Fraud Prevention Best Practices, Strategies, and Tactics

Fraud Prevention: Best Practices, Strategies, and Tactics

While the threat of fraud is rising at an exponential rate, organizations need to implement effective fraud prevention processes that are efficient, robust, secure, and adaptable. These strategies should make life easier for legitimate customers while making it almost impossible for fraudsters to gain access to the internal systems. 

In 2019, identity fraud was the biggest challenge in the U.S with an estimated loss of $16.9 billion. There are more than 40 types of identity fraud according to regulatory bodies. Similarly, the threat of cybercrime is growing, with the annual cost to the global economy from cybercrime to rise to $6 trillion by 2021. With banks and financial institutions moving towards a digital environment, the threat of cybercrime can enhance the risk of fraud. Cybercrime can easily cause compliance failures, either from the act, from non-reporting, or by damaging the control systems to hide illegal activities. 

Understanding these threats and how fraudsters operate is one of the first steps in managing the risk of fraud. It’s critical for businesses to have anti-fraud systems that are powerful and can deliver security while reducing customer friction. 

Types of Online Fraud

Fraud is like a living organism, ever-evolving and it is almost impossible to prevent fraud if you don’t understand the common habits of fraudsters. Therefore, fraud prevention solutions must innovate to remain one step ahead of fraudulent activities. 

Here are some of the most common online fraud activities that organizations should consider as part of building their strategies. 

New Account Fraud

New account fraud most commonly happens within the first 90 days of account opening. Industry experts also refer to it as application fraud or account origination fraud. Any fraudulent activity happening so close to the account origination states that the account wasn’t for genuine purposes. 

For banks, financial institutions, and others, opening a brand new account is full of risk. There’s no account history to compare to, no existing relationship, and so on. The initial activities in the account may be benign or there may be acts of fraud that may have not been uncovered by banks. 

The sudden increase in data breaches has led to widespread black-market transactions of private customer data. These sets of identity data can be used for account opening and to launder money or committing other illicit activities in the future. 

 Card-not-Present Fraud

Most digital transactions all over the globe are categorized as “card-not-present” and there are significant risks associated with such transactions. A strong and effective CNP fraud prevention program is all about eliminating risk from these transactions. Understanding the techniques used by fraudsters is a huge part of mitigating fraud. 

Online merchants are required to comply with Payment Card Industry Data Security Standard (PCI). The PCI is an industry group for payment data security, and it helps in understanding fraud. Additional measures that can be taken for reducing CNP fraud is proof of address verification.

Identity Fraud

Identity fraud is when a person assumes someone else’s identity, without authorization to defraud some person or organization. In a digitally connected world, it is easy for fraudsters to gather personally identifiable information. Plus, the increased level of data breaches makes it easy for fraudsters to buy PII on the dark web. Additionally, the growth of technologies makes it simpler for fraudsters to build synthetic identities by using original PII of real IDs to use for illicit activities. 

Synthetic Identity Fraud uses fake identities by combining fake and real information with actual ID data. The fraudsters can then use the fake identities to acquire everything from driver’s licenses and passports to credit cards and other accounts.

You should know to protect your customer’s information and take precautions to prevent data breaches. The time you spend in preventing fraud is minimal compared to the amount lost during the fraud. 

Implementing Anti-Fraud Technologies During Account Opening

While steps for detecting and decreasing fraud are vital at every step of a customer-business relationship, preventing fraudsters before they make a move can streamline the entire process of fraud prevention. Industry experts state that banks and financial institutions must pay close attention to the onboarding process by taking a holistic approach. This can be achieved using a variety of ID verification and authentication methods to ensure the ideal level of risk protection. By doing so, you can prevent these bad actors from accessing their customers. 

ID Verification

Before an account is opened, verifying customer ID can help in detecting a potential risk of financial fraud. Any inconsistencies in customer information, such as out-of-date information or mismatches in data can quickly provide answers. By cross-referencing multiple data points and data sources for verifying customer identities, you can create the biggest possible challenges for fraudsters. 

Biometric Authentication

By using authentication you can evaluate whether the person providing ID data or document is the actual holder of that identity or not. Biometric authentication is one of the best ways to prevent fraud by identifying a person. Combining ID document verification with a photograph of the person submitting the application can help in authenticating the customer. 

MobileID Checks

The usefulness of smartphones enables mobile network operators to collect significant amounts of ID data, including name, mobile number, and address along with device information. When you cross-reference customer data with other ID data points, MobileID data will help in verifying the person. Certain patterns such as out-of-location, traffic spikes, or unusual behavior can also be set to act as a trigger for potential fraud.

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