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Optimizing Bank Fraud Prevention at Scale

Optimizing Bank Fraud Prevention at Scale

Banking fraud is a complex issue that has only been amplified in the digital era. As financial institutions strive to safeguard their operations, it’s critical that financial institutions take steps to ensure their fraud prevention framework is optimized to meet emerging threats.

Common Types of Banking Fraud

Banking fraud is evolving with technology, and increasingly sophisticated methods are being employed by fraudsters. Before a robust prevention framework can be established, it’s crucial to understand the way fraud has evolved in the digital age and how fraudsters are leveraging technology to break through a bank’s defenses. 

Some of the most common methods and tactics being deployed by fraudsters today include:

Fraud as a Service (FaaS) / Crime as a Service (CaaS)

FaaS or CaaS refers to the scenario where cybercriminals offer their ‘services’ to others, enabling even those with limited technical skills to conduct fraud. This ‘service’ often includes tools and infrastructure such as hacking tools, phishing emails, ransomware, and more. According to a report by McAfee, the market for FaaS is growing rapidly, highlighting the increasing ease with which fraud can be perpetrated.

Credential Stuffing

Credential stuffing is a type of cyberattack where fraudsters use stolen account credentials (usually usernames and passwords) to gain unauthorized access to user accounts through large-scale automated login requests. According to an FBI advisory recently issued to financial institutions, the law enforcement agency has received numerous reports of credential-stuffing attacks on financial institutions since 2017. Those scams collectively resulted in nearly  50,000 account compromises, along with losses of approximately $6 million for the companies affected.

SMS Phishing (Smishing) / RoboTexts

Smishing is a form of phishing where text messages are used to trick individuals into providing personal details, such as bank account numbers or passwords. These messages often contain links to phishing websites or prompt the recipient to call a phone number where personal information is collected. Proofpoint’s 2020 State of the Phish Report indicates that smishing incidents rose by over 328% in 2020, demonstrating the prevalence of this method.

Synthetic Identity Fraud

Synthetic identity fraud is a type of fraud where criminals combine real and fake information to create new identities and open fraudulent accounts. According to a report by the Federal Reserve, synthetic identity fraud is the fastest-growing type of financial crime in the U.S., causing an estimated annual loss of $6 billion to credit card lenders alone.

Man-In-The-Middle (MITM) Attacks

In an MITM attack, fraudsters insert themselves into a transaction or conversation between two parties to steal or manipulate data. This method is increasingly being used to intercept online banking transactions. The Symantec 2020 Threat Report noted a 63% increase in MITM attacks from 2019 to 2020, reflecting their growing prevalence in the banking sector.

Strategies for Optimizing Fraud Prevention in 2024

With cybercriminals and their scams becoming increasingly sophisticated by the day, it’s more critical than ever that banks take a proactive approach to fraud prevention.

So what will it take to optimize fraud prevention at scale in 2024?

Machine Learning and AI: The Game Changers

The vast volume of transactions processed by financial institutions every day necessitates the use of advanced tools. Machine learning and AI have emerged as significant weapons in this context.

Machine learning models, trained on historical data, can recognize patterns and predict fraudulent activity. Concurrently, AI algorithms can analyze large volumes of data in real-time, flagging suspicious activities for further investigation.

Routing Number Verification

Routing number verification is a key step in preventing banking fraud. It provides accurate and complete routing number information, which is essential for authenticating transactions and mitigating financial losses. An integrated routing number validation tool guarantees fast and real-time data validation, enhancing the efficiency and effectiveness of fraud detection efforts.

Account Verification & Ownership Verification

Account verification and account ownership verification play pivotal roles in managing risk and detecting fraud effectively. They allow for instant verification of bank accounts, ensuring accurate customer data for onboarding and processing ACH or check payments. This reduces the risk of fraudulent transactions and aids in compliance with banking regulations.

OFAC Screening

OFAC screening is a robust service that offers an advanced search engine and algorithm to focus on precise matches, minimizing the occurrence of similar matches or false positives. It helps organizations customize their OFAC compliance strategy, ensuring they remain compliant with regulatory requirements while efficiently identifying potential threats.

Behavioral Analytics/Biometrics

Behavioral analytics and biometrics are cutting-edge approaches to fraud prevention in banking. Behavioral analytics analyzes transaction patterns to identify anomalous behavior, while biometrics uses unique physical or behavioral traits for authentication. By integrating these methods, banks can enhance security, reduce fraud risk, and create a personalized user experience.

Device Fingerprinting

Device fingerprinting reinforces banks’ anti-fraud efforts by tracking and identifying devices used in transactions based on unique attributes. This adds an extra layer of user authentication without impacting the customer experience. It helps distinguish legitimate users from potential fraudsters, flagging or blocking transactions associated with fraudulent behavior. Device fingerprinting is a valuable tool in combating digital banking fraud.

Transaction Fraud Detection

Transaction fraud detection remains a cornerstone of bank fraud prevention measures.  For instance, if a customer typically makes small, local transactions, and suddenly a large international transaction is made, transaction fraud detection software will flag the activity suspicious, allow a bank to take immediate steps to freeze the associated accounts, notify the customers, and mitigate losses.

Fortify Your Fraud Prevention Framework with Lyons Commercial Data

As the threat landscape evolves, so too should a bank’s fraud prevention strategy.

Lyons Commercial Data empowers banks and financial institutions with tools and capabilities that offer cutting-edge solutions to proactively combat fraud. 

Ready to fortify your fraud prevention strategy? Contact us today, and let’s talk!