it’s technically a breach of most Canadian bank’s online banking agreements.

Top 5 Open Banking Opportunities for Banks

Here are 5 reasons why banks should care about open banking:

1. Improved Verification of Essential Credit Application Data

Open banking makes verification of essential credit information easier, including data such as proof of income, rent, mortgage, and debts. Solutions such as DIRO’s online document verification, combined with the open-banking can enhance how credit application data is verified.

2. Low-Friction Experience for Customers

Customers today want a low-friction experience with digital banking. Open banking can facilitate the experience for customers. Seamless access to customer data and quick turnaround times will enhance customer experience.

3. Predictive Analysis

Open banking filled with rich customer data can improve the predictive models currently used for credit approvals. This can help the younger population and new immigrants who have little to no credit history. They only have savings/checking accounts.

4. Helps Understand the Nature of Small Businesses

Small businesses always face challenges when working with FIs on credit applications and demonstrating creditworthiness. Open banking data will significantly enhance the ability to understand the financial nature of small businesses.

This provides better predictability on credit performance and affordability, and it can shorten the time-to-decision performance.

5. Personal Finance Consultant

For many consumer banks, open banking can lead to AI-driven personal financial consultants. AI-based personal finance consultants will have to be trained on a lot of rich financial data, this can be done with open-banking data.

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How to Protect the Underbanked from Online Fraud?

protect underbanked from online fraud

Millions across the globe use digital banking services every day. But there’s an even bigger portion that has limited access to basic banking services, let alone the digital one. This segment is known as underbanked. To make the underbanked transition to digital banking and normal banking is a huge challenge. 

Digital banking opens the doors for the underserved to basic banking services, it also opens doors to online banking risks. It falls onto the banks to take a multi-step approach to protect users from fraud.

In this blog, we’ll talk about how to protect the underbanked from online fraud.

Who Is the Underbanked Population?

The underbanked as the name suggests are individuals that have limited access to banking services. Most underbanked individuals do have a basic bank account, they usually have an alternative financial service. 

There can be multiple reasons that can make a user underbanked, such as low income, geographical isolation, distrust of financial institutions, or a lack of understanding of financial products. In many cases, underbanked populations are found in rural or economically disadvantaged urban areas where access to physical bank branches is limited.

For the underbanked, transitioning to digital banking offers an opportunity for inclusion, providing easier access to money transfers, bill payments, and savings options.

Steps to Improve Financial Literacy in Underbanked Areas

Improving financial literacy is one of the most effective ways to protect the underbanked from online fraud. 

When people have a better understanding of basic financial principles, they are more equipped to recognize suspicious activity, avoid scams, and manage their money responsibly. 

Here are several steps that can be taken to enhance financial literacy in underbanked areas:

1. Community Workshops

Hosting financial education workshops in local communities, particularly in underbanked regions, can help spread awareness of essential financial concepts. 

These workshops can cover topics such as budgeting, managing bank accounts, online document verification, financial fraud, and understanding the risks of alternative financial services. Local banks, credit unions, and nonprofits can collaborate to provide resources and training to community members.

2. Partnering with Local Schools

Educating young people early on about personal finance can have long-term benefits. By partnering with schools in underbanked areas, financial literacy programs can be integrated into the curriculum. 

This way, students learn about money management, saving, and financial planning, which they can pass on to their families.

3. Mobile Education Platforms

Given the widespread use of smartphones, mobile apps can be a powerful tool for promoting financial literacy. 

Developing user-friendly apps that teach basic financial skills, along with tips to recognize online fraud, can be particularly effective in reaching the underbanked.

4. Collaborating with Employers

Employers can play a role by offering financial education as part of employee benefits, especially for workers in industries where wages are lower, and financial services are less accessible. 

Workshops, seminars, or even informational newsletters distributed through workplaces can help improve financial literacy.

Teaching About Digital Banking

Transitioning the underbanked into digital banking systems is essential for their financial inclusion, but it must be done carefully.

Teaching the underbanked about digital banking requires a balance between convenience and security. Without proper guidance, users may not understand how to keep their accounts safe, making them prime targets for online fraud.

1. Start with the Basics

It’s important to teach the basics of digital banking before delving into advanced features like mobile payments or online investments.

This includes how to set up and manage online accounts, understanding account balances, tracking transactions, and knowing how to contact customer service.

2. Explaining Digital Transactions

Underbanked individuals may not be familiar with how digital transactions work. They should be educated on the various ways they can transfer money safely, such as using bank apps, money transfer services, or payment platforms like PayPal. 

More importantly, they should learn to recognize red flags, like unexpected requests for account details or unauthorized transactions.

3. Password Management

One of the simplest ways to protect online accounts is by using strong passwords. Underbanked populations must be taught how to create secure passwords, change them regularly, and never share them with anyone. 

The concept of two-factor authentication (2FA) can also be introduced, showing users how to add an extra layer of security to their accounts.

4. Avoiding Phishing Scams

Teaching users how to recognize phishing emails and fake websites is a critical component of digital banking education. 

Scammers often use emails or text messages to trick users into providing their personal information. People must be instructed never to click on suspicious links or share their bank details over email or phone.

Common Steps to Prevent Online Fraud

Once financial literacy and digital banking basics are in place, further measures should be taken to actively prevent online fraud. These common steps can help protect the underbanked as they become more engaged in digital financial services:

1. Fraud Alerts and Notifications

Many banks and payment apps allow users to set up fraud alerts or transaction notifications. Underbanked individuals should be encouraged to enable these features, as they provide real-time updates on account activity and can quickly flag any suspicious behavior.

2. Secure Internet Connections

Emphasizing the importance of using secure Wi-Fi networks, particularly when accessing online banking platforms, is essential. Public Wi-Fi, while convenient, can expose users to hackers. Teaching users to avoid conducting financial transactions on open networks can significantly reduce fraud risks.

3. Regular Monitoring of Accounts

Encouraging regular monitoring of account balances and transaction histories can help detect fraud early. If underbanked individuals check their accounts frequently, they are more likely to notice unusual charges and report them immediately.

4. Using Verified Apps and Websites

One of the simplest but often overlooked fraud prevention tips is to only use verified banking apps and websites. Many fraudsters set up fake banking apps or websites to steal personal information.

Teaching the underbanked to download apps directly from trusted app stores and to always type the correct URL for online banking sites can prevent many scams.

5. Reporting Fraud Immediately

Lastly, it’s crucial to educate users on the importance of reporting fraud as soon as it occurs. The faster fraud is reported to the bank or the authorities, the greater the chances of recovering lost funds and preventing further theft.

Conclusion

The digital era holds incredible potential to increase financial inclusion for the underbanked, providing them with greater access to financial services and opportunities. 

However, with this transition comes the responsibility to protect these individuals from online fraud. By improving financial literacy, teaching the fundamentals of digital banking, and sharing practical steps to prevent fraud, we can help safeguard the underbanked from the dangers of the online financial world. 

Financial education and preventive strategies will empower the underbanked to navigate digital banking confidently and securely, ensuring they can reap the full benefits of financial inclusion.

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How Spanish Banks Can Prevent Fraud by Streamlining Customer Communications?

Spanish Bank Fraud Prevention Methods

In 2023, fraudulent attacks increased by 117%. The increased attacks led to €250 million in losses, according to data from Spanish banks. The increase in fraud attacks included ATM fraud, debit card fraud, and bank transfer fraud. To combat the added increase in fraud, Spanish banks have started sharing data.

A survey from December 2023 found that good fraud protection is a top priority for Spanish customers when choosing a bank. 34% of respondents said it was their main consideration, and 72% ranked it among their top three concerns.

Banks that don’t protect their customers from fraud will not only face fraud losses but also struggle to attract and retain customers. The survey also revealed that 19% of Spanish respondents reduced or stopped using their personal bank account due to difficult identity checks, and 18% did the same with credit cards.

The Importance of Customer Communication in Fraud Prevention

1. Communication Helps Prevent Fraud

Streamlined communication between customers and banks is essential for fraud prevention. By involving customers in the fraud detection process, banks can respond faster and stop fraudulent transactions more effectively. However, communication must be tailored to each customer’s preferences. Multi-channel, two-way communication strategies have proven successful in fraud prevention.

When it comes to peer-to-peer (P2P) apps or online banking, the risk of scams and authorized push payment (APP) fraud is growing. Generic warnings are often overlooked but targeted, relevant messages can effectively alert customers. Multiple, thoughtfully crafted messages can even break through a scammer’s deception, prompting customers to take action.

2. Communication Enhances the Customer Experience

Customers expect strong fraud protection but also want a smooth, hassle-free experience. Poor communication can lead to two key issues:

  • False Positives Become a Burden: Effective fraud detection tools reduce suspicious cases, but some situations still require customer input. Automated communication tools integrated with case management can speed up the process, reducing disruption and improving the overall experience.
  • Fraud Prevention Can Disrupt the Experience: Identity checks are often necessary for fraud prevention, but long, intrusive processes can frustrate customers. 

3. Communication Boosts Efficiency and Cuts Costs

Handling fraud claims is often a complex and time-consuming process. However, by using automated, omnichannel communication tools, banks can streamline fraud claims management and reduce operational costs.

Traditionally, each step in the fraud claims process—from initiating the case to providing forms and additional information—required manual input from fraud prevention teams. With the right technology, this can now be automated. Customers receive updates and can complete forms online, eliminating the need for costly mailings and reducing their desire to speak with an agent. This reduces the volume of inbound calls, leading to significant savings.


Summing Up

In summary, effective customer communication helps prevent fraud, enhances the customer experience, and improves operational efficiency. By putting customers at the center of fraud prevention, banks can protect both themselves and their customers while keeping satisfaction high.

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Common Bank Account Data Errors and Solution

Bank account errors can be costly for both the institute and the customers. Financial institutions, banks, and other businesses must ensure that all accounts and reference numbers are formatted correctly before any payments happen.

Bank account errors happen when there are any issues with this information. Sometimes they happen because financial institutes and banks fail to comply with compliance standards. The most common one is the BACS requirement, to ensure the bank account details exist and are associated with the payee.

To make sure payments happen without any errors, there have to be no mistakes in the input data. Even the smallest error in a bank account number can lead to payment failures, wrong transactions, and more.

Fortunately, banks, financial institutions, and businesses can significantly reduce the amount of banking errors with a series of checks.

In this blog, we’ll be going over the root causes of transaction errors, and how businesses can take the first steps toward reducing them.

What Are Bank Account Errors and What Causes Them?

Businesses that want to minimize bank account errors need to understand what type of errors are mostly impacting payments, and how commonly they happen.

Here are the most common bank account errors, this allows businesses to investigate the root causes of failed transactions.

Businesses that want to minimize bank account errors need to understand what type of errors are mostly impacting payments, and how commonly they happen.

Here are the most common bank account errors, this allows businesses to investigate the root causes of failed transactions.

1. Account number & sort code errors

Errors such as invalid bank account numbers or sort codes typically happen when customers mis-enter data into payment systems or company forms. This also happens when customer reps mis-hear or mis-key account information.

One of the most common reasons for this type of error code is if data is being migrated or copied between systems, especially if teams have to manually enter information.

These kinds of mistakes have serious consequences, ranging from failed transactions to misdirection of funds. Both of which lead to financial losses for both the consumers and organizations.

2. Reference number errors

There are some cases where the bank account number and sort code are correct, but the reference number (supplier number or invoice number) is wrong. In these cases, payments may be suspended pending investigation by the payment provider.

As an additional challenge, the failed transaction may not be marked to the person or organization making the payment. On the other end of the failed transaction, the recipient will not receive the funds.

3. Changes that Result in Invalid Bank Codes

The financial industry is prone to changing regulations. Sudden changes such as bank mergers, acquisitions, or restructuring can result in changes to the bank’s routing numbers.

When these changes happen, customers need to make sure that the latest details are used for all payments and transactions. The direct debits and other automated payments and deposits and other information are updated with their new details.

This is essential in ensuring that transactions can be verified correctly and there’s a low risk of failed transactions and misdirected funds.

How do Bank Account Errors Impact Businesses?

Common bank errors can have serious consequences for both businesses and consumers.

As bank errors that result in failed transactions require additional investigations are also time and costly. Moreover, these kinds of incidents lead to poor customer experience and poor brand reputation. A lot of businesses have also found out that failed transactions are directly related to a high rate of customer churn.

For consumers, failed transactions and misdirected funds can also be super frustrating. Customers are left waiting for funds for a long time, the consequences can be even more severe, preventing the use of the funds for essential items and bills.

How are Bank Errors Usually Handled?

Every organization across the globe handles bank account errors differently. In the US, for example, invalid accounts with no corresponding account lead to a transaction being rejected instantly.

In Europe, payment providers try to resolve the transaction, generally without informing the payee. This can help fix the problem in the short term, but it can result in serious consequences if funds are misdirected.

These mistakes can come to light over time, causing long-standing resolution challenges and major inconvenience for consumers.

How Bank Accounts Minimize Bank Account Errors?

There are different ways to minimize bank account errors. Let’s go over them one by one:

  1. Ensure Bank Accounts are Genuine

First, banks need to use automated checks to verify bank accounts are genuine and exist or not. This immediately reduces the risk of failed payments due to mis-typing bank account information, either by consumers themselves or by customer support teams.

  1. Make Sure All Bank Account Information is Formatted Correctly

The formatting of bank account details needs to be checked consistently and appropriately to ensure that information is correct. The information should be presented in a way that payment systems can recognize.

This check also helps in getting rid of account errors before they result in failed transactions or misdirected funds.

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How to Prevent Account Takeover Fraud?

what is account takeover fraud

Account takeover fraud (ATO) happens when an unauthorized person takes over a normal user bank account. Fraudsters take every measure to try and control an account. Once they have an account under control, fraudsters apply for a new card or change basic account information. In this guide, we’ll be talking about account takeover fraud, and how big of a threat it is for financial service providers.

Most of the time, individuals are the victims of account takeover fraud. Sometimes, fraudsters take over the business and small business accounts as well. Compared to 2019, 2021 saw a 21% increase in account takeover fraud. Out of all types of fraud, three-quarters of cases are account takeover fraud.

Old and New Ways of Account Takeover Fraud

Account takeover fraud is one of the oldest types of fraud. In the past, criminals relied more on manual ways to collect enough knowledge about a victim to access the account and eventually take control. 

They could access this information by going through people’s trash, stealing mail, and bribing or blackmailing. In today’s time, the way of accessing information has changed completely. Cybercrime has become the primary method of acquiring information for account takeover fraud.

Moreover, fraudsters can buy information for dirt cheap from the dark web to allow them to take over financial accounts. 

The dark web has multiple marketplaces that specialize in selling personally identifiable information (names, account numbers, addresses, social security numbers, national IDs, and more). 

As most people reuse their passwords for multiple accounts, it makes it easier for fraudsters to commit multi-account fraud at once. 

When fraudsters have access to this much data with ease, they test it out. There are both old-school, and new-age methods to try these techniques. They can use automated tools to mount mass attempts to access these accounts with credentials stuffing. 

There are other ways. According to reports, around 44% of account takeover fraud instances happen using telephone channels. This suggests that call centers are the weak link in the process.

What Do Fraudsters Do With Taken-Over Accounts?

There are multiple parties involved when it comes to fraud. The criminals that commit data breaches to access accounts, are not the same criminals to use the data to determine if it’s usable. When accounts are found that are vulnerable, they’re sold to other fraudsters that actually take over the account. 

When an account is taken over, some fraudsters just want to make quick money. They simply transfer the available amount to some other account. Some fraudsters use these accounts to use them for money laundering.

Other fraudsters play the longer game, they use the account to get as much monetary gain as possible. This is done in several steps:

  • Fraudsters gain long-term control of the account. They change core account information such as an address, mobile number, and date of birth. 
  • Fraudsters issue a new card for the account with the new details (new address, new mobile number, etc).
  • They keep using the account to maximize the funds available.  They increase credit card limits or use the account as a gateway to getting more funds, such as a loan. Once a fraudster has maximized the amount they can obtain before the risk to them becomes too high, they cash out of the account under their control. 

When this happens, it’s extremely difficult for the financial institutions to find the legitimate account holder from the fraudster, or which activity was done by whom.

How do Financial Institutions Handle Account Takeover Fraud?

To stop account takeover fraud from happening, financial institutions need to both prevent it and also detect suspicious activity so they can intervene. This can be done by employing multiple techniques:

1. Strong Customer Authentication

ID authentication is a major part of the account protection process. Several banks and financial institutions pay huge attention to the ID verification process. In the EU, PSD2 regulation is used more for checking a customer’s identity when they make a payment. That’s now all, PSD2 also includes authentication of account holders when they access or use payment accounts.

Any activity on a payment account that increases fraud risk requires strong customer authentication. Financial institutions have multiple methods to verify if the account holder is a legitimate user or not.

To meet the requirement of PSD2, financial institutions have to cover 2-3 categories:

  • Knowledge authentication – Something only the user knows (password, PIN, etc).
  • Possession – Something only the user possesses, such as a token, mobile, card, etc.
  • Inherence – Something that the user himself is (fingerprint, facial recognition, etc).

2. Customer Communications for Confirmation

Once a fraudster has access to an account, it’s not all over. The more details the fraudster may change on the account, the more control they have, but before they make changes the bank has the contact information for the real account holder. 

As well as authenticating customers wanting to make changes. To prevent account takeover fraud, banks can use real-time automated, and two-way communications with their customers to confirm, such actions are needed.

For example, if a change of address is needed, then a text message can be sent to the mobile phone number on record to confirm if this action is legitimate. 

3. Understanding Criminal Networks

Organized crime usually happens on a larger scale. Fraudsters try to take over as many accounts as they can. While this is a threat to financial institutions that have bad defenses, it can also be an opportunity to identify accounts that have been taken over. 

With application fraud, criminals have limited contact information that they can use to manage accounts. They recycle mobile numbers, emails, and addresses using the same contact information for multiple accounts.