Category: Fraud

Let’s just agree on one thing – digitization has changed the financial sector for the good. No more waiting hours, no more visiting brick-and-mortar locations, and the ability to do things instantly.

But, there’s a downside to doing everything digitally. Without face-to-face interaction, businesses become open to application fraud. As banks can’t see the person that’s behind the screen, fraudsters can easily commit fraud. 

This is a challenge that financial institutions, realtors, creditors, and other businesses face every day. Even a miniscule miscalculation on the business’s end can lead to huge losses. 

Fortunately, there are ways to protect businesses against application fraud. In this article, we’ll go over everything about application fraud.

What is Application Fraud?

Application fraud is when an applicant submits false information to a business for approval. This can include misrepresenting personal or financial information, including:

• Falsifying employment history
• Inflating income
• Providing fake ID documents
• Misrepresenting credit history

The biggest example of application fraud is when an individual for credit cards, loans, or other products. A fraudster would use fake information about their financial information, employment, or further relevant details. 

If everything goes the fraudster’s way, they will have access to a credit card or a loan that they can use to conduct other financial frauds.

How do fraudsters get access to the fake information? Well, just in 2023, over 4.5 billion personal information records were stolen. 

Technology has made it easier than ever to steal personally identifiable information.

How is Application Fraud Committed?

Consumers want instant financial services. So, banks, credit unions, and other financial institutions offer digital products to keep up with customer demands.

Processing online applications puts businesses at a risk of being defrauded. When a person applies for a credit line or loan, they expect a seamless process. To make this happen, companies offer fast approval times. These fast approval times lead to mistakes and invite fraudsters to commit third-party fraud.

When committing third-party fraud, criminals will fill out applications under someone else’s identity trying to trick the organization. If a fraudster has enough information at hand, they can trick the systems. 

By the time the company or the individual figures out the fraud, it’s too late. Because of digitization, criminals can submit fraudulent information to as many companies as they want. This is only possible because of advanced tools like bots, cloud infrastructure, and virtual machines.

This is likely why loan application fraud is growing.

Common Methods Criminals Use for Application Fraud

There are a number of ways scammers use to commit application fraud. One of the most common ways is using synthetic identities.

It’s challenging to identify the type of fraud when businesses allow online application submission and application of ID documents. But how do scammers collect this personal information and commit application fraud?

1. Breaching Databases

Data breaches happen to businesses of all scales. Some happen intentionally, while others happen by accident. Accidents such as an employee can create an insecure password. Or leave the password at a place where anyone can access it. 

It’s highly common for data breaches to happen when hackers blatantly target an entity to breach their database. Fraudsters use a number of technologies to break into a company’s database. They often use bots that insert millions of variations of a password to brute force a password. 

Once a data breach happens, millions of data records can be stolen. Common data includes:

• Names
• Date of birth
• Addresses
• Phone numbers
• Account details

2. Targeting Call Centers

The Internet isn’t the only way criminals are stealing identities. One of the second most used methods is using call centers. Unfortunately, voice isn’t enough to determine someone’s identity, making it another easy target for fraudsters.

As there’s no way to detect synthetic identities or fraud patterns, criminals can easily use it to their advantage. 

3. Intercepted Mails

Intercepting emails are more sophisticated than stealing envelopes from mailboxes and hoping to grab something valuable. Criminals today use USPS informed delivery while applying for credit cards. This is a service that USPS offers to allow users to track mails and packages before they are delivered.

This notifies the scammer when the credit card will be delivered so they can snatch it before the legit customer has a chance to see it. 

4. Using Cloud Infrastructure

Criminals also use virtual spaces to commit identity theft and application fraud. This includes using the same cloud services businesses use daily. Fraudsters use the cloud to run automated scripts and bots to conduct large-scale fraud attacks.

Bots can also be used to brute force attacks by hacking into accounts by entering different variations of PINs and passwords. It’s not uncommon for fraudsters to search for available credentials. This is when fraudsters use a collection of personally identifiable information.

How to Detect and Prevent Application Fraud?

1. Security Measures for In-House Personnel

Employees are the first line of defense against fraudulent attempts, so they should be educated about fraud applications. To detect and prevent application fraud, businesses should educate employees on:

• Common areas of fraud
• Scenarios where fraud happens the most
• Anti-money laundering training for our team
• Third-party verification of data
• Verify incorporation documents
• Verify underwriting data with third-party vendors

2. Machine Learning Solutions

Artificial intelligence and machine learning are revolutionizing the industry. AI and ML technologies can make it possible for companies to detect and prevent various types of fraud. Financial institutions use rules engines and a mix of supervised and unsupervised machine learning.

But these technologies become outdated, so you need solutions that can evolve. If solutions are not updated, engines and rules-based systems can become susceptible to false positives.

3. AI for Application Fraud Detection

Financial institutions also use AI-based document verification tools for fraud detection. Some AI solutions use existing data sets to verify information provided by customers.

This offers more efficient and ultimately automated document fraud leading to fewer loan write-offs. Using AI for fraud detection is excellent for organizations that process dozens or even thousands of applications every day. This leads to a lower risk of fraud and improves user experience.

Conclusion – Fight Application Fraud

Digital transformation is an ongoing trend for modern businesses. Organizations are becoming quick to adopt new technologies to streamline operations, improve customer experiences, and boost competition.

But as businesses increasingly rely on interconnected devices, the risk of fraud is also increasing. Application fraud poses huge risks to businesses, which can lead to huge financial and reputation losses.

Businesses should rely on all available methods such as DIRO to prevent application fraud. DIRO document verification verifies documents from the issuing source to prevent the use of fake and stolen documents. This helps businesses improve the entire onboarding process and reduce user experience.

The holiday season is upon us, with Black Friday and Cyber Monday just around the corner. As the festive shopping rush begins, it’s important to stay vigilant against potential fraudsters who are gearing up to exploit the season’s hustle and bustle with different holiday shopping fraud.

Whether you’re a retailer hiring seasonal workers or a shopper making wish lists, staying informed about common scams can help you safeguard your financial security. 

Here are five prevalent scams that are expected to show up unexpectedly this holiday season.

5 Ways to Protect Against Shopping Scams?

There are some basic steps everyone can follow to prevent holiday shopping fraud. Without proper vigilance, it’s almost impossible to distinguish between legit sellers and scammers.

1. Vigilance Against Phishing Attacks

Phishing attacks are the biggest concern that intensify during the holiday season. At this time of year, fraudsters often deploy emails or text messages designed to lure recipients into sharing personal information or clicking malicious links.

These messages may appear to come from legitimate businesses and offer enticing rewards or promotions for minimal effort.

For instance, fraudsters may exploit the increase in package deliveries by sending fake tracking notifications or emails that claim there’s an issue with a shipped package. The end goal is to prompt recipients to enter sensitive information.

To defend against these scams, it’s crucial to exercise caution and critically evaluate suspicious offers. Ask yourself whether a legitimate organization would request payment details or personal information through such means. 

If in doubt, reach out directly to the business using verified contact information to confirm the legitimacy of the message.

2. P2P/Zelle Scams: Be Wary of Unsolicited Calls

Scams involving peer-to-peer (P2P) payment apps like Zelle are an ongoing concern. Use of these apps tends to spike during the holiday season. Fraudsters love to impersonate banks or credit card companies, making unsolicited phone calls to victims. 

They may claim there’s been fraudulent activity on the victim’s account and instruct them to transfer money to a purportedly secure account—owned by the fraudster.

In addition, fraudsters may manipulate consumers into making payments through P2P apps outside the legitimate shopping websites. 

For example, they might pose as sellers on popular marketplaces and entice buyers to make direct payments through P2P apps to evade fees or secure exclusive deals. 

To avoid falling victim to these schemes, stick to the official payment methods offered by trusted websites and never make direct payments to individuals.

3. Guarding Against Account Takeover

Account takeover scams, a time-honored tactic, continue to pose threats during the holiday season. In these scams, fraudsters gain access to victims’ accounts and exploit their credentials to make unauthorized transactions, often targeting e-commerce and retail accounts.

Be vigilant for notifications about unusual orders, shipping addresses, or other account changes. Amid the holiday rush, it’s easy to overlook such notifications, so be proactive in monitoring your accounts.

If you suspect any unauthorized activity, act promptly to secure your account and prevent further fraudulent actions.

4. Promotion Abuse: Don’t Fall for Too-Good-To-Be-True Offers

Holiday sales often tempt consumers with irresistible promotions. Scam artists capitalize on these offers, exploiting promotions that involve referrals, sign-ups, or Buy Now, Pay Later (BNPL) services.

They may open fraudulent accounts to cash in on these promotions or leverage bots to automate the process. Be cautious if you receive confirmation emails about new accounts you didn’t create.

While you might not directly suffer financial losses, the prospect of fraudsters using your personal information illicitly remains a concern.

5. Vigilance Against Fake Websites and Seller Accounts

Fraudsters deploy fake websites and social media accounts to impersonate legitimate businesses, thereby enticing users into divulging personal information or downloading malware. 

These fake websites are designed to closely mimic authentic ones, even appearing in search engine results and sponsored ads. Similarly, on e-commerce platforms like eBay, fraudsters create counterfeit seller accounts to trick consumers into paying for nonexistent items or services.

Exercise caution while clicking on links in emails or social media posts to mitigate these risks. Verify the legitimacy of websites before entering personal information. If a deal seems too good to be true, it’s wise to approach it skeptically.

Secure Your Shopping Experience

While the holiday season offers joy and celebration, it also presents an opportunity for fraudsters to exploit unsuspecting consumers.

To protect yourself, remain vigilant, and adopt a skeptical approach to unfamiliar offers or communications. Staying informed about prevalent scams and following best practices can ensure that your holiday shopping remains safe and secure.

Remember, your awareness and proactive response against frauds are powerful tools in thwarting fraudsters’ attempts and preserving the joyous spirit of the season.

FAQs

Marketplace fraud is as the name suggests. A buyer or seller makes false claims through a company. The fraud could be as simple as making false claims about the quality of products and services, or selling different items as advertised.

An online marketplace provides a platform that buyers and sellers to find one another. eBay is the father of online marketplaces. Launched in 1995, it opened the floodgates for other online marketplaces.

Since then, online marketplaces have grown to offer so much more. Any service or product you could think of, you’d be able to find a marketplace for it.

Marketplace Fraud Trends

At its core, the fraud marketplace can be broken into two categories. Buyer scams and seller scams. You’ll be able to find scammers on both sides of the transaction. 

Here’s a breakdown of the common buyer and seller marketplace fraud trends:

Types of Buyer Fraud

Scams that target buyers are more than common on online marketplaces. Here are the most common types of fraud that scammers use to trick buyers.

1. Counterfeit Goods

Millions want the luxury of expensive goods but don’t have the money to experience the luxury. To match this demand, fake luxury goods are produced in countries like China, Turkey, and others. Online marketplaces face a lot of issues with counterfeit goods.

Customers who can’t differentiate between original goods and counterfeit tend to fall for these scams.

Sellers are extremely good at tricking people into believing that they’re selling a legit item. Customers often fall prey to paying absurd amounts of money for a fake item.

The best way to prevent this fraud is to research about possible counterfeits. There are online forums such as Reddit that have communities that can help you decide whether a good is legit or fake.

2. Non-Delivery Scams

This is another common marketplace fraud trend. The best way to scam a buyer is by selling an item that the scammer never intends to deliver.

There are situations where the seller makes up a fake advertisement and doesn’t have anything to sell. You can probably find photos that look suspicious and the seller may not be able to answer specific questions. 

The best way to tackle this fraud is to always ask for secondary images and images from different angles. You can ask the seller to also send a photo of the product and a piece of paper with your name written on it. 

This is in no way a complete solution as a lot of scammers do have the item in their possession. By making fake listings, sellers can sell a single item multiple times to multiple victims without delivering anything. 

Some ways to spot this type of fraud include:

• Check reviews and comments. Especially look if anyone has mentioned being scammed by this seller. 
• Ask whether you can pick up the item in person and pay via cash. If the sellers tell you they can only send it via post, it’s probably a scam.
• Always be wary of people who want you to pay using cryptocurrencies or use any non-secure payment methods. Apart from cryptocurrencies, look out for international fund transfers, money orders, and pre-loaded gift cards.
• If the seller pushes you to make the money transfer as soon as possible. And if they try to give some enticing offer to sell you the product as soon as possible, they’re trying to manipulate you into buying.
• If the seller requests that you communicate or pay outside of the Facebook marketplace, then it is most likely a scammer.

3. Phishing Scams

Phishing scams are one of the most common types of scams you’ll find online. These types of scams can be just as common on online marketplaces as they are elsewhere. 

A phishing scam is designed to steal your personal information to defraud you. To make this type of fraud happen, fraudsters make up a fake listing. These listings can contain links to malicious websites that are designed to steal your data.

The best way to identify phishing scams is when the scammer asks for your personal information. Sensitive information that makes no sense to ask for while purchasing something.

Any sensitive information you provide to the scammer can be used to engage in fraud.

4. Rental Scams

Rental scams are growing at an alarming pace. Scammers make up fake listings for properties, rooms, boats, sports arenas, etc.

Once someone shows an interest, the scammer asks for an upfront payment or deposit to secure the rental. After the buyer makes the payment, they lose their money as there is no rental place/equipment to use.

To prevent yourself from getting scammed, don’t rent on marketplaces that aren’t built for specifically renting services. Moreover, you can ask to see the place/equipment first and pay money in person.

5. Ticket Scams

If you’re on the hunt for tickets to a sold-out Foo Fighters concert, seeking a Lollapalooza ticket, or coming across unbelievably cheap entry to a famous art gallery on Facebook Marketplace, beware of ticket scams.

Scammers are adept at selling counterfeit tickets that look genuine but will leave you disappointed on the night of the event. To safeguard yourself, exercise extreme caution and only purchase tickets from authorized sellers and resellers.

While legitimate ticket touts do exist, selling tickets at a premium, there are just as many scammers peddling expensive forgeries, with Facebook Marketplace being a preferred platform for their schemes. Stay vigilant and follow these guidelines to avoid falling victim to ticket scams:

Purchase tickets only from authorized sellers and resellers.

• Be wary of deals that seem too good to be true or significantly cheaper than the regular ticket price.
• Verify the seller’s legitimacy by checking their reputation, reviews, or feedback from previous buyers.
• Avoid using insecure or non-refundable payment methods like bank transfers or cryptocurrency.
• Exercise caution with electronic or print-at-home tickets, as they can be easily forged and sent by scammers via email.
• Cross-check ticket details, including the date, time, venue, and seating information, against the official event information to spot potential discrepancies in the scammer’s advertisement.
• Compare the ticket’s appearance with an official one to detect signs of counterfeiting.
• Be cautious of sellers who rush you into making a payment.
• If possible, meet the seller in person to verify the authenticity of the tickets before purchasing. Trust your instincts and thoroughly assess the legitimacy of the ticket purchase from the seller.
• Maintain all communication and documentation related to your ticket purchase as evidence for potential complaints.

6. Pet Scams

The pandemic and the rise of remote work have sparked increased interest in pet ownership. Unfortunately, scammers have exploited this trend by creating fake listings for pedigree puppies, kittens, and other popular pets on Facebook Marketplace.

To avoid being defrauded by pet scams, follow this simple checklist:

• Visit the seller in person to verify the existence of the pet, its health, and the conditions it is kept in.
• Do not make upfront payments for vaccines or unnecessary charges.
• Only provide a deposit if you are certain about the seller’s legitimacy.
• Use secure payment services for transactions.
• Preferably, pay for the pet when you pick it up to ensure its authenticity.

Seller Scams

Sellers are not exempt from fraud, and awareness of potential pitfalls is crucial to safeguard themselves. Here are some common seller scams:

1. Payment and Overpayment Scams

Always verify that you have received a payment from the buyer and that it has completely cleared before offering any refund. Use payment methods that cannot be reversed at the last minute.

2. Returns Scams

Wait until you have received the returned item and checked its condition before issuing a refund.

3. Electronic Payment Delay Scams

Never allow a buyer to leave with the item until their payment has fully cleared.

4. 2FA Scams

Avoid sharing your phone number and 2FA codes with anyone you meet online, as they may exploit them for fraudulent purposes.

5. Phishing Scams

Be cautious of suspicious inquiries and limit sharing of personal information with potential buyers. Use secure communication channels and verified payment methods.

Always trust your instincts and proceed with caution when dealing with buyers or sellers on online platforms like Facebook Marketplace or others. Following these guidelines can help you avoid falling victim to scams.

According to several surveys, it has become evident that strong fraud protection is the first thing in banking customers’ minds.

In this world of growing fraud, it’s no surprise that customers want some sense of security. The banking and financial services landscape has grown at an exceptional pace in the last decade. Fraudsters have taken complete advantage of these untested changes. Resulting in higher-than-ever fraud records every year.

In the UK, trade bodies have asked to consider fraud levels a national threat. Financial services businesses have increased their investment in fraud prevention and ID authentication solutions.

What Customers Want From Banking Institutions?

Since the start of the growth of digital banking, customers want strong authentication above everything else. It has become the primary deciding factor when it comes to choosing a financial service provider.

In EMEA countries, great fraud protection is the number one factor when choosing financial services. 

Here’s a breakdown of the percentage of people in each country who put security above everything else:

• Germany – 36%
• South Africa – 34%
• Sweden – 32%
• UK – 36%

Incredible level of fraud protection as a priority has been growing for customers. Businesses that have failed reputation around fraud protection tend to be less attractive to customers. 

With the growing number of people wanting great fraud protection, a business that can make it happen will gain a competitive advantage.

Fraud Attacks and Highlights in Media

Media coverage of the number of growing attacks in recent years has made customers more aware of security. Around 1 in 4, customers believe that their identities could have been stolen and used by fraudsters to open fake accounts.

The increased coverage by the media has helped customers understand the necessity of protecting their identities and protecting themselves from fraud. One in two customers even understand the importance of protecting their identity to help prevent money laundering.

Friction is a Problem

Security checks by financial institutions have increased globally. Each country has its own regulatory body that set the rules and guides for security checks. In the last 5 years, customers have seen significant growth in online ID checks when signing up online and making purchases. 

One in four South Africans has stopped or reduced their use of credit cards for online transactions because of the time-consuming checks. In the UK and Germany, the number is around 1 out of every 5 people. 

This is not to say that consumers want fraud protection methods to be eliminated from the process. It is clear that customers want a secure service provider but they don’t want the transaction to be so full of friction that it takes hours or days. 

Fast onboarding and ease of use are the biggest drivers of the digital banking industry. Almost half of all consumers across the UK, Germany, and Sweden want quick onboarding times. 

While customers want stronger and more effective fraud control and prevention methods, they also want a quick process.

Growing Number of Authentication Methods

Only a couple of years ago, biometric checks were considered an uncertain method of authentication. Today, biometric authentication is the preferred method of authentication. 

Fingerprint verification ranks the highest when it comes to authentication methods. South Africans out of all the countries showed the highest preference for fingerprint authentication. Face scans and iris scans are also ranked among the other top 5 customer authentication methods.

Authentication using passcodes (One time passwords sent through banking apps or SMS messages) is still a highly ranked feature. The use of usernames and passwords is falling drastically, but they’re still an important part of multi-factor authentication.

This also suggests that there’s a growing suite of authentication methods allowing consumers to access their accounts and transact online. 

Conclusion

Consumers have a huge number of expectations of their financial service providers and the level of fraud protection they provide. Organizations have to strike a balance between alternative providers and completely frictionless experiences. 

Consumers are also aware of how relentless fraudsters are and they expect to be protected. As long as the friction is ideal for the circumstances and the level of risk is high, customers will be fine with additional verification checks. 

The key for providers is to understand that ID verification isn’t just about preventing fraud. It is also part of an organizational process. Great fraud protection provides consumers with a competitive advantage and it should play a major role.

Synthetic fraud and first-party fraud is becoming a major challenge. Both first-party fraud and synthetic fraud are hard to detect. In this guide, we’ll dive deeper into how banks and telecom organizations can identify these types of fraud without adding friction to the process of real customers.

The biggest problem with first-party fraud is figuring out real customers from fake ones. Making the onboarding process too difficult can discourage genuine customers from signing up. Banks and telecom have to make the process easier to encourage business. At the same time, they need to prevent fake customers from signing up.

Without properly analyzing these fabricated customers, businesses are at a higher risk of onboarding fraudsters. Here are the top 5 ways for businesses to fight first-party fraud and synthetic identity fraud.

Tips to Fight First Party & Synthetic Identity Fraud

Here are some ways businesses can employ to fight first-party fraud and synthetic fraud. 

1. Learn the Difference Between Bad Debt and Intentional Bad Debt

Businesses need to be aware of the differences between intentional and unintentional bad debt or fraud. With the right type of analytics, basic patterns of intentionality can become easy to spot. These include linked accounts that people used to pay fake bills for each other or to mimic payroll deposits.

2. Learn to Characterize Fraud

This is where a lot of businesses fail. To prevent fraud, first businesses must learn to correctly characterize fraud. Fraudsters try to showcase fraudulent activities as bad debts. 

Characterizing fraud will help you identify patterns and common methods that fraudsters use. Knowledge of common methods can then be passed on to the employees.

3. Define Rules

If your organization doesn’t have a set of pre-defined rules for fraud prevention, you’ll always face challenges against fraud.

A business should always have some pre-defined rules. Moreover, there should be a model to perform link analysis, this helps in examining data for known patterns. 

Some of the most common signs of fraud include phone numbers, names, email addresses, and other identifiers that fraudsters use to apply for loans, and other forms of debt over and over again.

Fraudsters use the same information repeatedly to convert a fake ID into a legit-looking one with some financial history.

4. Enhance Sign-Up Process

Knowing that you know common signs and tricks used by fraudsters, you can implement methods to improve your onboarding process. You can monitor the links between applications. 

As fraudsters use the same information over and over again, you can look for declined applications due to credit risk, or new applications where very little information is provided. 

Make it hard for fraudsters to use an identity they’ve created to sign-up. At the same time, ensure that the onboarding process isn’t too complicated for the ordinary user.

5. Tag Suspicious Activities

There will be times when you won’t be able to figure out if the account is fraudulent or not due to a lack of evidence. Instead of outright rejecting/accepting the application, you should tag the account as suspicious.

This is a part of enhanced due diligence (EDD). Once the account is opened and credit is provided, make sure to closely monitor the account for any suspicious or “out of behavior” activities.

You can look for sudden changes in the account information (Name, address, banking information, etc). This is one of the most common ways to detect fraudulent activities.

Conclusion – Be Proactive While Fighting Fraud

Fraudsters are always on the move, looking for new ways to exploit financial institutions, so it makes sense to be proactive. Organizations have to be extra vigilant and need to provide the level of customer experience that has become standard.

It’s high time to combine fraud prevention methods and user-friendly customer onboarding techniques to come up with a seamless experience.