The Evolution of Fintech Fraud in 2024: Key Insights to Accurate Fraud Detection

FinTech fraud is growing in 2024 as an increasing concern for banks and consumers alike. Here are the 11 most common attack vectors in financial fraud.

The financial technology sector has revolutionized how we handle money, but it also opened multiple new avenues for fintech fraud. Businesses that pride themselves on real-time user onboarding and digital transacting have changed the game in customer expectations and convenience within financial services – but are at more risk of being targeted by attackers looking to subvert these customer-friendly features for their own gain. Accurately detecting fraud and malicious activity across any touchpoint on their website or app has become mission-critical.

With the shift towards digital banking, fintechs have become hotspots for sophisticated fintech fraud and scams aimed at siphoning funds and compromising financial accounts. Fraud management and strong identity verification are crucial in mitigating these risks to detect fraud accurately. This article highlights the most common types of fintech fraud encountered and outlines key strategies to protect their ecosystems.

Identity Fraud for Fintechs: The Gateway to Financial Losses

The ongoing battle against identity abuse is a major aspect of stomping out fintech fraud and crucial for maintaining customer trust. Identity fraud is often the jumping-off point for invasive attack types. It usually involves offenders creating synthetic identities or exploiting stolen ones to get past KYC (Know Your Customer) checks, making it a number one concern for the industry.

The impact of identity fraud is an issue for all banking and financial services but can be particularly devastating for fintechs due to their digital-first model and rapid onboarding processes. To detect fraud more proactively, many fintechs are investing heavily in advanced identity verification technologies that incorporate elements like facial recognition and data sharing across platforms. Despite these measures, the sophistication and volume of fraud attacks are continually increasing. 

Synthetic Identities

Synthetic identities are often cobbled together from various data sources, including information available on the dark web. These fictitious personas can be alarmingly convincing, subsequently used to fraudulently create new bank or credit accounts and carry out fintech fraud. IPQS provides comprehensive account opening risk scoring, which can detect digital impersonation and fake account profiles. Pre-check applications before more expensive KYC verification.

Stolen Identities

Stolen identities remain a traditional but highly effective approach. With heaps of personal data circulating in illegal markets, identity theft has become easier and increasingly common.

Account Takeover for Fintechs: Theft from Within

Account takeover attacks pose a significant threat to neo-banks and online lending platforms and is a major issue within fintech fraud. This often proves to be a highly lucrative activity and to detect fraud in this form, fintechs need to spot any unauthorized access or actions within a user's account. Attacks that compromise fintech accounts lead to both immediate financial losses and seriously damage customer trust and loyalty.  

ATO Attacks Methods

The methods used by fraudsters to gain unauthorized access are diverse and sophisticated. Tactics include phishing scams, social engineering, exploiting weaknesses in a company's security systems, and leveraging leaked credentials. Due to the high value of hacking into fintech accounts, attackers will go to great lengths to carry out sophisticated, human-driven ATO attacks that can even bypass multi-factor authentication and other security measures that detect fraud. 

Credential Stuffing

Credential stuffing involves the automatic injection of stolen username-password pairs across fintech platforms to access user accounts. With the evolution of easy-to-use cybercrime toolkits that spoof locations and devices and use residential proxies to hijack legitimate-looking home IP addresses, what used to be a fairly blunt instrument in gaining access to user accounts has become more of a challenge to detect in real time. Additionally, attackers can cause havoc with large-scale credential stuffing attacks that create an operational headache for security professionals and can distract them from more targeted ATO attacks happening simultaneously. IPQS offers a full suite of fintech fraud detection solutions for detecting credential stuffing including our leaked email checker and compromised password checks.

Transaction Fraud: Illicit Financial Transfers

Transaction fraud strikes directly at the heart of fintech operations, involving unauthorized transactions that drain funds from unsuspecting victims' accounts. This is often the primary aim of fintech fraud due to its direct monetization. However, the impact of transaction fraud is not just financial; it strikes at the very integrity of a fintech's operations. 

Customers who fall victim to such fraud may lose trust in the fintech platform and switch to another provider. This can lead to customer attrition, damage to the company's reputation, and potential regulatory scrutiny. Therefore, preventing transaction fraud is crucial for fintechs to maintain its user base and ensure its impressive growth continues.

Bank Transfer Frauds

Perpetrators may hijack platforms to perform unauthorized bank transfers, often after carrying out a targeted account takeover attack. This makes it harder to detect fraud attempts, as the transactions are taking place in a trusted user’s account.

Peer-to-Peer (P2P) Transfer Frauds

P2P transfers have become a crucial part of our daily lives, allowing us to conveniently and quickly send money to friends and family. But fraud is a growing concern. Scammers are exploiting these easy-transfer systems for quick thefts.

Scams and Social Engineering for Fintechs: The Human Factor

While this is primarily an attack vector precursor to the previously discussed account takeover and transaction fraud types, scams and social engineering deserve calling out specifically because they are a serious issue within fintech fraud today. Fraudsters often prey on human trust to manipulate individuals into handing over sensitive information and funds or give out one-time passwords to bypass security measures placed on fintech accounts and transactions. This attack tactic doesn't necessarily rely on advanced technology but rather exploits trust and human error. 

Phishing Scams

Users may be tricked into revealing account details or one-time passwords through official-looking emails, messages, phone calls, or spoofed websites. Email risk scoring can help prevent phishing, BEC, and similar attacks originating from emails.

Fintech Fraud Detection Insights

Authorized Push Payment (APP) Fraud

Particularly insidious, APP fraud involves manipulating legitimate users into voluntarily sending money to scammers, causing a liability dilemma for banks and fintechs alike. This has become a particularly hot topic in the world of finance, with the rules on where the liability sits for these losses in flux regionally. Risk insights from our transaction scoring can prevent chargebacks and unauthorized payments.

Conclusion: Proactive Steps Fintechs Can Take Against Fraud

IPQS is working with fintechs across the globe to solve pernicious fintech fraud across the full customer journey. We offer a complete solution to solve ATO, new account, or transaction fraud,  and IPQS can also provide powerful risk data enrichment to increase the efficacy of existing systems that detect fraud. We provide the following key pillars of defense.

  • Real-time threat detection: IPQS identifies malicious users from high-risk IP addresses and devices across account sign-up, login, and transaction touchpoints. This offers an immediate line of defense in beating fraud and abuse.
  • Identity validation: We verify the reputation of identity credentials, such as phone numbers and email addresses, to augment identity fraud prevention efforts.
  • Bot prevention: Our powerful website bot detection capabilities halt credential stuffing and account enumeration attacks, acting as a crucial barrier against downstream fraud losses.
  • Dark web intelligence: Leveraging fresh information from the dark web, IPQS helps prevent stolen and synthetic identity fraud before it occurs.
  • Data enrichment: IPQS enhances any existing fraud prevention and bot detection system with fresh data on risk signals. These are sourced through our proprietary global honeypot network and anonymized data sharing across a global customer network of thousands of businesses.

To find out more about how IPQS helps fight fintech fraud, we’d be happy to talk! Please request a demo today to arrange a bespoke consultation with one of the IPQS fintech fraud experts. 

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