Category: Fraud

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Fraud

Best Practices and Strategies for Fraud Prevention

best practices 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 protection 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 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 Risks 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 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.

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Fraud

Guide on Types of Cryptocurrency Fraud

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. 

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Fraud

Best Fraud Prevention Tips for Digital Currencies

digital currency fraud prevention

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 fraudster’s behavior. 

Digital currency fraud including growing and well-known cryptocurrencies is becoming increasingly common. Plus, 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 protection tips for digital currencies that can be followed by individuals and financial institutions.

Most Popular Online Scams

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, a representative of a legit crypto firm, or a representative of a non-existent entity. Scammers tend to offer special rewards or extra earnings 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 log in to the fake website the fraudster will have access to your information. Once you pay 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 with 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 it to the nearest authority.

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Fraud

Preventing Account Takeover & Transaction Fraud in eCommerce Marketplaces

eCommerce marketplaces

eCommerce marketplaces and their use during and post-pandemic have grown significantly. More than 150 million people used online shopping for the first time during the COVID-19 pandemic. Also fraud increases regarding online fraud, organizations are losing $4.5 million per year as a result of online transaction fraud. 

Consumers put their trust in companies, online marketplaces, and apps whose services they choose to use. Online services such as rideshares, vacation rentals, P2P payment platforms, delivery services, and more. As the rate of fraud rises, companies that use ineffective or weak identity proofing measures will find themselves facing financial losses, loss of brand reputation, and regulatory fines. In some cases, they might also be endangering their customers, if they have unauthorized drivers and couriers with stolen identifications. Fraudsters use fake documents as they may not be eligible for employment. It may take a long time since that kind of fraud is detected by the eCommerce marketplace.

Growing Threats for eCommerce Marketplace

Trust is the primary factor in any business building a long-lasting relationship. Especially when a company operates globally and when they want to build a loyal customer base. With the rapid acceleration of digital shopping and transactions comes a growing fraud landscape. With a sudden rise of people wanting to transact online, marketplaces and apps need to have the ideal strategies in place to protect themselves and customers from fraudulent activities.

There are numerous fraud types that fraudsters use. As the industry picks up after the global pandemic, marketplaces and apps are finding that their customers are being targeted. Without ideal risk mitigation or comprehensive identity proofing strategies, companies may find themselves facing the following:

  • Unverified Vendors, Hosts & Drivers: Vendors, hosts, and drivers who use false/stolen documents and other fake ID techniques to exploit both the platform and consumers for monetary gain.
  • Falsified Listings & Fake Accounts: Unauthorized vendors that create a fake account and publish fake listings and product reviews is another threat faced by eCommerce marketplaces. 
  • Buy Now, Pay Later Muling: consumers either for themselves or on behalf of others use a payment service when purchasing a product or service while planning not to pay for the services. It is also known as chargeback fraud, consumers will make a purchase but later claim that their transaction was unauthorized. Thus, merchants have to issue a refund without getting the product back.
  •  Card-not-present (CNP) Fraud: As online shopping increases, customers can’t provide a credit card directly to the merchant. That’s why fraudsters can use stolen credit card information to make unauthorized transactions. And in most cases, card owners are unaware of being compromised. 
  • P2P Payment Scams: online peer-to-peer payments for products and services that go through bank portals give users a false sense of security. In a lot of cases, this ends up being a scam where people are defrauded and unable to receive protections or refunds from the banks. 

These types of fraud happen when large eCommerce fraud with a huge customer base leverage minimal ID verification services. Being unable to monitor transactions constantly for consumers, partners, and contractors increases the risk of fraud. By not focusing on establishing trust, firms often find themselves with serious monetary, reputational, and security issues.

Building Trust Without Hurting Customer Experience

Organizations that want to build and maintain trust with their vendors and consumers need to have a multifold approach to the detection, and prevention of fraud. Using bad technological solutions or improper regulations can result in noncompliance and friction during customer onboarding. Also, constant fraud leads to higher operational costs and also hurts brand reputation.

Fraudsters use similar tactics against eCommerce platforms that they do for financial institutions. Marketplaces and apps are later seeing significant growth in different types of fraud. According to a report, account takeover fraud grew by 54% in 2020. Identity-related fraud for financial institutions grew by 69% for eCommerce in mid-to-large size retailers.

By following up with Anti-money laundering (AML) compliance, companies will have to follow KYC for customer verification. eCommerce marketplaces also have to follow KYB compliance for detecting and preventing vendor-related fraud. By following all the compliances, eCommerce marketplaces, and apps will be able to verify the identities of vendors and consumers alike effectively. This also improves customer experience, prevents fraud, and ensures happy and loyal customers.

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Fraud

20 Internal Controls Methods That Businesses Can Use for Fraud Detection and Prevention

detecting fraud

Businesses all over the world lose billions of dollars to internal and external fraud. Unfortunately, this kind of fraud is easily preventable with a little bit of strategy and reinforced structures. According to a survey conducted in 2018 by the “Association of Finance Professionals (AFP) Payments Fraud and Control Survey” 78 percent of businesses were a victim of payment fraud in 2017. 

What’s even more concerning is that only 47% of those organizations were able to uncover the fraud in less than 2 weeks. There are a lot of steps to follow to be able to detect and prevent fraud. Streamlining data management, building a comprehensive checklist for month-end close, time spent on documenting and implementing strong internal controls, eliminating redundancies, and so on.

It is important for businesses to build a strong checklist to prevent themselves from internal and external fraud.

Top 20 Internal Controls for Businesses

1. The company’s tone and how fraud tolerant a firm is should be well communicated throughout the organization. If the employees understand how strict the fraud prevention policy is, the chances of internal fraud will reduce dramatically. 

2. Firms need to make sure that all employees must comply with a code of conduct. Employees should also be aware of the consequences if they don’t comply with internal policies. 

3. A Segregation of Duties policy needs to be established throughout the organization.

4. The Delegation of Authority policy should be set in place for all organizational expenses and commitments.

5. Monthly or quarterly customer monitoring checks are vital to keep track of suspicious activities and monitor fraudulent transactions. 

6. System Access Controls have to be reviewed by organizations on a monthly basis. If that’s not possible, then they should happen after a system upgrade or organizational change.

7. The compliance managers are responsible for implementing effective internal controls in all sectors of the company. This includes identifying, assessing, and managing the risk of fraud from internal and external sources.

8. All representations and assertions relating to internal controls have to be supported with proper documentation. 

9. Costs and expenses of all the operating units must be maintained under budgetary controls. Comparing actual expenses to be budgeted amounts must happen regularly. 

10. All operating units have to develop a system of internal controls to make sure the assets and the records of the company are protected from loss, destruction, theft, or illegal access to data. 

11. Critical transactions happening inside the business process have to be traceable, authorized, authenticated, have integrity, and should be retained in accordance with established policy.

12. To ensure the reduction of fraud, background checks have to be done for all the employees and customers. 

13. All the business records must be maintained and retained in accordance with the firm’s policy. 

14. The business’s network and information program and corporate policy must be followed perfectly. Employees, merchants, and third-party payment providers must refrain from disclosing sensitive information.

15. All computer systems and software applications that can impact the operations of a business process must have the adequacy of their internal controls verified before the implementation. Unverified systems and software can cause a lot of fraud. 

16. Contracts or documents that bind the organization to any obligation can be executed by purchasing personnel or individuals duly authorized under the organization’s delegation of authority policy. The legal team should be able to review and approve all the contracts and legally binding documents. 

17. All suppliers must be verified before they become a part of the business. The verification process includes:

  • Requires a W-9
  • Performing a TIN matching
  • Compliance screening
  • Address and phone verification

18. All payments over a certain amount should be reviewed and approved. Firms should pay special attention to international payments and wire transfers.

19. All the intercompany payments that are sent and received should be verified on a monthly basis. 

20. A physical inventory process should be set in place to keep track of fixed assets. A physical inventory and counting process should be established for businesses that manufacture and supply the products. 

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Fraud

What Businesses Should know about ID Fraud

identity fraud for business

It’s pretty clear now that identity fraud isn’t going anywhere, the threat of identity fraud is evolving. In the last couple of years, the number of identity fraud has grown steadily. The overall cost of identity fraud is $42 billion for businesses.

Now that the pandemic has adversely affected businesses, the threat of identity fraud seems even bigger now. With most businesses pushing towards digital transformation, the types of identity fraud are going to get bigger. Weak and inefficient digital systems developed and used by financial institutions act as a magnet for fraudsters. Businesses need to be prepared for upcoming identity fraud trends.

6 Things to Know About Identity Fraud

Businesses and financial institutions that don’t follow the common identity fraud trends. Here’s all a business should know to protect themselves against evolving fraud.

1. Fraudsters Will Continue to Develop New Methods

As more and more customers are relying on online solutions because of the pandemic, the environment is also inviting fraudsters. 

Documents and biometric IDs that are presented by customers manually can’t just happen in a digital environment. It is almost impossible to check the signs of manipulation and identity fraud is more scalable online. This works in the favor of fraudsters.

Bad actors are using sophisticated methods for document fraud. In the upcoming years, there will be an increase in fraud documents and fake ID cards. That shows that fraud techniques are getting more sophisticated and the pandemic has given birth to first-time fraudsters in need of financial help. 

Businesses in this digital environment face attacks from two fronts. First-time fraudsters with low-level fraud and unsophisticated techniques and experienced fraudsters with evolving types of fraud with the use of sophisticated techniques.

2. Biometric Fraud Will Soon Evolve

As of right now, businesses use AI and machine learning solutions that leverage biometric data for verifying customer identities. Current biometric fraud is simple and easy to detect using intelligent solutions. But deep fakes will make things more challenging.

Deepfakes are digital media, such as videos in which a person’s existing video/photo can be replaced by someone else’s. While this technique is mostly used by social media users to make entertaining videos. However, this can also be used for malicious activities like bypassing the ID verification systems. Sophisticated efforts like these are less common in the real world as they take up too much time and money.

Over time, with the improvement of technology, the costs will come down and biometric fraud will evolve and be hard to detect by businesses.

3. Synthetic ID Fraud Will Rise

Synthetic identity fraud is one of the biggest threats, it combines stolen information with fake details like names and addresses to create a completely new identity. Fraudsters can then use this identity to apply for loans, credit cards, and more. 

In recent years, synthetic fraud has grown a lot. Data breaches in the past few years have worked as a helping hand for synthetic ID fraud. The hack of the US Census is one such example. Because of the amount of stolen customer data available online, credit and database checks won’t be good enough for verifying identity. Businesses will need to consider other methods of verification like third-party technologies.

4. Coercion Attacks will Become a Huge Concern

Coercion attacks are a huge threat for businesses as they don’t need any technical experience and are difficult to detect. Instead of stealing an identity, fraudsters persuade victims into opening legal accounts and use them for illicit activities. 

To identify coercion attacks, businesses need to verify the intent of account opening which is almost impossible for humans. One sign of coercion attack is if someone else is in the shot when a biometric check is being completed, however, that’s still too big of a stretch. Businesses and ID providers need to be aware of this undetectable fraud.

5. Cash Incentives Will Continue to Increase Fraud

It seems like a thing of the past but frauds promising cash incentives continue to affect businesses. Fraudsters take advantage of a marketing campaign that promotes cash incentives. They do so by targeting bonus promotions while opening a new account, referral bonuses, or extreme currency fluctuations. Fraudsters open several accounts using an original identity but with some different details like email address and address and so on. They open the account and get the monetary perks.

6. Financial Industry is Always the Biggest Target

Out of all the industries, the financial industry was impacted the most by online fraud. The financial industry is always at risk of ID fraud, but suspicious behavior has become harder to catch because of changes in spending habits. Businesses are having trouble being able to distinguish between legit and fake users. To successfully onboard customers, businesses need proper bank account verification software that facilitates security and agility.

This is one of the main reasons why businesses are focusing more on transforming their channels. Most businesses combine machine learning with biometric verification instead of username and password. This is one method that can help in verifying between legit users and bad actors. 

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Fraud Payment

Best Practices to Prevent Credit Card Fraud

credit card fraud prevention

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

What is Credit Card Fraud?

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

Difference Between Credit Card Fraud vs. Identity Theft

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

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

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

How Consumers Can Prevent Credit Card Fraud?

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

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

1. Don’t Use Unsecure Websites

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

2. Beware of Phishing Scams

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

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

3. Beware of What You Post on Social Media

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

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

4. Use Mobile Payment Apps

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

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

5. Don’t Save Credit Card Information Online

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

6. Use a Password Manager

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

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

7. Don’t Use Public WiFi for Financial Transactions

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

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

How Businesses Can Prevent Credit Card Fraud?

1. Secure Payment Processing

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

2. EMV Chip Card Technology

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

3. Address Verification and CVV Checks

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

4. Fraud Detection Tools

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

5. Employee Training

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

6. Regular Monitoring

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

7. Chargeback Management

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

Types of Credit Card Fraud

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

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

  1. Stolen or Lost Credit Cards

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

  1. Card-Not-Present (CNP) Fraud

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

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

  1.  Account Takeover Fraud

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

They then use the new card to make illegal transactions.

  1. Application Fraud

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

  1. Skimming

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

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

  1. Phishing Scams

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

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

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

Which Businesses Are Most Susceptible to Credit Card Fraud?

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

1. eCommerce and Online Retailers

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

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

2. Small Businesses

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

3. High-Risk Industries

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

4. Businesses with High Employee Turnover

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

5. Businesses With Outdated Technology

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

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

How Banks Can Prevent Credit Card Fraud?

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

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

Categories
Fraud

Fighting Online Fraud with Multi-Factor Authentication Solutions

multi factor authentication

In a world that’s moving towards complete digitization, how can a business distinguish between fake and real? As a business, the need of identifying a real person from a fake one is vital. Identity authentication solutions help in verifying customer identities. Using multi-factor authentication (MFA), and knowledge-based questions, businesses can reduce the risk of fraud and increase customer-business trust. 

One widely used MFA is using the mobile number for sending a unique 6-8 digit code to the customers. This is a common method of authentication because:

  • Mobile phones are widely available. Over 62% of the world’s population uses a mobile phone. 
  • Easily accessible. Most people carry their phones with them at all times.
  • More convenient than any other method of MFA.

Mobile Number for Verification

Using mobile numbers as a method of verification consists of:

  • A customer/potential customer provides their phone number to the business
  • A text is sent to the phone number, it contains a unique, time-sensitive code
  • The person is authenticated if they enter the right passcode

While the process is simple, it supports one element of customer authentication. Strong customer authentication (SCA) which verifies customers using something a customer has. By entering the unique code, a customer confirms that they have the phone with them. 

Combining this with another method of authentication, mobile number verification passes the bar set by EU requirements for SCA. Not a lot of businesses are obligated to comply with SCA, still, the use of mobile verification offers some benefits. Using multiple channels for customer authentication is extremely helpful for the financial sector as it provides a robust security model. 

Verification and Authentication

Using a mobile number for customer verification only indicates that a person has access to the number. It is easy to activate a mobile number using synthetic identity and can be easily created on internet-based phone and text services without any ID requirement. If a firm relies on mobile checks for verification, it’d have a higher chance of authenticating fraudsters. 

Verifying the legitimacy of a person includes confirming that they exist, which is fundamental to ensure that the authentication process is efficient and effective. Cross-referencing the information provides a solid base for authentication. Having precise identity data with an authenticated mobile number delivers increased assurance.

Identity Two Factor Authentication

There are online document verification methods that help in the process of identity multi-factor authentication. These services make sure that only real mobile numbers can be used for mobile numbers, thus filtering out bad actors who use VOIP services. 

By adding the additional authentication layer, bad actors face extra friction to establish, use or modify any account, while legitimate users can quickly continue with their activities.

Online Document Verification for Customer Verification

Some customers are hesitant to provide their mobile numbers before starting a customer relationship. This is where online document verification for verifying customer identities. Distinguishing between fake and real people is crucial for banks and financial institutions to reduce fraud.

DIRO’s online document verification service verifies online documents from all over the globe. DIRO supports banks, healthcare institutions, financial institutions, and more by providing a new and unique approach towards online document verification.

With DIRO, entities can verify customer documents instantly. DIRO 100% eliminates the use of fake and stolen documents by cross-referencing document data with original sources. 

With over 7000+ types of documents, DIRO is a global platform. Backed by forensic data and 100% proof of trust, DIRO verifies documents such as bank statements, driver’s license, utility bills, tax documents, insurance documents, student records, and more. Implementing organization-wide KYC & AML compliance is also easier with DIRO’s technology.

Categories
Fraud

What is Synthetic Identity Fraud? How does it impact businesses?

what is synthetic identity fraud

Out of all the online frauds, synthetic identity fraud is one of the fastest-growing threats in the U.S. Traditional methods of detection and prevention of fraud are failing when it comes to synthetic ID fraud. Synthetic identity fraud is a type of fraud where fraudsters combine fake and real information such as real stolen social security numbers and fake names to create a whole new persona. Fraudsters then use this new identity to complete a number of fraudulent activities. This new identity can affect financial institutions, government agencies, or individuals by opening a new fake account. 

Synthetic identities are a growing threat in the US. This is because identity verification in the US leverages personally identifiable information (PII) like SSNs. According to a report by the FTC, synthetic identity fraud is the fastest-growing type of financial crime in the US.

One of the biggest reasons why synthetic identity fraud is growing is because it is hard to detect. Victims of these frauds are typically individuals who are less likely to access their credit information regularly, such as children or the elderly. Plus, fraudsters often nurture these identities over time, and then they apply for more and more credit and build up a positive online payment history.

Synthetic identities often go years without being detected. This is one of the reasons why identity fraud is so attractive to fraudsters. Synthetic ID fraud is a fraud committed by expert fraudsters.

What Exactly Is Synthetic Identity Theft? 

Synthetic identity theft involves stealing an individual’s Social Security number (SSN) and combining it with invented personal data—name, date of birth, address, email, and phone number—to form a new identity.

It’s Hard to Spot Conventional fraud detection struggles to identify synthetic identity theft. Children, seniors, and homeless individuals are commonly targeted due to limited credit usage and monitoring.

The Creation Process Fraudsters can create synthetic identities through several methods:

  • SSN Theft: Stolen SSNs are combined with fabricated information in identity compilation.
  • Manipulated Data: Genuine personal data is slightly altered to establish a new persona using identity manipulation.
  • Fabricated Identity: Bogus personal information is used to craft an entirely false identity via identity fabrication.

Difference Between Synthetic ID Fraud & Traditional Fraud Methods

Traditional fraud usually involves a fraudster impersonating someone else. They will use stolen identity documents or information to commit fraud. These types of fraudsters tend to max out the credit limit as soon as possible before the victim notices the fraud. Most financial institutions send alerts to the victims about suspicious activities and that’s why this type of identity fraud is detected easily. 

Synthetic ID fraud in comparison combines real stolen information and fake information to create a completely new identity. There are several ways this can be achieved:

  • IdeIdentity fabrication- creating a completely fictitious identity without any real personally identifiable information. 
  • Identity manipulation- fraudsters create a modified real PII for building a new identity. 
  • Identity compilation- a combination of fake and real PII, such as a false driver’s license to build a new identity.

By combining real and fake information, detecting synthetic ID fraud becomes much more difficult. Especially when the real information is stolen from those who are less likely to keep their eye on their credit files. In a lot of cases, synthetic identity fraud can go undetected for a long time.

Purpose of Synthetic Identities 

Synthetic identities are mainly employed for financial fraud. Identity thieves use these to acquire loans, credit cards, bank accounts, and more. They can even file taxes, access medical care, and apply for unemployment benefits with fake identities.

This process can be prolonged, spanning years to build a credible synthetic profile, complete with a substantial credit history and reliable credit scores.

Fraud Avenues Synthetic identities enable various fraudulent activities:

  • Organized Crime: Crime rings use synthetic identities to access or store illegally obtained funds.
  • Loan Scams: Fraudsters secure personal loans, default, and abscond with the money.
  • Evasion: Criminals evade prosecution by assuming synthetic identities.

Repercussions of Victimhood Detection prove challenging due to the legitimacy of synthetic identities. Lenders and banks struggle to identify these fraudulent accounts, targeting individuals with infrequent credit access.

Fraudulent SSN use results in fragmented credit files, mixing your legitimate data with synthetic identity details. Negative judgments stemming from this mix can harm your credit scores and untangling the records can be arduous.

How Synthetic Identity Fraudsters Commit Crime?

  1. They Create a New Fake Identity

The process usually starts on the dark web. A fraudster can easily purchase stolen PII that is obtained with data breaches or other methods. Or sometimes they’ll use a completely fake identity for fraud. 

  1. They Apply for Credit

Using the new synthetic identity, a fraudster applies for credit online. The financial institution the fraudsters apply to sends their query to the bureaus for checking. This initial application is often as the new synthetic identity doesn’t have a credit history. Although, the application is enough to start a new credit record. 

  1. Fraudsters Keep on Trying Till They’re Successful

The fraudsters keep on applying at various financial institutions until they’re approved by anyone. Most of the time, it’s a high-risk lender who approves. They continue to build this line of credit making timely repayments and building up a good credit reputation. With a good enough credit history, fraudsters can gain access to lower-risk lenders and higher credit limits. Building this reputation takes months or even years and on paper, fraudsters look like any other credit users. 

  1. They Accelerate a Positive Credit History

Some fraudsters accelerate their credit history process by piggybacking. Fraudsters are added as authorized users to an account with a good credit history. Authorized users are compensated for this process. The fraudsters will use several tactics to make the synthetic identities even more real. Thus making it harder to detect with traditional methods.

  1. They Take Advantage of Their Efforts

Eventually, the fraudsters will take advantage of the reputation they’ve built up over time. Once they secure a large line of credit, they will max out the credit line before vanishing forever. It’s also possible for the fraudsters to double their profits by claiming identity theft on their accounts and get the charges removed. Or they can even use fake cheques to pay off the balance before maxing out the credit limit. 

Protecting Against Synthetic Identity Theft 

Following these fraud prevention strategies are crucial to ensure a fraudster doesn’t steal your identity information.

  • Secure Your SSN: Safeguard your SSN. Store your Social Security card safely at home, and avoid disclosing it in public. Dispose of documents containing personal data securely.
  • Digital Security: Utilize comprehensive digital security software to guard against hacking and malware.
  • Phishing Awareness: Beware of phishing scams through emails, texts, and calls. Scrutinize sources, avoiding unexpected requests for personal data.
  • Monitor Credit: Regularly review credit reports and scores for discrepancies. Place fraud alerts or security freezes to guard against unauthorized credit activity.

Safeguarding your SSN and practicing digital security can help mitigate the risks of synthetic identity theft. Stay vigilant and take preventive measures to protect your financial well-being.

Impact of Synthetic ID Fraud on Businesses

Due to its hard-to-detect nature, there’s no way to tell how this type of fraud impacts businesses. In the US, lost credit-card accounts lost $820 million to synthetic identity fraud in 2018 and the losses are expected to cross $2 billion by the end of 2021. However, this data doesn’t account for the loss of personal time and aggravation for the victims.

Synthetic identity fraud is costing businesses billions of dollars. Plus the amount of time financial institutions spend chasing down people who don’t exist. Clearly, synthetic ID fraud is a growing threat, so businesses need a more efficient process to verify if the users are authentic or not. Traditional tools that are meant to reduce identity fraud can’t keep up with synthetic identity fraud. 

Businesses need to invest in the latest and more sophisticated methods like DIRO’s original document verification technology. It verifies documents instantly and verifies customer data from original sources to reduce the use of fake and stolen information.

FAQs

  1. What is synthetic identity theft fraud?

Synthetic identity theft fraud occurs when criminals create fictitious identities by combining real and fake information, often involving social security numbers, names, addresses, and other data. 

They then use these synthetic identities to open fraudulent accounts or apply for credit, aiming to build a credit history and obtain financial benefits.

  1. How does synthetic identity theft differ from traditional identity theft?

In traditional identity theft, a criminal uses another person’s legitimate identity information. In synthetic identity theft, the criminal creates a new identity that may not correspond to any real individual, making it harder to detect.

  1. How do fraudsters create synthetic identities?

Fraudsters often combine real and fake information to create a synthetic identity. They might use a real social security number with a fabricated name, address, and other details. Alternatively, they might use various fabricated elements to build a seemingly authentic identity.

  1. Why is synthetic identity theft difficult to detect?

Synthetic identities often involve a mix of real and fake information, making them appear genuine to many fraud detection systems. Additionally, since these identities don’t have a true individual associated with them, the fraud may go unnoticed until it’s well-established.

  1. What impact does synthetic identity theft have on individuals and organizations?

For individuals, it can lead to financial harm, damaged credit scores, and difficulty resolving the issue due to the complex nature of synthetic identities. Organizations can face financial losses, regulatory penalties, and reputational damage.

  1. How can organizations detect synthetic identity theft?

Detecting synthetic identity theft requires advanced fraud detection tools that can analyze patterns and inconsistencies in data. 

This might involve monitoring unusual application behaviors, identifying duplicate identities, and validating identity elements against authoritative sources.

Categories
Fraud

5 Must-Know Anti-Fraud Strategies To Reduce the Risk of Fraud

anti fraud strategies

Online fraud poses enormous risks, many financial institutions don’t have the procedures and effective systems in place to tackle fraud. No anti-fraud procedure is 100% foolproof. Regardless of that, there are some anti-fraud strategies including 5 key steps that can help in fighting multiple cases of fraud.

Fraud is Growing in Quality and Quantity

Customers all across the financial industries are now using services that operate completely in the online environment. When the entire world went into lockdown because of the pandemic, financial institutions had to rely on digital methods. Even as the world returns to normal after the pandemic, customers wouldn’t want to go back to traditional, slow, and inefficient methods. That’s why it is imperative to learn how to prevent fraud in the business.

But one of the major flaws in digital processes is that increased presence means an increase in fraud. According to a report by the FTC, the rate of identity fraud increased by 45% in the last year. Increased online transactions, payments, and personal banking provide new opportunities for fraudsters. The rate of fraud isn’t just growing, online fraud is evolving beyond normal measures. To control this, creative and unique anti-fraud best practices have to be followed.

Businesses have to fight a series of different financial attacks. Some of the most common types of online fraud are synthetic identity fraud, from replay attacks to advanced biometric fraud. To get around the common fraud, businesses set up fraud-fighting procedures, and fraudsters keep on trying new methods of fraud.

To mitigate/eliminate the threat, businesses need to keep relying on the best fraud prevention tips. But are the businesses doing enough to eliminate fraud?

Impact of Fraud on the Global Economy

According to reports, the global losses from online payment fraud alone were around $32.89 billion in 2020. This number tripled since 2011. Among other findings, surveys by financial fraud suggested that they are losing up to 7% of their annual profit because of fraud. Unfortunately, only a small percentage of these losses are uncovered. Normal fraud detection and prevention methods are proving to be ineffective. 

There are large numbers of surveys that aim toward understanding the true cost of fraud to businesses & society, but it’s almost impossible to get a rational idea of how many losses fraud causes. Plus, these surveys don’t consider the associated costs of fraud. That includes the hours banking staff spend rectifying the issues and reputational damage and personal costs that fraud has on victims. One thing that financial institutions are clear about is that fraud remains a huge and financially daunting problem. Businesses need to employ the best anti-fraud strategies.

Proactive Approach for Reducing Online Fraud

To reduce the costs of fraud, and to combat new and evolving types of fraud, businesses need to invest time, money, and resources into fraud risk management. Having a successful process and strategy in place provides a comprehensive approach to identifying, assessing, mitigating, and monitoring fraud.

According to the Association of Certified Fraud Examiners (ACFE), the best approach to managing risk is proactive instead of a reaction-based approach. Organizations that have to tackle financial fraud, need to take a proactive approach to fraud. It helps in figuring out how fraudsters are going to attack and measuring the fraud level their businesses have to face. 

This can happen using robust fraud detection and elimination solutions and analyzing evolving fraud trends to stay ahead of the fraud types a particular business faces.

5 Foundation Steps for Effective Anti-Fraud Strategies

In today’s online banking environment, organizations need more than a strong team of fraud fighters. So what do businesses need to do about effective anti-fraud strategies? Businesses have to follow 5 foundation steps:

  • Educating People About Security and Governance

Fraud risk managers should make it a part of their strategy to educate people about fraud prevention. Fraud managers should aim to scatter their strategy throughout the business chain. A successful model also needs a compatible framework. Senior managers should hire the best team to fight all kinds of financial fraud. The team should have good enough experience in fraud awareness and detection. A customer-centric mindset is important when choosing a fraud detection team, it is crucial for implementing the right type of strategies. 

  • Finding the Balance

Businesses should have fraud teams focus on customer experience and growth-focused parts of the business to achieve a balance between how much risk they have to tackle and how many customers they onboard. Businesses could eliminate 100% of fraud if they don’t board any of the customers. However, the best fraud strategy suggests that the teams need to find a balance, and the team works with the broader business to find the ideal balance. 

  • Assessing the Fraud

Businesses need to figure out what frauds are your businesses encountering, and how these frauds have evolved? They also need to figure out, if some kind of fraud happens, how much financial loss it will cost your business. The basis for the prevention and detection of fraud for your business starts with assessing the risks. To understand the risks a business faces, you need a firm understanding of how the landscape works. 

  • Preventing & Detecting Fraud

How can businesses prevent financial frauds like account takeover and other fraud types? Is there a way businesses protect against fake or stolen identities and data breaches? How can businesses do this and not stop onboarding real customers? Using online document verification solutions and online ID verification solutions can help businesses figure out the real identities from fake ones.

  • Using Technology and Analytics

Customers want better digital banking and other online financial services. Humans don’t have the capability of keeping up with evolving fraud. To tackle the risks that are associated with online financial services, banks need to use better technological solutions like DIRO’s online document verification solution. The technology improves the customer onboarding experience and eliminates 100% of fraud.

Online Document Verification for Reducing Fraud

While there’s no limit to online anti-fraud best practices, not all financial institutions can implement the strategies in a way that matters. Most of the online/offline fraud revolves around documents, bad actors usually forge documents to gain access to the internal systems of an institution. 

Verifying these documents and ensuring that the documents are real is the foundation of mitigating all kinds of fraud. DIRO’s online document technology can verify online documents during customer/business/merchant onboarding instantly. DIRO helps in enhancing the implementation of AML and KYC compliance and 100% eliminating the use of fake and stolen documents.