What are the 12 common types of bank frauds? 

1. Card fraud
2. Phishing
3. Account takeover
4. Check fraud
5. Accounting fraud
6. Loan fraud
7. Payment fraud
8. Money Laundering
9. Card skimming
10. Wire Transfer fraud
11. Empty ATM envelope deposit
12. Identity Fraud

Banking fraud is the use of potentially illegal means to obtain money, assets, or other property owned or held by a financial institution, or to obtain money from depositors by fraudulently posing as a bank or other financial institution. In many instances, bank fraud is a criminal offence. 

In this article, we shall be examining closely the 12 common types of bank fraud and prevention methods.

Why Do Criminals Engage In Bank Fraud?

We understand that criminals commit crimes from a long list of reasons bordering from the simplest reasons like the thrill of it, to serious issues like bridging the socio-economic divide between the rich and the poor. 

No matter the reason, the bottom line is that people are capitalising on the vulnerabilities of the banking system to defraud people of their hard earned money. It is thus imperative to help report any suspicious activity to the authorities as soon as you notice it, not just on your personal account, but around you.

How Does Bank Fraud Affect The Economy?

A recent research publication showed that bank fraud has spiked significantly in the last two years in the US. The report also revealed that there was a substantial amount of money lost to the menace; which was primarily caused by the growth and rapid adoption of digital banking channels and state of the art fraud techniques.

According to the Federal Trade Commission, there was a 70% increase in fraud losses in 2021, as opposed to the previous year. It was revealed that there were over 2.2 million reports filed by customers for fraud losses reaching up to $5.8 billion.

Nigeria too had its own fair share of banking fraud loss. Reports have it that the value increases by 41% N9.6 billion in 2022; as compared to N13.6 billion in 2023. 

In the report, it was found out that fraud at the point of withdrawal of funds increased by 41% too. This loss also affected Money Agencies/Exchange with losses of up to 100% increase compared to 2022. There was an increase in transfer and cardless withdrawal fraud by 22% in 2022 and 199% in 2023.

What Are The 12 Common Types Of Bank Fraud And Prevention Measures?

It is worth noting that bank fraud is one of the major causes of criminal activity, not just online, but physically. As the years go by and people continue to rely on virtual money transfer, the menace is expected to get bigger and more prevalent as a crime. In that vein, let’s dive into the 12 common types of bank fraud.

Here are the 12 common types of bank frauds:

1. Identity fraud
2. Card fraud
3. Phishing
4. Account takeover
5. Check fraud
6. Accounting fraud
7. Loan fraud
8. Payment fraud
9. Money Laundering
10. Card skimming
11. Wire Transfer fraud
12. Empty ATM envelope deposit

1. Identity Theft

Identity theft happens when criminals steal a person’s important personal information like their name, address, bank account number, Social Security Number, National Identification Number (NIN) or Bank Verification Number (BVN) [Nigeria], National Insurance Number (UK), driver’s license number, or credit card information. This information is then exploited for use in purchasing or acquiring goods or services online. 

Many of the ways people fall victim to identity theft is by accessing phishing mails, data breaches, dumpster diving and mail theft to mention a few. To tackle this menace, you need to protect your personal information, use strong and various passwords for your online presence and ensure you use protected browsing.

2. Card fraud

This happens when criminals obtain the information of someone’s credit or debit card and use them to purchase or pay for goods and services without the owner’s knowledge. This information could be gotten from hacking into the victim’s online accounts or physically stealing their cards (in pickpocket or bag snatching operations). 

You could safeguard yourself from being a victim of card fraud by using only secure online websites for your trading, not sharing your card information, protecting your physical cards and ensuring that you properly inspect ATMs for skimming devices.

3. Phishing

Phishing happens when criminals send malicious communication to unsuspecting victims either as emails, texts, or pop-up messages. This communication is meant to obtain their sensitive personal or financial information. On opening or clicking on links in the communication, the criminals plant malicious software on the victims device which steals  their personal information for the criminal to exploit.

Not opening unknown or unverifiable communications, securing your browsing experience, staying away from public wifis and not being greedy enough to act on “get-rich-quick” communications online is one way to avoid being a victim of phishing bank fraud.

4. Account takeover

This happens when criminals completely gain control of a victim’s financial account using malware or phishing tactics. They then go ahead to use the account to make unauthorized purchases or transactions. Some even go as far as locking the victim out of their own account and changing the information on it for their own use.  You can avoid being a victim of this type of banking fraud by constantly changing or using strong passwords on your accounts. You could also use multi-factor authentication to add an extra layer of security to your account. 

5. Check fraud

This happens when criminals use fake or counterfeit checks to steal money from an individual or a business. In many instances criminals target many underactive accounts compiling loot with little check amounts. They withdraw the money fast and are gone before the bank finds out that they are phony.

One way to prevent this kind of fraud is to ensure that one secures his checks in a safe place; does not share their account information with others and monitor their accounts regularly, checking for and reporting suspicious activity. Also avoid helping people to cash checks; it may just be yours.

6. Accounting fraud

Accounting fraud happens when banks and other financial organisations intentionally manipulate financial statements to misrepresent a company's financial health. It involves overstating revenue, understating expenses, misstating assets, hiding transactions and manipulating liabilities. This basically is lying to give the impression of a thriving, successful business. To keep this from happening, banks must have a strong internal control system; promote ethical behaviour amongst employees, being vigilant and reporting offenders to the authorities.

7. Loan fraud

Here criminals deceptively provide false information to a bank to apply for a loan. They use other people’s identities to apply for a loan they normally do not qualify for. It is also the usage of false income details or fabricated assets to apply for a loan in the bank. 

To prevent loan fraud individuals must be cautious about sharing their personal information. Financial institutions can also prevent loan fraud by regularly monitoring applicant credit reports. People who are seeking for a loan must also verify the legitimacy of lenders, they can also be alert for suspicious loan offers. Both banks and individuals should report any potential fraudulent activity to the appropriate authorities.

8. Payment fraud

Payment fraud comes to play when criminals use someone’s payment information like credit card details to pay for goods and services without their consent. This is basically stealing money from the victim under their nose. The criminal gets sensitive information on the victim’s payment details via the Internet via phishing and other ways.

To prevent yourself from being a victim of payment fraud, banks should implement multi-factor authentication systems for customers. They should also implement secure payment systems and educate their employees about the latest fraud detection methods.

In addition, banks must use advanced fraud detection technologies and stay updated on the latest anti-fraud trends. 

9. Money laundering

Money laundering is the act of infusing illegally gotten monies into the main financial system, cleaning it up to be used for legitimate transactions. It could also involve the concealing of illegally obtained funds or the transfer of them from one legitimate fund or the other, all in the bid to hide the origins of the money. Money laundering also involves the use of movement of funds using shell companies, online wallets and overseas bank accounts.

Preventing money laundering is a big deal as governments, law enforcement and regulatory compliance agencies put forth hefty fines and sanctions to dissuade organisations from perpetrating the act.

10. Card skimming

This happens when people lose their money to criminals who have obtained their personal data from ATM, debit, or credit cards while they are used at an ATM machine or a merchant location. This crime uses a device known as a skimmer which is installed on or inside ATMs, point-of-sale (POS) terminals, or fuel pumps. The skimmer captures card data and records cardholders’ PIN entries. Criminals then use the data stolen from the victim to create fake payment cards and then use these cards to make unauthorized purchases or withdrawals, stealing from victims' accounts.

11. Wire transfer fraud

This common type of bank fraud happens when cybercriminals trick someone into sending money to another cybercriminal. These criminals would have found the personal information of their target, they then send legitimate-looking communications to him or her making requests mostly using a fake or stolen identity of someone affiliated or associated with the victim. The endgame is to make the victim make the transfer themselves so that they can have access to his account through the transfer to their fake account.

To prevent being the victim of wire transfer fraud, ensure that you are never pressured into sending money, confirm the account details, keep your personal information to yourself, verify the details before transferring and contact the company you are to send the money to directly.

12. Empty ATM envelope deposits

When it comes to fraud, empty ATM envelope deposits have emerged as a fascinating area of worry. Criminals use this technique to make fictitious deposits in ATMs in order to launder money by inserting empty ATM envelopes. This is accomplished by exploiting the fact that many banks do not take the time to confirm the information included in an ATM deposit, which allows them to be used to conceal illicit activity.

To prevent empty ATM envelope deposits, banks can use technologies like image-based deposit systems. This deposits system helps eliminate empty-envelope fraud, since the deposits are imaged and verified in real-time, as they are loaded into the ATM. 

In the case of damaged or suspicious deposits, the system rejects the deposit until the bank has time to review them closely.

How To Prevent Bank Fraud

In order to prevent bank fraud, you need to keep these pointers in mind:

1. Protect your banking information

Never share your personal banking details with anyone you do not trust. Also ensure that you use strong passwords. Alphanumeric passwords are best instead of dates of birth, wedding anniversaries etc. Being suspicious of phishing links is also important; and lastly, use a password manager to store your passwords in case you may forget. 

2. Protect yourself from identity theft

You need to consider signing up for identity theft protection and this can work when you get in touch with each of the three main credit bureaus (TransUnion, Equifax, and Experian) separately. You can either set up a fraud alert, which is a less stringent measure, or place a credit freeze on your report, which is the most secure option. You can also think about enrolling in a paid identity theft protection service that these bureaus offer, which may include extra monitoring features. 

You can also protect yourself from identity theft by using the phone number on your bank's official website to contact your bank in case you have any issues.

3. Use checks and balances

Banks can help create that extra layer of security for their financial activities by creating a system of checks and balances. This happens so no one person controls all parts of a financial transaction. It can happen when the bank separates handling and record keeping functions into separate departments that work with each other.

4. Monitor and report suspicious activities

As a customer, you should ensure you monitor your account regularly to notice any irregularities and promptly report to the authorities.

Banks can put both automated and human whistleblower policies in place guaranteeing reward and anonymity for anyone who blows the whistle on any bank fraud. 

What are the Signs Of Bank Fraud? 

The following are some of the most common signs of bank fraud: 

1. People making withdrawals at the same time or immediately after deposits

This is one sure sign of bank fraud. This is done so that by the time the deposited check is returned to the receiving bank, the criminal has disappeared with their cash leaving the victim with an overdrawn account.

2. Suspicious Transactions

Suspicious transactions are a sign of bank fraud. These transactions can be transactions with no clear purpose; transactions from an unfamiliar location; foreign transactions to a local account; and obnoxiously large transactions.

Others are Unexplained increases in expenses charged by your bank or unusual invoice patterns on your account.

3. Changes to account information

When you notice a company you regularly pay to send you different account details for you to pay into in your dealings with them, hold up, it may be that they are being defrauded.

Also, if you notice some changes to your account settings on your online banking profile, contact your bank, you may have been hacked by a cybercriminal. 

4. Request for sensitive information

When your perceived bank asks for sensitive information like your internet banking log in details or your transactional pin, there is something fishy going down. 

Also when some bank representative or tech support expert tells you to allow them remote access to your device, do not budge, you are most likely being targeted.

Furthermore, when someone reaches out to you to help them send money to someone on behalf of someone else; you are most likely a target.
 

These signs are some of the most common pointers that you are targeted for bank fraud. Ensure you trust your gut and continue to monitor your account for any suspicious activity or transaction.

What To Do If You Are A Victim Of Bank Fraud?

If you are a victim of bank fraud, the first thing you should do is to contact your banking service provider to report the issue. It is also imperative that you file a police report detailing what you know about the crime. Also you will need to place a fraud alert on your credit report to monitor for further suspicious activity.

Changing all passwords and transactional pins on all your accounts can also help control the situation.

How To Report Bank Fraud

When reporting a bank fraud, ensure you first let your bank know about the issue first.

Then you can go and make a report to the police and/other relevant authority or law enforcement agency through their official channels (mail, email, contact number or more).

Banks can also share the information with other banks and financial houses to keep them on their toes in case they become the next target

Final Words

Now that we have checked the 12 common types of bank fraud and prevention strategies, we can see that bank fraud must be nipped in the bud as it causes a lot of issues to the economy and people who have had their hard-earned monies stolen. 

It is also imperative we understand that vigilance, security and proactiveness is important in keeping your bank account safe from criminals.

In case you are a bank or financial house that needs the latest fraud prevention solutions, but do not know where to go, look no further than Youverify. With more than 2,000 clients worldwide including Standard Chartered and MTN, you can rest assured that your issues will go away as fast as possible. Book a demo today and enjoy peace of mind.