What is first-party fraud in banking?

14 May 2024 By PAYCEC

First-party fraud, as the name suggests, is the type of fraud intentionally made to occur by the individuals or organization themselves. In the banking industry, first-party fraud describes deceptive practices carried out by people who have a formal connection to the financial institution, such as account holders or staff members.

Unlike other types of fraud, which involve outside parties attempting to defraud the bank or its clients, first-party fraud occurs when individuals with direct access to financial products or services misuse them. Similarly, in the insurance industry, how first-party fraud relates to the way an individual or organization sends fake compensation requests to the insurance company based on their policies.

In the context of first-party fraud, information that they use to do these fraudulent activities is legitimately collected or belongs to themselves, making the issues harder to immediately detect or report like other common frauds. Therefore, below are some common types of first-party fraud in the banking industry, for businesses to take as preference and have a preparation about how to deal with them.

Some Common Types of First-Party Fraud in Banking

Below are some most common types of first-party fraud in banking that businesses need to know for better understanding and prevention.

1. Credit card or debit card fraud: This happens possibly due to the card owners using the card to facilitate fraudulent transactions, or trick the bank and financial institutions to send them money with fake transactions.
2. Loan fraud: This happens when the fraudsters apply for a loan with fraudulent or inaccuracy financial information in order to, receive approval from the bank, or to receive a higher loan amount than their actual ability to repay. People might also give false information to financial institutions to obtain credit. Typical actions include lying about assets, inflating income, or forging job paperwork. The intention behind these acts is to secure a higher loan amount.
3. Transfer and payment fraud: This happens when fraudsters create fake bills, payment transfers, etc to trick sellers into sending goods or services without receiving any actual payment. Besides, these fraudsters can take the role of the suppliers or buyers to create fake account details and delivery completion evidence to trick their customers into making real payments without receiving any goods or services.
4. Bank account fraud: This happens when fraudsters create fake bank accounts that fool people into believing they are from authentic sources or accounts that pretend to be someone with very similar information as the real one, then use those accounts to conduct fraudulent transactions.

Above are four common types of first-party fraud that widely occurs on the internet. Besides understanding those frauds, it is ideal to even equip yourself with tips on how to prepare and handle them in actual situations. If that is the case, you can take the below suggestions as preferences.

Tips to Prevent First-party Fraud in Banking Industry

Preventing first-party fraud has grown more crucial in the current banking environment. As a result, banks need to closely integrate contemporary technology security measures and stay abreast of the latest technical developments with the below measurements.

• To confirm account holders' identities and identify questionable activity, you need to put in place robust authentication and identity verification procedures.
• Observe patterns of transactions and account behavior for indications of strange or unauthorized activity, such as abrupt shifts in spending patterns or access to the account from places you're not familiar with.
• Identify possible hazards or red flags by thoroughly investigating new clients, staff members, and partners and doing due diligence on them.
• Suggest some advice on best practices for protecting personal and financial information and educating staff members and clients about the dangers of first-party fraud.
• Use fraud protection tools to spot unusual patterns and spot possible fraud in real-time, such as machine learning algorithms and behavior analytics.
• Put in place audit trails, internal controls, and job segregation to stop insider fraud and identify employee misconduct.
• Work together to exchange knowledge and best practices for preventing first-party fraud with industry partners, regulatory bodies, and law enforcement organizations.

Most customers today are concerned and gradually losing trust when they witness financial institutions facing difficulties resolving first-party fraud. Therefore, banks must identify the type of fraud and implement the best management techniques to stop losses and dangers additionally win back consumers' trust.

In that context, partnering with reputable payment gateway solution processing companies like PayCEC can offer banks invaluable tools and support as they work to prevent first-party fraud and maintain the highest standards of security and integrity. PayCEC is a dependable and safe platform for processing payments and guarding against first-party fraud because of its cutting-edge fraud prevention technology, data encryption protocols, and CPI DSS compliance standards.

Activate PayCEC right now to strengthen your protection against insider threats and fraud, as well as to guarantee the security of your financial transactions.