First-Party Fraud, and How To Prevent It?

The word fraud is used almost every day today. It’s not always hackers sitting behind multiple screens who conduct these frauds. Ordinary people with a little bit of knowledge also conduct fraud. In reality, a lot of customers end up sharing their personal information with fraudsters unknowingly. These fraudsters use this information to rack up huge credit card bills. In other cases, users end up committing fraud using their own information.  

Both of these types of fraud are called first-party fraud. 

Most of us assume that first-party fraud happens only in banks, but as telecom companies have entered the financial industry, so they’re also feeling the pinch. Debt collection agencies are leaking more profits and costs, trying to collect something that isn’t recoverable.

First-Party Fraud Affects Profitability

First-party fraud usually comprises 10% of the volume of credit card losses. These losses are also called bad debts. This huge risk often gets missed as it comes somewhere between the risk department, operations, and the fraud team. In other words, first-party fraud does not have an owner most of the time. 

Soiled fraud and collection departments can reduce the chances for fraudulent patterns to be discovered. While the relatively low volume of first-party fraud reduces its priority level, for some organizations, first-party fraud remains one of the biggest profit drains. 

In 2022, it is more vital than ever to take decisive actions and manage first-party fraud.

Why It’s Easy to Miss First-Party Fraud?

Traditional third-party fraud requires some kind of impersonation or stolen identity. Be it stolen credit card data, or someone taking over your identity. At some point, many victims of third-party fraud become aware of the crime when unknown transactions come up on their statements. 

Compared to third-party fraud, first-party fraud is often confused with credit risk problems. Accounts that don’t pay their debts are sent to collections for a progression of treatment. 

Unlike third-party fraud, the transactions happen with accurate information and they look like legit transactions. This makes first-party fraud much harder to spot. And in this way, first-party fraud can be eventually written off as it is uncollectible. This information is also sold to third-party external collection agencies.

Newer financial services providers are even more challenged in figuring out first-party fraud. Newcomers don’t have access to all the historical data that banks have to analyze which transactions are legit and which aren’t.

Be it an online bank, or a telecom service financing costly devices, all these organizations face similar challenges in fraud prevention.

Common Types of First-Party Fraud

There are different types of first-party frauds that organizations should know about:

  1. Sleeper Fraud: It occurs when a fraudster gets their hands on a type of credit, and over time builds up a reputation. As they build trust with the service provider over months, they can take maximum advantage of cash and any goods with these cards. Once they’ve racked up a huge debt, they leave this information and move on to the next one.
  2. Bust-Out Fraud: This type of fraud is also called hit-and-run fraud. It can happen in a type of financial service. It’s quick and sometimes easy, and credit cards and loans are the easiest targets. In some countries where cheques are in use or have slower clearing cycles, fraudsters can exploit these weaknesses to rack up a credit balance 10 times the normal limit. Then the fraudsters cash out before these transactions are even caught.

How Does First Party Fraud happen?

First-party fraud is highly opportunistic and it can be done on a small scale by a single fraudster or by a group of fraudsters. Both sleeper fraud and bust-out fraud can be conducted in an opportunistic fashion. 

Some of the first-party fraud schemes are executed in both ways. For example, in the UK, Europe, and the Middle East, the highly fluid mobility of university students creates conditions that are perfect for fraud. 

In this type of fraud, fraudsters gangs have focused on out-of-country students to buy their ID data and bank account information as these students go back to their home countries. There are many potential victims, as only 10% of foreign students stay in their country. Almost 90% of students go back to their home countries, thus their information is ripe for exploitation. 

Fraud with student credential fraud often starts with criminal gangs advertising in student unions and social media. Sometimes they even infiltrate family WhatsApp groups just to get their hands on some quick cash.

While these offers may be tempting to cash-strapped students, the fraudsters have different intentions. With 1.3 million students in the EU, you can see why this group is one of the biggest targets for fraudsters.

Strategies for Fighting First-Party Fraud

The biggest challenge with first-party fraud is distinguishing between fake and real customers. So, what can businesses do? Here are some strategies to try fighting first-party fraud:

  1. Learn to recognize the distinction between unintentional bad debt and intentional bad debt, or fraud. With the right type of analytics, patterns can start to become clear, and very evident. 
  2. You need to accurately categorize fraud as fraud, instead of calling it a bad debt. These instances should be called first-party fraud or synthetic identity fraud. This will help you to begin identifying patterns and common traits in the schemes fraudsters use. 
  3. Define clear rules and models and perform link analysis to analyze data for known fraud patterns. These common signs include phone numbers, names, email addresses, and other identifiers that fraudsters will use again and again to apply for loans, credit cards, accounts, and mobile subscriptions. 
  4. Improve sign-up and onboarding processes by using these analytics. By doing this, you can monitor for links between declined applications for credit risk and new applications where the same data is used for application. 
  5. If you don’t have enough evidence to mark a transaction as fraudulent, tag these accounts as suspicious accounts. Once an account is opened, and credit is extended, the account can be monitored more carefully for suspicious activity. Any sudden changes in account data can be a sign of fraudulent transactions about to happen.

Be Proactive With First Party Fraud

The rate of fraud is only increasing, so businesses need to be proactive in fraud prevention. For those fraudsters with established synthetic identities hidden in account portfolios, the high time for using these identities is now. 

At the same time, organizations that are keen to increase their customer base have had to increasingly look to digital channels, as face-to-face interactions have almost vanished. Increased criminal activity coupled with increased reliance on remote onboarding processes has made it harder to prevent fraud.

Businesses need to make sure that they act before fraudsters do.


Five Major Steps for Strengthening your ID Fraud Prevention Strategy

Customers demand a safe and secure environment. This means providing protection from data theft, Identity protection, protection from account takeover fraud, and more. But, this is not a one-sided process. Both organizations and customers need to follow practices that keep them safe online. 

One of the best things that banks and other businesses can do is make sure that customers have all the necessary information to keep themselves secure. Not sharing passwords, OTPs, and using network networks are common online safety tips. 

Just by being vigilant, customers can protect their identities online. As for banks, they need to have thorough checklists and tests to make sure customers are who they claim to be. 

In this article, we’ll be going over tips that businesses can use to strengthen the ID fraud prevention strategy.

5 Tips to Make Your ID Fraud Prevention More Robust

1. Go Back to the Initial Customer Interaction Phase

Customers of today want complete security and convenience. More and more customers want a convenient online experience. The second largest group of consumers demands to be recognized during online transactions. This leads to a seamless customer experience. If you keep adding friction to the process, it can cause you to lose more customers. 

because of changing customer demands, they should be able to interact freely with the business. Letting customers do any activity they want can even lead to understanding customer behaviors. There’s no better way for you to gauge fraudsters than understand customer behaviors. 

If a business instantly recognizes who the customers are, it’ll be able to build defenses that can highlight fraudsters.

2. Understand Expectations and Capabilities of Your Customers

With the new age of modernization in the banking industry, customers from all demographics, age groups, and income brackets have increased their online activities. This is giving way to a whole range of new digital solutions and marketing techniques. 

But with increased online activities, comes an increased level of fraud risk. That’s not all, managing all customer expectations is a major challenge for businesses of all kinds. 

This leads to all new types of education and support for customers who are new to digital banking. Educating your customers is the surefire way to make them more susceptible to fraud.

3. Leverage Technology to Boost Customer Fraud Prevention

According to the latest surveys, its shown that companies that are investing in new solutions to prevent fraud are getting great results. Adopting newer technologies helps businesses stay on top of all the latest fraud trends. 

These investments are helping businesses streamline challenging processes such as:

They also help in preventing fraud by uncovering fraudulent users as soon as possible.

4. Outsource But Keep Fraud Prevention in Mind

Businesses that are scaling quickly and need to outsource to keep up with demand may be at risk of data breaches. Companies that carelessly outsource to other organizations may be at risk. Without proper due diligence, they may end up hiring companies that looking to steal sensitive data. 

While outsourcing is a valuable strategy, it can also increase the number of ID fraud and frauds in an organization. To ensure security, companies need to hire companies and conduct strict due diligence.

5. Focus More on Activities that Build Customer Trust

Organizations that establish a good trust-based relation with customers are more trusted. Goodwill follows them around which potential customers consider while onboarding. 

Customer trust can be earned in a couple of ways. But, you can include fraud prevention as well into the mix. Some common activities include:

Some reports suggest that customers want solutions that include passwords, One-Time Passwords (OTPs) sent to their registered numbers, and security questions. You can use any of the methods to ensure trust and boost productivity.


Machine Learning Technology for Detecting Fraud: How to Leverage Technologies?

In the last couple of years, the number of fraudulent services available in the market has increased. It has become essential for banks and financial institutions to employ machine learning technology that can help in fraud prevention.

While protecting customers by detecting fraud is a huge challenge, it should always be kept high on the agenda. But you do need to keep in mind that finding the balance between fraud prevention and customer experience is crucial for businesses. 

With the emergence of endless data sources, ready to be accessed at any given time. With greater control and accuracy over the data available, it opens banks up to new opportunities to detect fraudulent activities. Such as using machine learning technologies for fraud prevention.

Across the data landscape, we can see how the industry is slowly changing and allowing for better and more accurate results. Be it customer verification, customer validation, onboarding, decision making, or anything else. Machine learning for fraud detection is a great solution.

As many organizations have adopted traditional rule-based strategies, they need a lot of effort to manage. And with the increasing data points for better accuracy, the process becomes too large for humans. With the growth of digital traffic and the increasing need of identifying customers, institutions need better fraud prevention solutions. This includes the best machine learning algorithms for fraud detection.

Why Use Machine Learning for Fraud Detection?

With the ever-growing number of fraud services available in the market, it’s crucial to have a clear view of the fraud risk. With machine learning fraud detection, bank can understand their customer data better. 

As more and more consumers need instant decisioning, and process fulfillment. The need for faster and more accurate fraud checks has to be included in the customer journey. When making online decisions where customer journeys will be affected, it’s even more important that only these activities with a real risk of being fraudulent are being prevented.

At the same time, it’s also important to impact the experience of customers by subjecting them to unnecessary delays while doing customer verification. Additionally. There’s a limit to the effectiveness of the rule-based referral strategy as it requires a lot of effort to manage the number of permutations. 

Adopting machine learning technologies can help organizations build a smooth customer journey. This can be done while flagging potential fraudulent attempts which can impact the bottom line.

Common Machine Learning Misconception

1. Machine Learning is New

Machine learning technologies have been used for over 20 years across multiple industries. The technology has been helping businesses in making smarter decisions, streamlining processes and so much more. 

2. Machine Learning is Self-Learning

Machine learning models for fraud detection can keep evolving based on the recent problems they’ve solved. Within the identity and fraud department, it isn’t suitable to deploy auto-learning models as it makes governance easier. Model performance is continually monitored and seen where it has degraded. Replacement models will only be deployed with visibility of the differences between the current and the older models.

3. Supervised and Unsupervised Models

Supervised models don’t necessarily mean that there’s human involvement in every step. Even the supervised models operate according to the data fed to them.

Who Can Use Machine Learning Software?

While a lot of businesses already leverage machine learning technologies to complete specific processes. Implementing better automation in the fraud detection process is still an unseen phenomenon. However, increasing amounts of data sets can improve the ID verification process.

The use of ML is becoming more crucial for several businesses. Machine learning solutions can understand complicated relations between data sets within a business. 

Although access to machine learning for fraud detection has been limited, especially when it comes to fraud management. Traditionally, machine learning is often available only to bigger organizations, now even small-scale businesses are getting access to machine learning software.


5 Best Ways to Protect Businesses From Cyber Attacks

Businesses of all kinds have an obligation to try and protect their users. Protecting users from cyber attacks is a responsibility that every single business has to take on. Your existing and new customers need to know the best practices they can follow to stay protected. With bad actors becoming more and more creative, you need to be more vigilant and teach your customers to protect themselves from cyber-attacks. 

In this guide, we’ll outline the best 5 ways to protect users from cyber attacks. Let’s dive in.

Best Cyber Security Practices

Even the smallest of mistakes can cost you very dearly if you don’t pay attention online. There are some basic things organizations can do to protect their users and their data. If a hacker or bad actor can gain access to confidential information, it can cost your business millions of dollars. Here’s how to stay safe online:

1. Learn How to Detect Attacks

Cyber attacks can come in any shape and size. They can be in the form of phishing, ransomware, or pretexting. Out of all these attacks, social engineering attacks are the most dangerous and hardest to figure out. Organizations should have the ability to detect them as soon as possible. 

Every single member of your organization should learn how to detect social engineering attacks. Anyone who clicks on the wrong link or sends personal information to the wrong person, it’s an invitation to a data breach. 

Here are some of the most common methods used by bad actors during social engineering attacks:

  • Requests for the user or shared credentials
  • Request for financial or contractual information
  • Requests for user personal information
  • Unusual or suspicious links and files
  • Unusual or suspicious phone calls

2. Educate Users about Devices

To protect your users from cyber attacks, you need to educate them on some things. It helps in ensuring that every member of your organization is aware of the best practices to protect themselves. Businesses should also hold seminars after employee onboarding to prevent cyber attacks. 

Whenever your employees leave their desks, they should always lock their devices. Also, setting up personal passwords goes a long way in fraud prevention. You should educate users and refrain them from using third-party apps that aren’t trusted. 

3. Multi-Factor Authentication and Password Management

If you’re storing user data, and your users can log in to your website, then it’s essential to use multi-factor authentication methods. While a password helps in protecting you, MFA just adds another layer of security for the users and the businesses.

Make sure that all the employees and users change the default passwords as this is one of the biggest ways people get exploited. Also, never ever share passwords. MFA is a key to securing your devices and systems, as it forces the user to verify their identity. As the user has to provide a unique numerical code after entering the username-password, it prevents the risk of credential stealing.

4. Keep Up With Software and Hardware Practices

Software and hardware physical security practices can help ensure that you’re doing all that you can to keep your business secure. It can be anything, from using built-in defense functions or regularly updating software and hardware.

Choosing systems with built-in layers of defense boosts your organization’s cybersecurity the minute they’re running. There are endless solutions containing built-in security functions including data encryption and endpoint protection, these obstacles make it harder for bad actors to access your systems.

When it comes to software updates, most businesses and users ignore their importance. Prioritize updating the software and firmware on all the devices, as this allows them to function at an ideal level.

5. Choose the Ideal Technology

Finding a technology provider that offers all the solutions you need, all the while operating while being transparent isn’t easy. It may take some time to decide which vendor is the right fit for your business. 

Most vendors offer their customer hardening guides, these guides teach users how to keep their devices secure.

Choosing the ideal technology is crucial to a strong cybersecurity strategy. This also includes using the right technology for customer onboarding. DIRO online document verification technology can boost the onboarding process and eliminate the risk of fraud.

When you onboard the right type of users, you automatically reduce the risk of data breaches, account takeover fraud, and so much more.


Steps Payment Gateway Can Take to Detect and Prevent Online Fraud?

When you have started your online business, you wouldn’t consider online fraud as a challenge when you’re processing less than 10 transactions a day. However, when your business and the number of transactions increase, you need to be more careful. Statistics state that in 2018, US merchants lost an estimated $6.4 billion in payments card fraud. Small businesses especially face the highest number of frauds and an estimate of $155,000 per year.

Credit card processors offer merchants basic security measures to reduce the risks of credit card fraud. Although some merchants don’t offer seller protection, including PayPal, this is the case in the case of digital goods. You can decide which payment gateway to use. This also tells how your business will be protected in case of fraud transactions.

With the digital goods and services landscape on a boom, businesses of all sizes need to re-evaluate their position and tools when it comes to fraud management. In this article, we will take a look at the most effective techniques when it comes to tackling card payment fraud.

How to Prevent Payment Gateway Fraud?

1. Address Verification Solution

Address verification solutions are used to detect online fraud. When customers purchase items, they have to provide their billing address and ZIP code, and address verification solutions check whether this address is real or not. Part of a Card-not-present transaction, the payment gateway can send a request for user verification.’

2. Card Verification Value (CVV)

The CVV or Card Verification Value is a 3 or 4-digit code on credit cards. The code should never be stored on a merchant’s database. A CVV filter acts as an added security layer, allowing only the card owner to use the card. If an order is placed on the website and the CVV doesn’t match, the transaction should not go through. While making a CNP transaction (online, email, or telephone orders), merchants get the required information from the customers.

3. Device Identification

Device identification analyzes the computer instead of the person who’s visiting the website. It verifies the internet service, and browser to see if the transaction has to be approved. All the devices (phones, computers, tablets, etc) have a unique fingerprint, similar to human fingerprints. 

Fraudsters are unable to impersonate a computer’s unique identity, making it a viable option for your business against online payment fraud.

4. Flag Large Transactions

With stolen card information, fraudsters will take a shot at making transactions before the card is blocked. This would be harmful to your business where you’ll have to take on the cost of allowing fraudulent transactions to take place. Constant instances of fraud can lead to payment processors terminating your processing account.

You can easily limit the number of large transactions by specifying a flat amount. In addition to this, you can limit the number of failed transactions.

5. Payer Authentication (3-D Secure)

Payer authentication, sometimes called Verified by Visa (VeB) and MasterCard SecureCode, is a cardholder authentication measure that secures all online transactions for customers. This method allows cardholders to create a PIN that can be used during checkout. By using payer authentication, merchants are offered chargeback protection and lower interchange rates. 

This is one of the most sought-out fraud prevention tools that businesses rely on. 

6. High-Risk Countries

If you’re sending products overseas, then you need to exercise greater caution for these orders. Pay more attention to orders that come from high-risk countries. Customers in these countries need to be verified by the countries before the transactions are processed. 

According to the online fraud guide, some of the highest-risk countries include Israel, Malaysia, Egypt, Pakistan, Ukraine, Russia, Bulgaria, Romania, Lithuania, Nigeria, and Yugoslavia.

7. Risk Scoring

Risk scoring tools are based on statistical models designed to recognize fraudulent transactions based on a number of rules and regulations. When a payment is done on your website, the risk scoring tools will indicate the probability of the transactions being fraudulent. A higher probability of a transaction being fraudulent means that you should verify the transaction.


How to Prevent Fraud Proactively?

Today’s topic is related to the three important and effective ways to prevent the risk of fraud with a proactive approach. In order to use anti-fraud strategies, you need to be more alert and look around the corners to detect such happenings before they happen.

Since the rise of Covid-19, Fintech companies and other financial services have faced challenges to prevent fraud. 

According to the Aiteo Group, from 2018 to 2020, the cases of mobile and online fraud losses increased. And as per 27% of financial institutions’ surveys, online losses were more than 10%, and mobile losses were also over 10%. So, how can financial institutions and Fintech companies prevent such losses? 

The best way to prevent fraud is to build a proactive approach against the growing number of frauds. Here’s how FinTechs can prevent fraud proactively.

3 Key Elements to Prevent Proactive Frauds in Fintech:

1. Digital and Physical Identity Elements for Accurate Risk Assessment

According to Kount, it is important to have 100% verified documents of each user and customer to prevent fraud. Financial institutions and companies need to focus on verifying all the users’ documents with the help of digital and physical identity elements to ensure the accuracy of the documents. This helps in preventing the use of fake and stolen documents during onboarding.

When we talk about physical identity, we include social security numbers, payroll information, credit history, phone number, addresses, and tax IDs. And, when we talk about digital identity elements, we include account modification information, email addresses, login behavior, device information, payment information, account creations, and geolocation. The physical and digital elements are helpful for Fintech companies. Even financial institutions use digital ID data to get a complete profile of their users to minimize the risk of fraud.

2. Adaptive Authentication for Minimal Friction Customer Login Experiences

Adaptive authentication is an important step to verify a user’s identity to be able to trust the user or customer.  

If a user or customer is doubtful about their identity, then the financial institutions and banks can step up for multi-factor authentication. With the help of multifactor authentication (MFA), it will be easier to determine a user’s trust based on their transaction frequency, billing address, geolocation, IP address, a device used, and account age. 

According to the financial surveys, the account takeover fraud rates are over 10%, which is more than before the pandemic. 

The two key benefits of using adaptive authentication are that it helps prevent account takeover attacks, and the second is that it helps provide a smooth login experience for returning and new customers. Adaptive authentication is valuable for banks and Fintech companies to expand their customer base with less friction and risk of fraud. 

According to Benjamin Teal, Fintech and AltFi Industry Expert for Equifax, “As we start to see younger consumers seek financial services, fraud mitigation strategies need to be refined to incorporate evolving consumer behavior. “

He further said, “We know that younger consumers are digitally native and have fewer obligations requiring them to remain in one place. As a result, they engage in behavior that looks very different to older consumers. Sophisticated strategies will factor in these generational differences and create experiences that lead to higher conversion while keeping bad actors out.”

3. Deep Data Insights to Determine Identity Trust

Financial institutions and FinTech companies need more than just payment-related data to uncover identity theft issues. Identity theft can appear in different stages during the account creation process, application, and payment event, and log in. And, to prevent the risk of identity theft, the FinTech companies and financial institutions need relevant data to decide if the customer is genuine or not.  

In the recent webinar, O’Neill, the Enterprise Account Executive for Kount, said, “It’s not necessarily enough to look at payments data to compete against some of the largest banks and card brands, which have massive data networks. “

O’Neill further said, “When it comes to payments-related data, it’s really easy for big banks to say they know what a normal payment looks like and therefore know what an abnormal payment looks like. And that’s true, but you need more than that to make the best decisions.”

There are other fraud indicators like email addresses, geolocation, country codes, transaction amounts, and BINs.  

And to prevent the fraud related to these indicators, it is better to use a global network of fraud and trust-related signals. 

Once the payment data is combined with all the above elements, you can get a more accurate image to prevent proactive fraud in Fintech.

DIRO for Proactive Fraud Prevention

  1. DIRO’s document verification technology is great for Fintech companies and financial institutes for the instant verification of documents from the original source.
  2. With the help of DIRO’s document verification, the companies can save time and resources.
  3. Manual verification of data can lead to various errors, and the chances are high that manual a person could not identify real or fake documents.
  4. With the help of DIROs, you can get 100% verified documents from the sources, which means no chance of fraud and fake document threats that can lead to huge losses if not identified at the time.

Tips to Protect your Business from Scammers

Businesses of all kinds face various internal and external attacks that can harm the businesses financially and in other ways. False invoices, money laundering, and phishing attempts are some of the most common examples of fraud. With the whole world forced to shift toward digital transformation, online scams aimed at businesses are getting more sophisticated. 

According to industry experts, every second an online merchant becomes a victim of some kind of fraud. What’s even worse is that most businesses take months to notice the fraud. Unfortunately, most businesses don’t know about the best practices they can use to enhance security and keep their businesses protected from fraudsters.

Practices to Prevent Fraud for Businesses

1. Know Your Customer

The COVID-19 pandemic was the primary cause of the surge in the rate of unemployment. Identity fraud costs reached up to $43 bn in 2020 out of the total fraud losses of $56 bn. 

Know Your Customer compliance program is a vital part of running an online business. Businesses are legally obligated to perform customer due diligence (CDD) checks to verify the identity of the customers to future-proof themselves from financial fraud. 

By building successful and efficient digital compliance programs, businesses can mitigate the risk of fraud all the while improving the customer experience during onboarding. The exact type of risk management solutions depends on the business type, but generally, they’re needed to identify and assess the threat a customer can pose to their business. According to industry experts, businesses should have automated checks in place for customers to eliminate the risk of fraud from the early stages.

2. Chargeback Fraud

Another common type of fraud that businesses have had to face since the rise of digital business operations is chargeback fraud. It happens when a consumer makes a purchase online using their card and then disputes the charge with the bank, and requests for a chargeback from the bank even after getting the product or services they ordered. 

Businesses operating in the industries like eCommerce, online dating, online gaming, and other purely online businesses tend to suffer from chargebacks and transaction fees whenever they onboard new customers. Although, businesses can reduce the risk of fraud by identifying the common patterns. 

3. Utilize Multiple Solutions

As there are so many areas where a company can be susceptible to attacks, it is vital to use a combination of digital defensive solutions, including:

  • Online ID verification
  • Online document verification
  • Continuous customer monitoring
  • Real-time transaction monitoring

One simple solution isn’t enough to keep the sophisticated types of fraud at bay, businesses need a combination of solutions for fraud detection and prevention.

4. Machine Learning Solutions

Machine learning solutions can be utilized by businesses regardless of the industry and business type. Firms that don’t have the resources to manage huge teams for customer verification can use machine learning solutions for customer verification and fraud detection. 

Machine learning can learn from huge data sources and detect normal payment patterns and detect suspicious transactions right away. Best algorithms can also identify fraudulent transactions on more than 50 different parameters.

DIRO for Fraud Detection & Prevention

Businesses often face fraud that revolves around fake and forged documents and identities. DIRO’s online business verification software helps businesses in detecting and preventing fraud in the early stages. DIRO can verify documents instantly and provide stronger proof of verification backed by verifiable credentials. By integrating DIRO into their solutions, businesses can easily improve fraud detection and prevention techniques.


Best Practices and Strategies for Fraud Prevention

With global fraud rising beyond control, it’s vital that organizations implement effective fraud prevention policies and procedures that provide security while ensuring a quality customer experience. With the best practices for fraud prevention, businesses can onboard customers quickly and seamlessly.

In the year 2019, the loss because of identity fraud in the U.S was estimated at $16.9 billion. There are more than 40 types of fraud, and businesses need to figure out which type of fraud can affect their business the most and build strategies for fraud prevention accordingly.

The threat of cybercrime is increasing, with the annual cost to the global economy from cybercrime estimated to reach $6 trillion by 2021. Countless online threats pose a significant risk of fraud for businesses. Cybercrime can also break down the internal compliance process, or it can weaken control systems that can detect illicit activities. Top fraud prevention and detection strategies can even help in picking out the best fraud prevention technologies

Understanding the threats and the tactics used by fraudsters to create new fraud opportunities is important for the development of the best practices for fraud prevention.

Types of Online Fraud

Fraud detection is a huge problem for businesses because fraudsters are constantly innovating to keep tricking businesses. To keep up, strategies for fraud prevention must also innovate to stay one step ahead.

Below are just some of the most common online fraud schemes that organizations should consider as part of their fraud prevention strategies.

1. New Account Fraud

New account fraud usually happens within 90 days of opening a new account. New account fraud is often referred to as application fraud or account origination fraud. As fraud happens so close to when the account was opened, the main purpose of the account was to commit fraud such as money laundering.

For businesses, new account fraud can be extremely dangerous as there’s no history with an existing business and no history of trust. The initial activities in the account may be small but they are often to cover future acts of fraud.

2. Card-Not-Present Fraud 

With the financial industry moving towards digital transformation, card-not-present fraud is something businesses would want to keep track of. There are huge risks of CNP fraud and the merchant is liable for any of the costs incurred during the fraud. 

To mitigate CNP fraud, businesses need effective fraud prevention strategies. By understanding the techniques that fraudsters use and the techniques available, you can develop and operate tactics that mitigate costs while being consumer-friendly.

Businesses should only rely on merchants that meet the Payment Card Industry Data Security Standard (PCI). The PCI is an industry-standard for payment organizations to develop standards for payment data security.

3. Identity Fraud

Identity fraud is when a person assumes the identity of another person without authorization to deceive or defraud someone. 

With most of our lives going digital, fraudsters have no limit to the means of acquiring personally identifiable information (PII). Also, the constant rise in data breaches is making it easier for fraudsters to acquire information that they can use to assume identities. 

The data stolen from data breaches can be brought for as low as $4 on the dark web. In upcoming years, the risk of ID fraud will grow even bigger for businesses with synthetic identity fraud.

Synthetic identity fraud (SIF) is a new and more dangerous type of ID fraud where fraudsters combine real PII with some fake ID data to create a completely new identity. One example of what comprises a fake identity is one that contains a real social security number along with fake addresses and other synthetic data points. Fraudsters can then use synthetic identities to get a driving license, credit cards, open bank accounts, and so on.

Managing FinTech Fraud: Bank-FinTech Partnerships for Better Fraud Prevention

Banks have to fight fraud from all directions and recently the situation is worsening. When a bank partners with a FinTech in a Banking-as-a-Service (BaaS) model, it mitigates risks by placing the responsibility for fraud losses onto the FinTech. However, since the economics of the bank and FinTech are linked, it is in the bank’s interest to ensure that controls are in place to help FinTech partners fight fraud while protecting the bottom line.

Additionally, most frauds are financial fraud that requires assessment and sending of suspicious activity reports to the relevant regulatory bodies. This is the reason banks have to be extremely careful while choosing a FinTech to partner with. In this article, we’ll be outlining the risk a FinTech faces while detecting fraud and is there any reason how FinTechs can work together to protect their businesses.

Common Risk to FinTechs

In 2020, the number of fraud cases in that financial sector surged as more people went online for their banking needs. According to industry reports, over $1 trillion was lost globally to cybercrime in 2020. Fraudsters recently have been focusing on the FinTech industry. FinTechs are slowly changing the industry tides by developing cutting-edge technologies to detect and prevent fraud. FinTechs are extremely attractive to consumers, because of the digital environment, low entry bar, mobile-first security and so much more. These are the same reasons why FinTechs are extremely attractive fraudsters within days of launch. 

FinTechs that offer financial services will have to prepare for fraud and will struggle to survive with precious capital to cover the losses. FinTechs with traditional fraud prevention methods like CDD is vulnerable to attack. As FinTechs become a vital part of the financial industry, the risks will keep growing as consumers become more and more familiar with online banking.

Type of Fraud FinTechs Go Through

With the wave of digital transformation, online fraud has grown more than anything. The most common types of fraud include phishing, synthetic ID fraud, online account takeover fraud, and digital transaction fraud. 

1. Phishing

Phishing scams are extremely common, they rely on tricking individuals by unknowingly volunteering personal details or information that can then be used for creating fake bank accounts, and credit cards. Fraudsters who carry out phishing scams build a fraudulent website, a fake text impersonating a government or private entity.

2. Synthetic ID Fraud

Synthetic ID fraud is one of the biggest challenges for financial institutions as of now. To commit synthetic ID fraud, fraudsters combine real “personally identifiable information” and fake information to combine a whole new identity. Such as a legitimate social security number from people who don’t use their credit (child, homeless people, deceased individuals, or someone else), combining that real information with a fake address, phone number, or fake social media accounts. Then this synthetic ID is used to open bank accounts, apply for credit cards and commit more illegal activities.

The first request is obviously denied, but the first application puts that fake identity into the credit reporting system, legitimizing the fake identity. The fraudsters will keep applying for credit cards, switching markets and providers with less mature identity verification processes until the fraudster finally get their hands on credit cards. 

3. Account Takeover Fraud

One of the biggest challenges faced by FinTechs is the Account Takeover Fraud, it costs the whole industry billions per year. Account takeover fraud and account opening fraud cause the most problems. More than 50% of businesses reported higher losses due to account opening and account takeover compared to any other type of fraud. 

Account takeover fraud is a situation where a fraudster takes control of a legit business account that belongs to someone else. Account opening fraud on the other hand happens whenever a fraudster opens a new account using a fake, stolen, or synthetic ID. 

4. Transaction Fraud

Transaction fraud is another common type of fraud where a stolen payment card is used to complete an illegal transaction. Since FinTechs are pretty good at completing real-time transactions, they are also at risk of running into transactional fraud. Quicker transaction times are one of the major factors that fraudsters look for in committing transactional fraud.

Transaction fraud can happen at any given time during a financial relationship. Account creation, login, and wherever money flows in and out of FinTech’s systems such as deposits, payments to merchants, withdrawals, etc.

Implementing Anti-Fraud Technologies During Account Creation

The steps for detecting and eliminating fraud should happen during all stages of a customer-business relationship. Businesses and financial institutions need to prevent bad actors from entering their systems, which can help significantly reduce fraud. 

To build the perfect anti-fraud technology & strategies to reduce fraud, businesses must use a combination of identity verification and authentication methods to deliver the ideal level of risk protection. Here are some of the most common fraud-prevention methods:

1. Identity Verification

Before a new account is opened, Identity verification technologies and procedures can detect potential fraudsters and prevent future damages. Anomalies in a person’s identity documents such as out-of-date information, mismatched data, and even the smallest red flags demand further examination. By cross-referencing multiple data points and data sources for ID checks, financial institutions can create stronger barriers for fraudsters.

While ID verification is extremely important, it shouldn’t create friction for legitimate customers. Finding the balance between a secure ID verification process and a positive customer experience is something financial institutions have to do. 

2. Biometric Authentication

Biometric authentication is another huge part of fraud detection and prevention for financial institutions. Biometric authentication authenticates a person by distinguishing biological traits to uniquely identify a person. Combining online document verification with biometric authentication provides multi-fold authentication for financial institutions. If done properly, this can help eliminate fraud while successfully maintaining a positive customer experience. 

3. MobileID Checks

Smartphones can help financial institutions prevent fraud by collecting a significant amount of ID data, including name, mobile number, address, and device information. To make a proper image of customer identity, this data can be cross-referenced with other ID data points. Mobile ID data can help financial institutions authenticate the individual, and the data collected can also help in finding potential future risks.

Collaborating With Banks for Better Fraud Prevention

As the fraudulent landscape becomes increasingly more complex, it becomes tough for banks and FinTechs to detect suspicious transactions and prevent illegal activities. Fraud prevention solutions that leverage data learning and machine learning can help FinTechs better safeguard themselves and detect fraudulent actions. 

By collaborating with banks, FinTechs can take a better approach to financial fraud prevention. Banks can bring their expertise in complying with ever-changing KYC, KYB, and AML regulations. Whereas, FinTechs can play their part and bring in the much-needed technological expertise. Financial technologies such as online document verification software and online bank account verification software and proof of address verification software tend to enhance the overall fraud detection and prevention programs. With a proper collaborative approach, FinTechs and banks (or other financial institutions) can fulfill the need for digital transformation, while ensuring a positive customer experience and preventing fraud.

Fraud Prevention Technologies for Financial Institutions

Businesses can build as many best practices for fraud prevention as they want, but without the help of the right technologies, fraudsters will find a way to sneak into the systems. By integrating technologies into the fraud prevention workflow, financial institutions can eliminate most of the major risks of fraud. 

DIRO’s online document verification service helps businesses with proof of address verification, bank account ownership verification and so much more to eliminate fraud. DIRO verifies over 7,000 document types from all over the globe instantly and provides stronger proof of authentication. By integrating DIRO into the workflow, businesses can successfully comply with AML and KYC regulations while ensuring a positive customer experience.


Guide on Types of Cryptocurrency Fraud

Almost everyone who wants to invest their money has looked towards cryptocurrencies at least once in the last few years. Cryptocurrencies like Bitcoin, Ethereum, Solana, and a few more are taking the investment market by storm. Most people invest in cryptocurrencies with the prospect of becoming rich instantly. This leads them to risk and invest in risky or complete scams instead of actual beneficial currencies. There are several types of cryptocurrency fraud and it’s easy to become prey if you’re not careful. 

Digital currencies or cryptocurrencies aren’t backed by a central entity or any government. And yet, you can use crypto for the sale and purchase of goods and services. You can even exchange it for any conventional currency. Unlike conventional currencies like the dollar or the pound, the value of cryptocurrencies is driven solely by demand and supply. That’s why the crypto market is extremely volatile, and it can bring tons of losses for those looking to get rich quickly.

As the value of crypto has exploded, so has the amount of crypto fraud. The Federal Trade Commission received almost 7,000 complaints of cryptocurrency fraud from October 2020 to March 2021. The accumulated losses in these reported instances of fraud reached up to $80 million. 

To make sure that you can identify and prevent cryptocurrency fraud, we’ve created this guide of common types of crypto fraud. 

Common Types of Cryptocurrency Fraud

While the cryptocurrency in itself is a new scam for most people, the fraud is mostly a rehash of classic scams. Some of the most common crypto fraud are:

1. Fake Websites

Fake website scams aren’t anything new. They’re often full of fake testimonials, technical jargon, fake profiles, and reviews to trick a user. Fake website scams in crypto often promise guaranteed profits or quick earnings. Those who aren’t familiar with how crypto works end up investing and losing their money.

2. Celebrity Endorsement

A new type of scam that has emerged with crypto’s success is celebrity endorsement. Masses of the population will buy crypto if it’s promoted by a huge celebrity. A recent example of this is Elon Musk’s tweet about Dogecoin.

Con artists pose as online billionaires successful businesses or well-known celebrities to trick you into buying the currency. 

3. Pump-and-Dump

Pump and dump is another scam that came into existence with cryptocurrency. Using messaging apps or social media, crypto promoters try to promote a currency with any means necessary. Their aim is to lure investors to buy, drive up the price and then sell the stake, which then causes the value of the currency to drop. Elon Musk and Dogecoin is the primary example of this. While that can’t be categorized as a scam, it’s categorized as influencing.

4. Ponzi Schemes

Fraudsters and con artists try to sell crypto by creating the illusion of big and guaranteed profits by investing in a particular currency. Federal authorities are pursuing criminal and civil cases against one such scam known as BitConnect, which raised more than $2 billion before it was shut down. 

5. Romance Scams

Fraudsters assume the identities of someone else on social media, dating platforms, and other online channels and try to persuade someone from the opposite gender to invest in a particular currency. The FBI’s Internet Crime Complaint Center (IC3) received more than 2,000 reports of crypto-based romance scams in 2021. The total losses from these types of scams reached $133 million in just 7 months of 2021.

6. Fake Wallet, Exchange, or Custodian

Not only individuals, but businesses also deal with several types of crypto fraud. Most of them involve a fake crypto digital wallet, exchange, or a fraudster assuming the identity of a custodian. As of now, there aren’t many solutions that can help businesses be vigilant about this type of crypto fraud.

Warning Signs about Crypto Fraud

There is some basic information that you can keep in mind while dealing with cryptocurrencies. The best way to prevent being a prey of a crypto scam is by looking out for warning signs. Here are some of the most common warning signs of crypto fraud:

  • Some unknown person sends you a text out of the blue regarding crypto investments. If they’re trying to get you to invest in particular crypto.
  • The pitch for a crypto investment claims that there’s no risk involved or promises guaranteed returns.
  • A call, text, email, or social media message claiming to be from a government entity, utility, or any other entity asking to pay bills with cryptocurrencies.

How to Prevent Crypto Fraud?

It’s becoming relatively easy for fraudsters to trick a business with fake or falsified wallet, exchange or custodian information. As a lot of businesses are becoming crypto-friendly, fraudsters are trying to trick them. 

Without the use of proper technologies, businesses can’t distinguish between a real person and a fake one. DIRO can instantly verify crypto account information within 90 seconds with automated user consent and impersonation check-in over 195 counties. 

The output is a machine-readable JSON file that is accepted as a court-admissible document in case of fraud. DIRO’s crypto verification API allows for real-time verification, thus reducing friction for legit customers and preventing fraud during the initial stages. 


Best Fraud Prevention Tips for Digital Currencies

Cryptocurrencies and digital currency trading and exchange platforms have been becoming increasingly common in recent times. For the first time, investors and crypto enthusiasts entered the market because of the sudden boom in the value of Bitcoin. As cryptocurrency’s core nature is anonymity, financial institutions are becoming increasingly aware of a rise in money laundering cases. To minimize the risk of fraud in digital currencies, financial institutions need to follow the best fraud prevention tips for digital currencies.

The nature of cryptocurrency relies on exchanging coins online or via a phone or computer. This also means that payments can be made almost instantaneously and without many legal protocols. Credit and debit cards have legal protection, this allows you to dispute a payment and get your funds back in case of fraudulent activity. With cryptocurrencies, reversing payment isn’t possible unless the exchange itself has regulations regarding it. 

With the growing interest in cryptocurrencies, the rate of money laundering fraud is also increasing. There are also a series of third-party websites that offer cryptocurrency mining opportunities. The use of these sites will boost the growth of new cryptocurrencies and provide a base of credibility for upcoming currencies.

Digital fraud is also increasingly committed by tricking crypto enthusiasts and new investors into sharing their personal details including bank statements and ID documents to make an investment or deposit into a legit business. These stolen bank details can be used to deposit money out of a person’s accounts and move it into a fraudsters’ behavior. 

Digital currency fraud including growing and well-known cryptocurrencies is becoming increasingly common. Plus, the fraudsters are becoming increasingly sophisticated. This is making it harder for financial institutions to detect fraud.

We’ve come up with a list of the best fraud prevention tips for digital currencies that can be followed by individuals and financial institutions.

Most Popular Online Scams in 2022

1. Social Engineering

Social engineering scams involve tricking customers into sharing their personal information. There are only two types of social engineering scams that you can find online including digital currencies:

  • Baiting Scams: Baiting scams include tricking customers by offering them something. The scams usually are based on impersonating an investment professional, representative of a legit crypto firm, or representative of a non-existent entity. Scammers tend to offer special rewards or extra earning to trick customers into divulging their personal information.
  • Scareware: A scareware attack involves customers being tricked by false threats and alarms. If you’ve ever visited a third-party website, you must have seen a pop-up something along the lines of “Your Device is Being Attacked”. 

2. Phishing Scams

When it comes to the cryptocurrency industry, phishing scams trick customers into providing their information regarding digital wallets. Specifically, hackers are interested in crypto wallets’ private keys. Scammers will try to take control of customer e-wallets and encourage you to disclose your password or other authentication measures. A phishing email asking you to share your information regarding digital wallets.

3. Website Cloning

More sophisticated scammers are able to create a webpage that looks exactly like the original e-wallet website. Once you try to login into the fake website the fraudster will have access to your information. Once you put a little more attention to the website, you’ll find some inaccuracies. These types of sites can usually be identified by differences in the URL link.

How to Prevent Digital Cryptocurrency Fraud?

As cryptocurrencies are becoming increasingly popular globally, crypto exchanges have to comply with KYC regulations and AML regulations. Customers are required to complete thorough ID verification for consumers in order to buy and sell cryptocurrencies.

Here are the best fraud prevention tips for digital currencies:

  • Familiarize yourself with all the basic fraud prevention tips offered by your crypto exchange provider. 
  • Check email addresses and contact names thoroughly before conducting any activity. 
  • Make sure to not share sensitive data such as personal details, passwords, and card numbers to new sites. 
  • Keep on the lookout for clone websites or website URLs.
  • Don’t sign up with crypto exchanges that don’t comply with KYC or AML regulations.

If you feel like you’ve been a victim of fraud, then the first thing you need to do is report to the nearest authority.