Fraud mitigation and prevention: Types of fraud and how to mitigate for customers

Fraud mitigation and fraud prevention are key parts of every business. Within the financial industry, however, this emphasis is heightened and becomes an integral part of every company’s operations.

When it comes to handling customers’ financial information, there are countless more policies in place to reduce fraud and ensure that the fraud risk is kept to a minimum.

A survey from PwC revealed that 46% of organisations reported experiencing fraud, corruption or other economic crimes in the two years leading up to 2022. Almost half (43%) of the respondents also revealed that the threat came from an external source, meaning that detecting fraud and having the ability to prevent fraud should be high on the agenda for every single business today.

When building a financial product, all fintech partners have a responsibility in mitigating fraud for that product. The issuer processor is a key player that sits in part of that ecosystem, and has tools and processes that can help clients with fraud management. 

Typically, an issuer processor provides the systems of record, manages the issuance of cards, authorises transactions and communicates with settlement entities, but their responsibilities don’t end there. They also have dedicated fraud mitigation procedures in place to provide fraud alerts to clients when suspicious activities are noticed and flagged. 

Other key players in the payments ecosystem will have their own ways of detecting fraud, but they all work together to create a trustworthy and robust fraud prevention operation for their clients. 

The most common types of fraud that companies should know about

Credit or debit card fraud

This occurs when fraudsters steal or find a customer’s card, or manages to obtain the information from the card to purchase goods, withdraw cash or otherwise use the card in a fraudulent manner.

However, fraudsters can still scam without having a physical card – they can just obtain the information required to make mobile or online payments. This is called card-not-present fraud and it’s typically very difficult to detect and prevent. Unlike card-present fraud, the merchant can examine the credit card for possible signs of fraud, such as an altered account number or missing hologram.

Identity theft

Identity theft occurs when a scammer steals a customer’s personal information through data mining – which might include their name, bank account details and credit card information. The goal of the thieves is to use this personal information to assume a customer’s identity, giving them access to funds.

They might use this to access a bank account and drain funds, open and use credit cards in the customer’s name, take out loans, use health insurance or file a tax return and claim a refund – this is most commonly known as application fraud. 

Counterfeit fraud

Counterfeit credit cards are fakes that have real account information stolen from victims. More often than not, victims still have their real cards, so are unaware that a crime has occurred. The cards appear legitimate, with issuers’ logos and encoded magnetic strips, meaning it’s becoming increasingly difficult to identify. 

Types of fraud that customers are not aware of

Prepaid card fraud

Prepaid cards are also a common method of payment used in financial scams. This type of fraud occurs when a fraudster uses stolen prepaid card information to make purchases, or buys a prepaid card using other stolen financial information. 

Debt Collection Fraud

Debt Collection Fraud occurs when a fraudster tries to steal money from a customer – this might also be a business – by posing as a debt collection agency. The scammers usually target people over the phone, referring to a non-existent debt and demanding money to be sent immediately. 

Interest Rate Reduction Robocalls

Fraudsters will call up unsuspecting customers and say they can get their credit card interest rates lowered on their behalf. Customers might not recognise that this is something they can do themselves – and more than likely with a higher success rate. It’s a service that can be completed for free, and fraudsters are looking to access financial information they can then use for further fraudulent activities. 

How a secure platform protects both the company and the customer?

For any company, the security of their customer and their financial information is of utmost importance. When building a financial product, partners play an important role in mitigating fraud for the product and its customers. An issuer processor does this by having fraud mitigation processes in place to provide fraud alerts to clients when suspicious activities are flagged. 

There are many issuer processing platforms available, just like Carta Worldwide, and they are equipped with correct fraud solutions that can help detect, minimise and report fraud. 

With fraud mitigation being the responsibility of a fintech and all of its partners, there are many key benefits of partnering with a platform that can leverage existing methods. The first one is collaboration. 

Fraud prevention should not happen in a silo. Prioritising the protection of transactions should be completed in partnership with the right expertise and industry partners. By working in collaboration, it will significantly reduce the time needed to detect fraudulent transactions, ultimately reducing financial and brand costs.

Another key advantage is staying alert and vigilant. Not only will a provider be able to recognise the signs and prevent fraud, but they will also be well-informed on the latest trends and policy developments, and be aware that an attack or vulnerability can rise at any time.

How Carta Worldwide’s fraud alert system can prevent fraud

The Carta Worldwide Fraud Portal is a tool that can be used to view and monitor the fraud alerts which were chosen or inputted by customers and set up on the Carta Worldwide Platform on the Program implementation level.

Fraud alerts are generated by a rules-based algorithm in the system, intended to spot different behaviour patterns which may indicate fraudulent activities occurring during the transactional use of cards. Rules can be set up by clients to either just alert or to alert and auto-suspend.

Depending on the auto-suspend options in the Fraud Rules Suite as chosen by the customer during onboarding, a fraud rule being broken and subsequent generation of a fraud alert email will automatically result in the relevant cardholder account being blocked. This will prevent further “Authorization Approved” transactions from taking place on the cardholder account until resolved by the client.

When a rule is broken, Carta Worldwide will automatically inform the client of the alert to proceed and rectify the problem.

Whilst this tool is primarily aimed at fraud analysts and those within similar roles, it’s also useful for fintech companies who are required to hold a level of responsibility for fraud prevention, fraud detection and mitigating fraud risk.

Conclusion

Financial institutions are required to follow stringent laws for fraud prevention, both for themselves and on behalf of their clients and customers.

With the right solution and analysis, companies can deal with the issues head-on, reducing the risk and reporting any wrongdoing, and strengthen their own policies to mitigate the impact in the future.