Category: Fraud

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Can Strong Fraud Protection Bring in More Customers?

strong fraud protection

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.

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What is Transaction Fraud and How to Prevent Transaction Fraud?

transaction fraud detection

Today, people can use business services globally. Digital transactions allow consumers to connect with brands all over the world and take advantage of eCommerce opportunities.

Building trust in digital commodities is ideal for your business to succeed. Businesses don’t know who exactly they’re transacting with. So, transacting online requires verifying identities and preventing online transaction fraud.

Apart from customer onboarding, businesses have to continue to protect themselves from transaction fraud. Businesses should be able to identify suspicious activities or anomalies intelligently and generate accurate and timely feedback on the transactions.

In this guide, we’ll cover what is transaction fraud and how to detect transaction fraud.

What is Transaction Fraud?

Transaction fraud is a major risk for any business that does business online. The most common types of transactional fraud include identity fraud, fake payment methods, or the use of fake information by a fraudster. 

Transaction fraud committed by organized criminals leads to legit customers being victimized. Individuals that commit transaction fraud seek to abuse the business policies and chargeback policies. 

According to reports, criminals stole more than £609.8 million through authorized and unauthorized transaction fraud.

The biggest problem is that the situation is continuing to get worse.

Types of Transaction Fraud

1. Authorized Fraud

This type of transaction fraud tricks a customer into making a payment. The methods to conduct this type of fraud include:

  • Purchase scams
  • Investment scams
  • Romance and advance fee scams
  • Invoice fraud
  • CEO fraud and impersonation

These frauds rely on social engineering, fake phone calls, text messages, emails, etc. to trick customers into making a payment.

2. Authorized Push Payment (APP) Fraud

Authorized push payment (APP) fraud type of fraud is similar to authorized payment fraud. Fraudsters trick customers into sending payments into an account controlled by a criminal. Fraudsters could act as a government department, debt collection agency, or someone else to get payments.

3. Unauthorized Fraud

Another type of money transfer fraud involves payments that happen without the victim’s knowledge. This type of fraud is also known as account takeover fraud or ATO.

Fraudsters use several techniques to make this type of fraud happen:

  • Phishing emails
  • Fake call centers
  • Device compromise 
  • SIM swap
  • Malware and ID spoofing

4. Account Takeover Fraud

Account takeover fraud is a type of ID theft and a very common type of transaction fraud. Fraudsters can’t take over an account without stealing users’ personal information such as account credentials, security question answers, and other account data.

5. Card Not Present Fraud

CNP is also referred to as ‘remote purchase fraud’, this type of card payment fraud makes unauthorized use of stolen or leaked card details. Most of the information is obtained through data breaches, phishing emails, or purchases on the dark web.

6. Lost or Stolen Card

As the name suggests, this type of fraud happens whenever a user loses their card or it gets stolen. Fraudsters use a card without the user’s permission and usually without the user’s knowledge. 

7. Chargeback Fraud

Chargeback fraud or credit card dispute fraud is an intentional attempt by a cardholder to make an illegitimate chargeback to the card after an online purchase. 

Customers who do chargeback fraud intentionally tend to use these reasons most commonly:

  • The charge on the card is not recognized by the user.
  • The product or service hasn’t been received.
  • The product was damaged, defective, or didn’t match the description.
  • The card was stolen or used without consent.

Strategies to Prevent Transaction Fraud

  1. Verify Customers at Onboarding

The best way to beat fraud is to verify customers during onboarding. The best practice in transaction fraud prevention is to recognize risk during the earliest stages of building a relationship with a customer.

Use online document solutions to onboard customers from all over the globe. Keep track of every small activity that a customer does and flag anything that looks suspicious or out of character.

  1. Take a Risk-Based Approach

Risk assessment is more crucial for businesses than what people think. A risk-based approach to transactions helps in effective and efficient transaction monitoring.

A risk-based approach doesn’t need to cover all scenarios and it should be sufficient to understand each product or service and sales channel. When you segment customers, products, and services in this way, a business can carry out custom-made transaction monitoring.

  1. Refine the Process

You can expect to detect and prevent fraud with any run-of-the-mill process. The entire fraud detection process should be a combination of customizable workflows, adaptive rules, strict rules, CDD and EDD methods, and so much more.

Without combining multiple techniques into a single workflow, it’s almost impossible to detect new-age fraud. There’s no single “perfect fraud detection” solution out there. So as a business, you have to combine multiple solutions to ensure your business and customers are safe from fraud.

Every single component should provide some kind of value. Successful fraud detection and prevention should happen at every step, not just one step.

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5 Ways to Fight First Party & Synthetic Identity Fraud

first party fraud prevention

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.

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Link Analysis for Fraud Detection

link analysis for fraud detection

Link analysis is a powerful analytical technique that allows us to examine the relationships between entities or objects. In the context of fraud detection, link analysis can help us identify connections between individuals, transactions, and other data points that might indicate fraudulent behavior.

In this guide, we’ll explore what link analysis is, how it works, and how it can be used to spot fraud.

What is Link Analysis?

Link analysis is a type of data analysis. At its core, it focuses on the relationships between objects or entities. It is commonly used in law enforcement, intelligence analysis, and fraud detection.

In link analysis, data are represented as nodes (also known as vertices). The relationships between objects and entities are represented as edges. Nodes can represent anything from individuals to transactions to organizations, and edges represent the connections between them.

For example, in a network of financial transactions, nodes might represent bank accounts or credit card numbers, and edges might represent the transfers of money between them.

How Does Link Analysis Work?

Link analysis works by analyzing the patterns of connections between nodes in a network. Businesses and entities can rely on several methods to do link analysis, but the most preferred option is a graph database. 

In a graph database, data is represented as nodes and edges, just like in link analysis. However, graph databases have some additional features that make them particularly useful for link analysis.

One of these features is the ability to perform queries that traverse the edges of the graph. For example, we might want to find all the bank accounts that are connected to a particular credit card number, or all the transactions that involve a particular individual.

Another feature of graph databases is the ability to perform graph algorithms. These algorithms can be used to identify patterns in the data that might indicate fraud. For example, we might use an algorithm to identify clusters of nodes that are tightly connected, which might indicate a network of fraudulent activity.

How Can Link Analysis Help Spot Fraud?

Link analysis can be a powerful tool for fraud detection because it allows us to examine the relationships between data points. By identifying connections between individuals, transactions, and other data points, we can uncover patterns of behavior that might indicate fraud.

For example, suppose we are investigating a case of credit card fraud. Using link analysis, we might discover that several different credit card numbers are used to make purchases at the same set of stores. This might indicate that the fraudsters are using a “shopping list” of stores to target.

We might also discover that the credit card numbers are all being used from the same IP address, or that they are all linked to a particular bank account. These connections might further indicate that the fraudsters are working together and using a common set of resources.

Link analysis can also help us identify unusual or unexpected patterns of behavior. For example, suppose we are analyzing a set of financial transactions. By using link analysis, we might discover that a particular individual is involved in a large number of significantly larger transactions than their typical transactions. This might indicate that the individual is engaged in money laundering or other fraudulent activity.

Conclusion

Link analysis is a powerful tool for fraud detection because it allows us to examine the relationships between data points. By identifying connections between individuals, transactions, and other data points, we can uncover patterns of behavior that might indicate fraud. Link analysis can help us identify unusual or unexpected patterns of behavior, identify patterns of behavior over time, and identify networks of fraudulent activity. This can be especially useful in cases where the fraudsters are working together, as link analysis can help us uncover these networks and identify key players.

However, it’s important to note that link analysis is not a magic bullet for fraud detection. It requires skilled analysts who can interpret the data and identify meaningful patterns. In addition, link analysis is just one tool in the fraud detection toolkit – it should be used in combination with other techniques, such as data mining, machine learning, and traditional investigative methods.

Another potential limitation of link analysis is that it relies on the availability and quality of data. If the data is incomplete or inaccurate, link analysis may not be able to uncover meaningful patterns. It’s important to ensure that the data is accurate and up-to-date before performing link analysis.

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3 Different Types of Fraud

types of fraud

Digital banking has opened up more means for fraudsters to trick financial institutions, lenders, or end customers. To keep up, businesses have transformed their operations to provide valuable digital banking experience to customers, and combat fraud.

Banks all over the world are now focusing on seamless onboarding experiences. However, this rapid growth in digital banking has also allowed fraudsters to become more creative. The numbers around digital banking fraud, ID theft, and data breaches are increasing rapidly.

In this blog, we’ll outline the common types of fraud, and how and why they’re changing. We’ll also be sharing ways lenders can protect themselves against evolving fraud. 

First off, let’s take a look at the common types of fraud:

What is First-Party Fraud?

First-Party fraud is when a person knowingly falsifies their identity or gives false information for financial or material gain. Common examples include exaggerating their income, fabricating their employment, or providing fake information to take advantage of some services.

Business often categorizes first-party fraud as credit loss and is written off as bad debt. This leads to issues in the long run for businesses trying to figure out how much they’ve lost. The data makes them able to make future lending decisions, and build fraud prevention practices:

Common types of first-party fraud include:

  • Fronting

Fronting is when businesses set up services in someone else’s name to save money. Kids applying for car insurance under their parent’s name to get cheaper insurance.

  • Address Fronting

Address fronting is when someone uses a different application to get a cheaper service. Someone could sign up for a service in a cheaper area, using a fake address instead of using the real address which costs more money.

  • Chargeback Fraud

Chargeback fraud is often called “friendly fraud”. This fraud happens when a user denies making a purchase on a credit or debit card to get a refund from the credit card provider.

  • De-Shopping

 It’s a type of fraud that users do when they buy clothes or other items with the intention of returning them after using them and getting a full refund.

  • Goods Lost in Transit Fraud

This is a type of fraud that’s increasing at an alarming pace. In this, customers order goods online and claim that they haven’t been delivered. Some buyers claim that the products have been damaged, or even return empty boxes to get a refund.

How is First-Party Fraud Changing?

The type of people that cause first-party fraud has changed significantly during the pandemic. During the pandemic, customers with excellent credit scores and a good repayment history found themselves struggling financially.

According to a report by CIFAS, 1 out of 13 Brits admitted to committing one instance of first-party fraud last year.

What is Second-Party Fraud?

Second-party fraud is when an individual shares their identity or personal information with someone else to commit fraud. The biggest example of second-party fraud includes money mulling.

In money mulling, an individual provides access to someone else to move money in or out of their accounts for a small fee. While a lot of people consider this a victimless crime, it can have some victims. If the money being moved is used to fund violent crimes, terrorism, or drugs, it can be victim-related.

How is Second Party Fraud Changing?

More than often, young people have been the target of second-party fraud. Fraudsters love to use social media to target young people. The trend has changed as more and more older people are involved. As with first-party fraud, the pandemic has pushed more people into financial problems. This makes them more vulnerable to fraudsters.

What is Third-Party Fraud?

Third-party fraud in general is known as identity theft. Fraudsters steal the user’s identity or personal details and use them without the user’s consent. It also includes manufactured identities called synthetic identities. 

There’s a clear victim when it comes to third-party fraud. To a trained eye, it can be easy to spot instances of fraud. It also includes manufactured identities, with the fraudster creating a new identity using stolen and false information.

Third-party fraud is the most common type of fraud that happens throughout the globe. 

How is Third-Party Fraud Changing?

Fraud varies significantly across the lender’s portfolios and the type of products they offer. According to reports, third-party fraud is at risk of growing for current accounts, loans, cards, and savings. Mortgages and asset finance are at an increased risk of first-party fraud.

Combating fraud is challenging, but with technologies like online document verification, online bank verification, or online proof of address verification services can help.

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Fraud Risk Management Practices

best fraud risk management practices

According to a report by ACFE, organizations lose about 5% of their annual revenue to fraud annually. This is because businesses don’t focus much on common fraud risk management practices. This leads to companies not being able to protect themselves against fraud, and meet bottom-line compliance requirements.

As more and more financial institutions are required to bear the burden of compliance, they need to know the appropriate methods of risk management.

These risk management frameworks help businesses to identify and respond to fraud. Being able to assess risk early on helps them protect organizations against common fraud types. Businesses can implement fraud risk management practices and gain an advantage over their competition.

Benefits of Fraud Risk Management Practices

Financial institutions that implement basic and advanced fraud risk management practices tend to reap additional benefits.

The most common benefits include the following:

  • Reduced financial losses due to fraud. 
  • Reduced costs of responding to fraud.
  • Better compliance with local and global regulatory requirements.
  • Enhanced employee awareness of employees against fraud throughout the organization.
  • Increased reporting of potential fraud and other ethical issues. 
  • Enhanced level of corporate governance.

Best Practices for Fraud Risk Management

Organizations don’t need over-the-top processes that add friction instead of reducing it. To reduce fraud, businesses need to reinforce their current models. This can be done using best practices for fraud risk management:

1. Invest in Ideal Technology

The right type of technology can make or break everything. Integrating technologies that help prevent fraud such as online document verification, proof of address verification software, bank verification software, etc.

Technologies like these can help organizations streamline the compliance process. Financial institutions can also verify which customers are real, and which are not.

Being able to clearly see through fraudulent practices is what businesses can do to reduce financial losses through fraud.

2. Build a Risk Insight Culture

Businesses can get instant benefits from risk insights. Risk insights can also improve the management decision-making process. Although, in order to maximize the long-term benefits, businesses need to take a systematic approach. Employees should know about risk awareness and should ensure continuous compliance in the financial process.

3. Understand Your Compliance Capabilities

Strong compliance provides benefits that are hard to measure. Business leaders need to identify their company alongside the level of their compliance capabilities. Knowing the journey helps organizations understand which approach they should take to improve compliance capabilities. 

4. Find Flexible Solutions

The fraud number keeps on increasing on existing channels and new channels. Finance leaders need to strengthen their ability to detect fraud and analytical capabilities.

Financial institutions need to leverage existing data to be able to improve fraud risk management capabilities. Fraud is getting complicated, thus making it vital for businesses to come up with flexible fraud risk management solutions. 

5. Consolidate All Data Sources into a Single Platform

There are thousands of fraud risk detection solutions available in the market. Businesses need to make sure that data captured from all these technologies are kept on a single platform. Consolidated data makes analysis and decision-making easier. 

This also avoids the creation of unnecessary data silos, which leads to instances of fraud.

6. Have an Omnichannel View of Fraud Detection

Organizations need to consider all digital channels if they want to manage risk effectively. An omnichannel approach to fraud risk management can minimizes the risk of a fraudster migrating to another channel after losing access to the first one. 

To be able to do this, businesses need to develop a single central platform to ensure data points and behavioral patterns can be accessed through all channels. 

7. Evaluate Risk Throughout the Customer Journey

The level of risk associated with a transaction should be assessed and handled before the customer reaches the final step of the payment. Risk management leaders must build fraud risk management systems that can assess risk from the beginning of a customer journey. 

This includes analyzing customer behavior, analyzing the use of bots, and scripts, monitoring account login/creation, and defining the risk of the action. They also need to implement ideal obstacles along the journey.

8. Build a Seamless Customer Experience

The risk management approach is different for each organization. No two organizations can follow the same steps and get the same results. A new approach is needed that can integrate fraud detection and customer verification technologies.

The goal of the process should be to eliminate fraud while trying to keep the customer onboarding experience as seamless as possible.

Risk management leaders should focus on streamlining the customer experience, and implementing frictionless customer verification processes.

9. Reduce the Cost of Fraud

When businesses focus on reducing the total cost of fraud instead of the rate of fraud, they are able to come up with better strategies. With this goal in mind, organizations can make informed decisions about how much they need to invest in fraud detection and prevention.

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Mobile Fraud – How Does it Work, How to Prevent it?

mobile fraud

Chances are that you’re reading this blog on your smartphone. That’s because over 60% of all online traffic comes from smartphones. We use our mobile phones for a lot of things, online accounting, social media, emails, and so much more. We carry it with us all the time and use it for every small thing. Smartphones have become an integral part of our personal and professional lives. So, it makes sense that fraudsters would want to gain access to your smartphone.

Mobile fraud has become a major concern in recent years. Just by accessing a single device, fraudsters can take over every single thing they need to. The threat to personal finance and security is very real.

In this guide, we’ll cover the five biggest mobile fraud threats and the best fraud prevention best practices.

Techniques Fraudsters Use for Mobile Fraud

Fraudsters keep coming up with new and interesting ways to conduct fraudulent activities. Although, there are some tried and tested techniques that work in their favor. So here are the top 5 mobile fraud threats that fraudsters love to try:

1. SIM Cloning & SIM Swapping

A common mobile fraud technique that fraudsters use is to take over an individual’s online accounts. This helps them ‘socially engineer’ access to their bank account and other personal and financial data.

This is done by collecting personal data from multiple sources, including messaging and social media sources. Then they use this data to try and persuade the mobile operator to issue a new SIM that a fraudster uses to get all the one-time passwords (OTPs) to access your accounts.

If this method isn’t successful, fraudsters use smart card copying software or use remote hacking to clone a SIM Card.

Cloning a SIM card provides access to all the data, and account details. Through this, they can conduct all kinds of fraudulent activities.

2. Device Cloning

Device cloning is another commonly used mobile fraud technique fraudsters use. Our smartphones contain all the apps and personal data that you need to access services like online banking, online stores, etc.

Fraudsters can transfer data and services from one mobile device to another one, making a clone of the original device. Fraudsters can make calls and conduct transactions from cloned devices without specific checks.

3. Caller ID Spoofing

Your Caller ID is the number visible to the people you’re calling. This helps others to identify who the call is from. Fraudsters can create false caller IDs from a local service provider/company that the victim knows. When the victim picks up the call, the caller tries to obtain personal information under false pretenses.

Calls and messages are sent from this fake ID to trick the victims into divulging personal/confidential information. Once the call or message is answered, the fraudsters will use social engineering methods to persuade victims to provide confidential information.

4. Recycling Phone Numbers

When a mobile user’s account is closed, the mobile operator will release the phone number again after a short period of closing the account. Now the number can be reassigned to someone else and can be used by some other user.

Today, it has become a common practice that mobile numbers are associated with personal accounts. Allowing for the transfer of funds using mobile numbers. A lot of fraudsters activate old mobile numbers with the aim of finding a number that has been recently recycled.

This number can then be used to access accounts linked with the number.

5. Call Forwarding

Call Forwarding is another mobile fraud technique used by fraudsters. In some online transactions, customers are asked to prove whether they have the mobile in their possession or not. This is done by sending a one-time password to the customer.

Sometimes, fraudsters call or text an intended victim, asking them to forward their call on to someone else. This can be done for any fake reason. Once the victim forwards inbound calls and texts to a fraudster’s device, the fraudster will be able to access all the one-time passwords needed to access personal accounts.

Fraudsters can now access accounts, make payments, and conduct other frauds without the victim ever knowing.

Use of Real-Time Data for Preventing Mobile Fraud

Mobile phones have become an undeniable part of our lives. Without smartphones, there are hundreds of things we won’t be able to accomplish on regular basis.

Mobile phones provide unique data in that it is the only source of ‘dynamic’ data on what’s happening in ‘real-time’. This dynamic data can be used to immediately figure out if a device has been lost or stolen, or if a SIM card has been recently swapped. It can even help in figuring out if the inbound calls or texts have been forwarded.

By using mobile data, you can keep fraudsters out, and it’s also helpful in identifying good guys. Companies can do mobile data checks behind the scenes to access online services securely, quickly, and easily, and ensure that customers won’t fall prey to mobile fraud.

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First-Party Fraud, and How To Prevent It?

what is first-party fraud

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.

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Five Major Steps for Strengthening your ID Fraud Prevention Strategy

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 1not 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 their ID fraud protection 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.

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

machine learning technology

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.