Strategies for Avoiding Fraudulent Fintech Schemes

by Amjad Raza Khan

The term fintech originated in the 1990s when Citicorp, now known as Citigroup, initiated a financial services technology consortium that aimed to bridge the gap between banking institutions and technology companies to explore the potential of new technologies in finance. However, it was not until the early 2000s that fintech began to truly revolutionize the financial landscape, largely due to the rapid spread of the Internet and digital technologies. This period saw significant changes in the way people accessed, managed and used financial services, with innovations such as digital wallets, peer-to-peer lending and online payment gateways becoming widespread.

While these innovations have brought convenience and efficiency, they have also opened the door to a new breed of cybercriminals and fraudsters. With the expansion of fintech services, especially on customer-facing platforms, fraud tactics have evolved in parallel. The combination of finance and technology has not only empowered consumers, but also created vulnerabilities. Fraudsters have taken advantage of these vulnerabilities by targeting unsuspecting users using a variety of sophisticated techniques. From phishing schemes to identity theft, fintech fraud has become a serious threat, highlighting the need for awareness and protection strategies in today’s digital financial ecosystem.

Common fraud tactics in the field of financial technologies

In the fast-paced world of fintech, the variety of fraud tactics has grown significantly, putting millions of users at risk. Sumsub’s Identity Fraud Report shows that identity fraud in the fintech sector will increase by 73% between 2021 and 2023, from 0.67% to 1.16%. The report identifies five main types of identity fraud currently dominating the fintech sector:

AI-based fraud: The use of artificial intelligence has increased dramatically, leading to a surge in deepfake technology. In 2023, detections of deepfakes increased 10x, with 96% of these cases occurring in cryptocurrency and fintech. Fraudsters use artificial intelligence to create highly convincing deepfakes to impersonate individuals and defraud financial institutions or users.

Networks for attracting money: Fraudsters trick or manipulate people into transferring illegally obtained funds through their accounts, making it difficult to trace the origin of the money. These “money mules” are often unaware of their role in the fraud.

Fake IDs: Fraudsters use fake identification documents to create fraudulent accounts or conduct unauthorized transactions, making it easier for them to bypass security protocols on financial platforms.

Account Capture (ATO): Cybercriminals gain unauthorized access to user accounts, often through hacking or phishing schemes, and steal funds or personal information.

Forced check: Fraudsters get people to confirm fraudulent accounts or transactions through intimidation, manipulation or deception, putting victims in a vulnerable position.

Practical, actionable protection tips

Given the complexity and increasing sophistication of fintech fraudsters, users must implement effective strategies to protect their funds. Below are some practical tips to help you stay protected in this fast-paced digital environment.

Enable two-factor authentication (2FA): This added security measure asks users to authenticate their identity using a second method, such as a code sent via text message or an authentication program, making it much more difficult for fraudsters to compromise your accounts even if they know your password.

Use strong, unique passwords: Avoid repeating passwords on multiple sites. Strengthen your credentials by combining upper and lower case letters, numbers and symbols. For security and control, consider using a password manager to create and store strong, unique passwords.

Beware of phishing attacks: Fraudsters often use emails or messages that appear to come from legitimate fintech platforms. Always verify the identity of the sender before clicking on links or sharing personal information. If anything seems suspicious, contact the company directly.

Monitor account activity regularly: Check your financial statements and account activity frequently to detect any unauthorized transactions. Early detection can help you take immediate action, such as freezing your account or notifying your financial institution.

Learn about the latest scams: Stay up-to-date on new fintech fraud tactics by following trusted news outlets, reading security blogs, or signing up for alerts from your financial services provider. Being informed is one of the best defenses against fraud.

(The author is the co-founder and CEO of Cashaa)

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