Most Common Banking Frauds And How To Prevent Them

How often do you get an SMS telling you that you won a 1 crore lottery? Or that your bank account needs to be activated right away?
Quite often, right? That’s right, this is a bank fraud!

Facts and Figures Related To Banking Frauds

It’s always hard to stop theft in banks. The number of scam cases at banks rose by 41% between 2021 and 2022, according to PYMNTS. ACH fraud rose from 19% to 24%, and attacks on mobile funds four times as common. Also, almost 1.7 million cases of identity theft were reported just in 2021. In the past few years, the number of all types of bank theft has only gone up.

Due to the many ways in which credit unions and banks are alike, their fraud problems are generally the same.

Fraud prevention banking professionals know that as banking industry fraud increases, so do the associated losses. The Federal Trade Commission of the United States said that theft cost 2.8 million people $5.8 billion in 2021, which is 70% more than in 2020.
Why is bank theft going up so quickly? Fraud can happen in more ways. Digital channels are especially vulnerable, and as mobile banking, mobile payment apps, ACH payments, and online loan applications become more popular, scammers who target banks stand to make a lot of money.

Types Of Banking Frauds

Let’s talk about the different kinds of banking scams, what they are, how they happen, and what can be done to stop them.

1. Account Takeover

Account Takeover, or ATO, is when thieves use stolen passwords to take over someone else’s online account. Criminals can easily buy login information on the dark web or get it through phishing attacks, social engineering scams, or data breaches. They can then use this information to steal money from bank accounts.
Once the attacker gets in, they may change the password to keep the real account owner from getting in. If they want to steal money, they might move it to another account, make fake payments, or open new accounts (usually credit lines) in the victim’s name.
ATOs cause banks to have expensive court cases, and they can hurt the company’s image and customer loyalty. Also, customers lose a lot of money because of them. Only about 22% of U.S. people are victims of ATOs every year, and they lose an average of $12,000.

Take a closer look at some of the ways thieves might try to start an ATO attack:

• Phishing attacks
  • Thieves can get account information by sending customers a fake email or text message that links to a fake bank login page. Thieves take customers’ credentials when they type them in.

• Credential stuffing
  • Fraudsters use complex bots to check random identities automatically. These attacks, which are also called “brute force” attacks, use lists that are bought on the dark web and try different combos until they get into an account.Social engineering
  • A lot of different ways that scammers get users to give them their account information by tricking them or playing on their fears and feelings.

• Cybersecurity issues
  • Fraudsters often use software that hasn’t been updated or other security holes to get into data systems and steal customer data.

• Call center fraud
  • Call center scam is a type of social engineering in which a con artist calls a business’s call center and pretends to be a real customer. Then, they might trick the person in the call center into giving them access to an account so they can do something bad or illegal in that account. Pindrop says that scam attacks in call centers went up by 57%.

2. New Account Fraud

New account fraud is one of the most popular types of bank fraud. It is also called account opening fraud, account creation fraud, real account fraud, and fake account fraud. This type of fraud happens when a con artist or money mule starts an account with the goal of committing fraud, usually using fake or stolen identities.

They might use data breaches or phishing to steal the names of real customers, or they might get private information about children, the dead, or even people who are homeless. Mules might sometimes make fake accounts using their own names to commit fraud, which is called first-party fraud.

Criminals can also make fake or synthetic identities, which is trickier but more common. They use some real information about a real person along with information that they made up or stole from other people. Once a fake account is made, thieves may charge things to it or write checks in the victim’s name.

3. Money Laundering

It involves moving illegal or “dirty” money through several transactions with foreign banks and/or legal businesses. This makes the money legal or clean. The money is “washed,” which means that its source is hidden, and it can’t be linked to illegal acts like drug trafficking, corruption, theft, or gambling without a license. Usually, organized crime groups are the ones who launder money. Making money look like something else takes three steps:

• Placement
  • Criminals can, for example, divide large amounts of cash into smaller amounts that are easier to hide. These smaller amounts are then put into bank accounts or used to buy checks or money orders. Small amounts of money that are below the AML reporting limits can also be put into bank accounts. This is known as “smurfing.”

• Layering
  • During this stage, the thief moves money around to make it harder to track back to where it came from. They can move money around by buying and selling investments, using a holding company, or sending the money to different banks. They could make withdrawals look like personal loans or payments for goods and services.

• Integration/Extraction
  • In the third stage, thieves add money to the economy by buying goods and services, putting money into real estate or businesses, or hiring fake workers. A fraudster still makes money even though washing takes away from their income.

Repeated trades for amounts just under $10,000 are one sign that someone is laundering money. A lot of internal moves and transactions made by the same account on the same day by different people are also red flags.
To stop money laundering, follow AML rules so that you don’t get in trouble with the law or the regulators, you need strong data and good knowledge. It’s important to do your research on customers, and you need the right software to keep an eye on accounts and let authorities know about any possible criminal behavior.

4. Cash Mules

Money mules move money that they get illegally on someone else’s behalf, either in person, through a courier service, or online. They are transaction soldiers who were paid for their work.

A criminal hires a “money mule” to help them clean the money they get from online scams and other fraud or illegal activities like drug dealing. The mule helps put more “layers” of separation between the thief and the person who gave them the money.

Cashier’s checks, coins, prepaid debit cards, and other ways of moving money are all used by money mules. There is a chance that some of the mules know they are helping crooks and others may not know at all. One reason could be that they trust the criminal who is asking for help and believe that they are doing the person a favor. Because of this, mules get through all KYC and AML checks without being flagged as scammers, making it one of the hardest types of bank fraud to catch.

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5. Payment Fraud

Payment theft is when a cybercriminal makes any kind of illegal or fake transaction. Throughout the lifecycle of a customer account, banks handle a wide range of different types of transactions. Withdrawals and deposits of cash, checks, internet payments, debit card transactions, wire transfers, and loan payments are all examples. Each one gives dishonest people a chance to commit theft.

6. ACH Fraud

Criminals commit ACH fraud when they steal money through the Automated Clearing House (ACH) network. The ACH is a clearing house for all U.S. Electronic Fund Transfer (EFT) activities. The Federal Trade Commission got more than 2.2 million reports of theft just in 2020.

The most common type of fraud was imposter scams, in which con artists used Authorized Push Payment (APP) plans to trick people into making ACH transfers. ACH scam is simple to do because all you need is two pieces of stolen information: a business checking account and a bank routing number. Because banks have to pay back customer accounts for fake ACH transactions, ACH fraud can be pricey for banks.

7. Check Fraud

When paper or digital checks are used to steal money, this is called check fraud. Someone can write a fake check, forge someone else’s name, or write a fake check on their own account or an account that has been closed.

According to information released by the Association of Financial Professionals (AFP) and JPMorgan, theft is still most likely to happen with checks (66% of the time) and wire transfers (39% of the time). The rise in mobile check payments (41% increase between 2020 and 2021) is one reason why check fraud is on the rise.

When people write bad checks, banks usually pay them back, but it costs a lot: for every dollar lost, banks pay about $4 in claims and other fees.

8. Card Fraud

Most likely, credit card fraud is the most popular type of bank fraud. This is a general term for theft involving any kind of payment card, such as a credit card, debit card, gift card, or prepaid card. How do they get this kind of information?

Either by taking a real card, finding a lost card or card information, or skimming a card (like at a gas station). It can be broken down into two types: card-present fraud (CP) and card-not-present fraud (CNF). There is 81% more CNP fraud than CP scam.

One way to keep data safe is to follow the Payment Card Industry Data Security Standard (PCI DSS). This system was made to help banks safely accept credit cards and cut down on card scams, but it doesn’t always work.

A study from 2021 found that about half of all Americans had a bogus charge made on their credit or debit card. Also, more than one-third of people who have a credit or bank card have had fraud happen to them more than once.

9. P2P Payment Fraud

One billion people around the world use cash apps like Apple Pay, PayPal, Venmo, and Zelle to send and receive money. Fraudsters know that companies often don’t have the data and insights to spot new fraud trends in these digital payment apps, so they pick them as easy targets.

Scams happen all the time. For example, a con artist might sell goods to people on an online market and ask for payment through PayPal or Zelle, but never send the goods. Theft of credit card information can also be used by thieves to make P2P accounts and buy things for themselves.

The shocking number of people who have been scammed by P2P payment theft has grown by 733% since 2016. Most P2P apps don’t have rules to protect users from fraud losses caused by scams, which is a shame. Even worse, P2P theft can lead to other types of fraud and account takeovers.

10. Wire Transfer Fraud

Using telegraph lines to send money from one bank to another is where the term “wire transfer” came from. One of two main types of wire transfer scams is:

Scammers pretend to be a reliable person, business, or family member and ask for a wire transfer. They often use an emergency to play on the victim’s emotions. For instance, a finance worker gets an email from the CEO telling them that they need to send money to a seller by the end of the business day or the deal will fall through. The account information is in the email, and it looks real, but it’s not.
Hackers could read the emails that are sent during a wire transfer and change the directions so that the money goes to a different account.
When people feel more at ease moving money online, wire transfer fraud goes up, and so does the value of each transfer. One study shows that the average value has gone up almost 68% since Q2 2020 and will hit $12,500 in Q4 2021.

11. Application Fraud

Criminals use fake or stolen IDs to apply for loans or lines of credit, which is called application theft. Here are some examples:

A thief gets a credit card and slowly builds credit over months or even years so that they can get more credit. Then he uses the card to its fullest limit and has no plans to pay it back.
Someone who is not who they say they are can apply for credit or a loan using someone else’s information. Using automatic bots and virtual machines, these thieves can now send many loan applications to many banks at once. This is known as “loan stacking.” When theft is found, the bad guy already has the money and is long gone.
Fraudsters often use third-party application fraud to make fake identities by mixing real and fake information. People commit first-party fraud when they use their real name while giving false information, like a fake address or a higher-than-real income.

12. Loan Fraud

Loan fraud is a type of application theft. In the second quarter of 2022, fraud was found in almost 1% of all mortgage applications, or 1 in 131 applications. Loan fraud comes in many forms, such as mortgage fraud, loan scams, and cash fraud. However, in all of them, thieves use someone’s personal information to get a loan without their permission.

In the past few years, loan fraud has grown because internet lenders are becoming more popular and don’t always do full background checks on applicants. They might only look at basic information like your name, address, social security number, and income to decide whether to give you money. This is information that is easy to steal or get in a bad way.

How to Prevent Banking Frauds

Stopping bank theft is very important. It not only causes money to be lost, but it also makes people not trust these banks.

Here are some of the basic prevention that you should excercise no matter what!

Preventive Actions	Details
1. Protect Personal Information	– Refrain from sharing account numbers, passwords, social security numbers, credit card details, or OTPs unless with trusted individuals.
2. Prompt Complaint Filing	– Immediately file a complaint if you become a victim of a bank fraud scam. Delaying is not advisable.
3. Avoid Cashing Unknown Cheques	– Never cash a cheque for an unfamiliar person to prevent potential fraud.
4. Stay Vigilant	– Thoroughly review and analyze received messages, emails, and chats before interacting with any links or calling unknown numbers, especially those claiming you have won a prize.
5. Verify Unsolicited Cheques	– Always verify unsolicited cheques with your bank before attempting to cash them.
6. No Payments for Prize Redemption	– Refrain from making any payments to redeem lottery winnings or prizes.
7. Avoid Phone Engagements	– Do not engage with callers claiming to be government officials, especially if unsolicited.
8. Exercise Caution Online	– Before clicking on emails or links, carefully inspect the URL, brand name, spelling, and other details to prevent exposure to malware.
9. Secure Phone Conversations	– Avoid sharing sensitive details over the phone unless the person is trusted. Verify your surroundings before sharing any information.

Final Thoughts

Theft in both traditional and online banks has been going on for a long time. People still fall for bank fraud a lot of the time, even though the government and many banks have training programs.

There are many more bank scams in India that you should be aware of besides the ones we’ve talked about here. In the upcoming series of the blogs, we will update our audience with more of preventional tips against such common frauds. So stay tuned!

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