There Are Three Main Types of Banking Fraud

Being a victim of fraud can be one of the scariest and most financially-devasting experiences of one’s life. The unfortunate reality is that with the ongoing process of digitalisation and access to new technologies we have seen in the banking sector, there has been a relational rise in attempted fraud. It is important for banks and banking customers to be aware of who these perpetrators are and what they are capable of. Here are the three main types of fraud that can occur:

First-Party Fraud

The first type of fraud that occurs in the banking sector is first-party fraud. This fraud involves slightly or intentionally distorting your banking details to secure a more attractive loan, credit score or mortgage. The reality is that, no matter how small, if you distort your personal information or identity to manipulate a financial institution is first-party fraud. This fraud may even be considered normal or not serious by individuals because of its size and frequency.

First-party fraud can also include other kinds of fraudulent activity, like taking out a loan or using credit to make large purchases – with no intention of repaying the money. If a bank notices questionable transactions or unusual purchases being made, they will contact their customer to authenticate the transaction. If that customer claims they did not buy or receive those goods, they may even receive a refund leaving the retailer and bank out-of-pocket.

Second-Party Fraud

Second-party fraud is when a legitimate account holder willingly gives out their personal or financial information to commit fraud. This can be to a friend, acquaintance or, even, criminal partner. This ‘associate’ can then use that identity or account material to make purchases, order goods and procure services, online, from unlinked devices or open up credit accounts that will not be honoured.

This is a more complex type of fraud because it can be difficult to detect the fraudulent activity and it is extremely complicated to prove a legit customer was complicit in the crime. Without proving their involvement, these account holders could have their ‘losses’ covered by insurance, while they and their partner get away with the crime. The legitimacy of the account or customer can create multiple complications that leave banks, insurance companies and retailers out to dry.

Third-Party Fraud

This is the most common type of fraud and is usually what people will think of when it comes to banking fraud. Third-party fraud is distinct from the other two as the legitimate customer or victim has no idea when the fraud is occurring. Third-party fraudsters will impersonate an account holder’s identity and use their personal information to deceive a business, bank or other financial organisation.

This type of fraud can take many shapes and sizes. The most common example of this financial victimisation is called account takeover (ATO). ATOs occur when fraudsters are able to take control of the actual banking accounts of an individual. Their personal identifiable information is usually hacked or phished from the victim without even knowing their information was compromised to begin with.

It goes beyond these larger-scale phishing schemes that occur when criminals pose as a trusted entity to gain access to an individual’s accounts and drain them. Loan stacking, on the other hand, is another common ploy that occurs in third-party fraud. After fraudsters gain access to your accounts, they will pose as you while applying for multiple small loans from a variety of lenders in your name.

Combating all Types of Fraud

There will never be a one-size-fits-all solution to combating the scourge of banking fraud. The perpetrators of banking fraud can range from organised criminal syndicates to opportunistic account holders and criminal individuals with access to the necessary information and technology needed to commit these types of fraud.

The variety in the perpetrators, methods and victims of fraud means that each case requires careful consideration and specific understanding to find the most successful account protection methods or incident resolutions, if one occurs. Although there is no one solution, a combination of different technical and digital solutions can, in fact, provide encompassing protection for all of your financial data.

By combining the efforts of malware detection, device assessments and behavioural analytics, a bank can build up a unique profile for each and every account holder, big or small. In doing this, banks are able to determine what “normal” financial activity looks like for an individual or company account, specifically.

When anything deviates from this defined normal, institutions and individuals have the opportunity to identify the risk and prevent the fraudulent. These deviations can take the form of inputting incorrect information, getting passwords wrong or typing and retyping information. While none of these make anyone guilty, they can be a sign that further investigation is needed.

At MarisIT, our expert consultants can help you keep all of your financial and personal information safe and secure. For more information about how we can help you, contact MarisIT today.

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