On October 28, 2023, news of a data breach at the Indian Fintech Startup, Mswipe. Mswipe is a firm that provides QR and contactless payments with POS terminals. The startup is estimated to be worth between $100 million and $500 million, with over 10 million users and processing over 10 billion transactions annually. However, the data breach affected over 9.3 million of its customers. The breach exposed the customers' personal data, including their names, phone numbers, and email addresses. Mswipe, in a statement, said that it is investigating the breach and has taken steps to improve its security. This is one of the many fintech fraud cases that have been reported in recent months. It may continue to soar if Fintech personnel and executives do not step up to take proactive measures to combat fraud and truly robust complaint measures. , it is important for companies to take steps to protect their customers' data and prevent fraud.


As the Fintech sector continues to grow globally, it is important to note and be aware of the fact that complaint risks will ever be present and are becoming even more complicated or sophisticated in terms of the execution of the activities of malicious actors and stealthy cybercriminal activities. Today's cyber or digital fraudster is much more advanced in knowledge and is equipped with readily available sophisticated tools, such as AI deep fakes or voice replication. This article highlights and explores ways to detect and evade fraud in the Fintech sector or industry.


Fraud And Fintech In Recent Times


Fraudulent activities, or just basically regarded as fraud in recent times, usually involve some form of deceit, an unauthorised entry into a network or system, adopting sophisticated tools along the way and deceitful strategies such as social engineering, identity fraud, phishing, whaling and other related devices. The perpetrators, often sophisticated cybercriminals, have adapted to technological advancements, utilising sophisticated tools and tactics to exploit vulnerabilities.


Ways Of Detecting Fraud In Fintech


There are several effective ways to detect fraud before it happens in a proactive framework of complaint in Fintech. It is important to detect anomalies or suspicious patterns that may lead to fraud even before they happen. The following measures or methods connote ways to detect fraud in Fintech.


a. Secure Onboarding Process


The onboarding process can be the initial gateway to permit fraud, especially if effective tools are not used in the onboarding process and there is erroneous human oversight. With an effective identity verification tool, fake identities and identity theft can be spotted, even before they are used to perpetrate serious financial crimes such as financial fraud through identity theft and money laundering with fake identities, which can be an aid to facilitate the movement of funds made from fraudulent and embezzling efforts. Effective KYC tools are important for safe onboarding processes. Tools such as Liveness detection tools, ID data matchingFraud check, and Biometric Verification are offered by Youverify and are effective ways to fraudproof the onboarding process in Fintech.


b. Transaction Monitoring And Screening


Fintech companies can utilise sophisticated algorithms to track transactions in real-time and detect suspicious patterns. This may include unusual transaction amounts, geographic inconsistencies, or transactions that differ from a customer's typical behaviour. By flagging these transactions for further review, fintech companies can adopt steps to prevent fraud before it happens. Youverify offers transaction monitoring and screening tools that help detect fraud even before it happens.


c. Biometric Authentication


Biometric authentication methods, like fingerprint scans or facial recognition, can provide an additional layer of security beyond passwords and PINs. Biometrics can be used to securely verify a user's identity, making it more difficult for fraudsters to impersonate legitimate customers.


d. Continuous Monitoring and Adaptability


Fraud prevention is a continuous process that requires constant monitoring and adaptation. As fraudsters develop new methods, fintech companies must stay ahead of the curve by updating their fraud prevention strategies and technologies.

Ways Of Evading Fraud In Fintech 


Some of the key ways businesses can adopt to evade fraud in fintech include:


1. Strict Customer Onboarding


Strict customer onboarding wards away malicious actors looking to perpetrate fraudulent acts, identity fraud, use fake identities, etc. It safe proofs fintechs from admitting individuals without legitimate or legal intentions. 


2.  Staying Informed  


Staying informed is paramount to evading fraud in Fintech. Staff and executives should stay current about fraud trends, and staff in cybersecurity compliance teams should dedicate time to reading publications in cyber security and compliance books and consume updated content in the respective fields. They can also take updated training, classes and courses. Executives and concerned teams should also establish measures to educate users on ways to protect themselves. Such as using strong passwords, desisting from posting private information on socials, etc.


3. Use Reputable And Effective Regtech Service Providers


Fintech companies or executives need to adopt or incorporate the use of very trusted Regtech service providers to reduce the number of false positives and failed investments in compliance and to save time. Top of the paramount reasons is to keep fraudsters at bay. An example is Youverify, a Regtech company that provides simple compliance automation tools for businesses, including Fintech.


4. Report Suspicious Activity


Concerned officers or staff should make adequate reports about suspicious activities as soon as possible, such as SAR - Suspicious Activity Report.  This will go a long way in evading fraud and bringing fraudulent perpetrators to book. 


5. Biometric Authentication


For secure user verification, biometric authentication methods, such as fingerprint or facial recognition, should be adopted. Biometrics add an extra layer of security beyond traditional passwords.


6. Blockchain Technology


Explore the use of blockchain for secure and transparent transactions. The decentralised and tamper-resistant nature of blockchain can mitigate the risk of fraud by providing an immutable record of transactions.


7. Regular Security Audits and Penetration Testing


Regular security audits and penetration testing should be conducted to identify system vulnerabilities. Regular testing helps in discovering and addressing weaknesses before they can be exploited.


8. Supplier and Third-Party Risk Management


Fintechs can not afford to overlook supplier and third-party risk management. Concerned staff should assess and manage the security practices of third-party vendors and suppliers. Many fraud attempts occur through vulnerabilities in the supply chain.


9. Incident Response Plan


An incident response plan should be developed and regularly updated to minimise damage in case of a security breach. This includes steps for notifying customers, law enforcement, and regulatory bodies.


10. Legal Action Against Fraudsters


Executives or top management teams and the legal teams should work closely with law enforcement agencies and legal authorities to track down and prosecute fraudsters. Cooperation with regulatory bodies can deter potential criminals and strengthen legal consequences.


Bottom Line


Fintech staff and executives must stay on par with fraud trends, and security measures should be heightened to match the current state of fraud in the fintech sector. It is important to employ proactive measures to counter suspicious and fraudulent attempts even before they happen.


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