Fraud costs the average fintech company $51 million a year. In 2022, identity fraud alone cost $20 billion in losses, according to a Javelin analysis. However, the effects of fintech fraud extend beyond financial losses; problems like diminished trust and heightened customer friction cause problems for both customers and organizations. Fraudsters are coming up with more advanced techniques to take advantage of weaknesses as we depend more and more on digital interactions to conduct business.
Payments (ACH) Fraud
Businesses and consumers can exchange money easily and affordably via ACH. However, as more people use ACH, ACH fraud also grows. When criminals obtain information about bank accounts, they can use it to fraudulently withdraw (debit) money from those accounts through ACH transactions. This is known as ACH fraud.
Other forms of ACH fraud use the extended processing time of ACH transactions. For instance, a fraudster may use an empty account to finance an investment account through ACH. The fraudster has already cashed out the investment account by the time the fintech company discovers that the funds from the funding source account are unavailable.
Synthetic Identity Fraud
Synthetic identity theft is the process by which criminals build a false identity that they can use to get around identity verification procedures when opening bank accounts by fusing legitimate personal information, like a social security number, with fake information, like a new name or birthdate.
Children, the elderly, and unhoused people are the most frequently targeted groups for this kind of fraud because they are less likely to utilize credit or keep an eye on their credit history. For instance, an individual might take a valid person’s social security number and then create a phone number, email address, mailing address, name, and date of birth to go with that authentic SSN.
It might be challenging to identify synthetic identity theft with conventional fraud monitoring systems as it is based on actual personal data. This danger is reduced by using credit card scanning for identity verification, which verifies a customer’s personal information using numerous data sources, validates documentary IDs, and performs liveness checks to make sure the individual providing the information matches the ID document they provided.
Account Takeover
When fraudsters use techniques like credential stuffing, password alterations, or email modifications to obtain access to financial accounts, this is known as an account takeover. ATO fraud caused losses of $11 billion in 2022.
Bad actors may employ credentials-stuffing software to access financial accounts after using information from data breaches to perpetrate ATO fraud. For instance, a streaming service’s data breach may have exposed login credentials that scammers may use to test other accounts. They can test thousands of accounts and password permutations in a matter of seconds because they use bots.
Fraudsters can alter account details once they gain access, preventing the legitimate owners from accessing their accounts. Using distinct, difficult-to-guess passwords for every account is the simplest method to avoid ATO, but according to recent research, 52% of customers reuse passwords across numerous accounts, and 13% use the same password across all online accounts. This makes it simple for malicious actors to obtain private data.
Presentation Attacks
A presentation assault happens when a fraudster impersonates someone else and gains access to their online accounts by using their physical characteristics or biometric information, such as a phony fingerprint or photo.
Let’s say the software uses face recognition, and a fraudster tries to access a user’s bank account. The scammer may construct a likeness of the victim using deepfake technology or a high-quality photo to get beyond face recognition.
In order to pass the facial recognition test and access the victim’s account, they then pose the phony version of the victim’s face in front of the camera during login. The scammer could then use this access to steal funds, conduct illegal transactions, or carry out other fraudulent operations on the victim’s account.
Endnote
Millions of people now have greater access to finance because of the growth of fintech, but there is a greater chance of fraud. To safeguard their clients and their systems against malicious actors attempting to take advantage of them, fintech businesses need to be proactive and watchful.
By: Chris Bates
