What is external fraud in banks?

14 May 2024

In the banking sector, when fraud is perpetrated against a bank or financial institution by an external source, it's termed external fraud. The bank suffers significant financial and reputational losses as a result. Therefore, businesses must avoid this type of fraud or any other type at all costs by making good preparations and keep your business up to date with as many strategies to deal with these situations as possible.

For understanding the many forms of external fraud that banks may face is crucial, below are common types of external fraud that you may unfortunately encounter in the future. From there, it is possible to protect the integrity of the financial system and implement effective fraud prevention measures.

Common Types Of External Fraud In Banks

Identity theft

Identity theft is the act of a scammer obtaining a user's data. Some information is commonly stolen, such as Social Security numbers, credit card information, and identity cards. It is possible to access someone's bank account and assume their identity by using this information, which can lead to unauthorized transactions, account takeovers, and financial losses for both the victim and the bank.

Email fraud and spoofing

External fraud by email is kind of common on the internet, especially among those who use email as their main channel of communication.

When you receive an email, you tend to assume it is from a reputable financial organization based on the account name or the address, such as a bank, and act accordingly. However, those names can be fake or very similar to the authentic ones that easily fool you. Nonetheless, email spoofing has grown increasingly popular and sophisticated in recent years as a means of sending false messages. Scammers can also use this technique to get sensitive user data and exploit users' resources.

Payment card fraud

The unlawful use of a user's credit or debit card information to conduct fraudulent transactions and appropriate property is known as payment card fraud. Various forms of this approach are commonly used, such as cardless transactions, card cloning, and skimming devices at point-of-sale terminals or ATMs.

Check fraud

When someone forges or tampers with checks to take money out of the victim's account or make payments they aren't supposed to. Fraudsters can make fake checks, steal checks, or change payee information to deceive banks and individuals.

Online fraud

This is one of the most prevalent types of fraud that occur these days. To access user accounts, scammers will transmit harmful code to phone numbers, emails, or other digital means.

Loan fraud

Inaccurate or deceptive information must be provided to obtain a loan or credit from a financial institution. This type includes lying about work status, inflating property valuations, or presenting fictitious income documentation to get a big loan.

Several Steps To Stop External Financial Fraud Include

The following are some steps that banks can take to reduce the result of external fraud while safeguarding sensitive data:

1. Banks are required to make sure that all customer information is kept secure and verified to stop consumer identity theft.
2. Regularly educate and support clients about common scams, while teaching them how to recognize suspicious behavior and what steps to take if they encounter it. This approach helps increase consumer awareness of potential risks.
3. Employ machine learning algorithms or artificial intelligence to monitor the entire process effectively. Banks can leverage this technology to swiftly detect and prevent fraudulent activities, providing significant benefits.
4. Monitor the entire process with machine learning or artificial intelligence. Banks will be able to spot and stop fraud fast by doing this.
5. To fend off malware attacks by fraudsters, banks ought to employ more cybersecurity safeguards.
6. Coordinating information sharing in the fight against financial crimes with regulatory organizations, industry partners, and law enforcement.
7. Conducting regular assessments and audits to identify any vulnerabilities in systems and procedures, promptly addressing and rectifying them as needed.
8. Customers are encouraged to opt-in for notifications and alerts on their accounts, allowing them to monitor account activity and receive alerts about suspicious transactions.

Fraudulent activities that take place outside of banks are growing in frequency. They pose a risk to the entire banking system and the consumers' personal information security. Furthermore, the fallout from these fraudulent activities hurts banks' and other financial organizations' reputations. We must comprehend each sort of fraud to select the best preventive strategy to act quickly to stop this fraud.

Aside from implementing measures to deter external deception, it's essential to take proactive steps to protect against fraud. And banks should consider selecting a reliable and secure provider for payment processing. Mentioning a reliable provider partner to those issues, PayCEC is one of the trustworthy suppliers businesses must take into consideration.

PayCEC, with innovative features in terms of payment gateway security, multi-currency allowance, multiple payment methods acceptance, 24/7 dedicated customer support, and various other tools, will help banks address their concerns about data and information theft through its comprehensive built-in security measures. Enhance your protection against fraudsters and cyber threats by choosing and integrating the PayCEC payment gateway.