Regardless of the underlying economic forces or tech developments fueling fraud, organizations must protect themselves from the latest risks. And protection starts with awareness.

In this post, we recap the eight most significant fraud risks facing the financial services industry, as predicted by panelists from our recent webinar, Fraud risks to watch out for in 2024. Learn about the latest risks from Rachel Costello, machine learning engineer at Inscribe, Frank McKenna, co-founder of Point Predictive and author of Frank on Fraud, and Alex De Jesus, head of fraud for Ramp.

#1 First-party fraud

First-party fraud may not be a new risk for banks and financial institutions, but it is most definitely on the rise.

Data from Inscribe’s 2024 Document Fraud Report reveals that 15% of respondents saw an increase in first-party fraud specifically, while nearly half (48%) saw an increase in multiple types of fraud, including first-party fraud.  

“When it comes to first-party fraud, we're not talking about the fraudsters that you would typically think of,” says Rachel. “We're talking about fraud from legitimate customers, who are manipulating their own financial details, such as the transactions, the income amounts, bank balances, or transaction descriptions, in their statements or their pay stubs to get approved for higher loans and higher credit limits, often because they're struggling financially.”

“In the last three months, we've seen a significant increase in attempts to commit first-party fraud at Ramp,” agrees Alex. “What makes first-party fraud so challenging as compared to third-party fraud is that there’s no direct way to trace the attempt back to a victim. You need to figure out the signals that are indicative of a good customer versus one that is just there to do a credit bust or other financial crime.”

#2 Reimbursement scams

Another reason why banks and financial organizations need to keep first-party fraud on the top of their watch list is because the risk is evolving.

According to Frank, new programs in the U.S. and U.K. that will reimburse people who are victims of certain types of scams are likely to lead to an uptick in fraud. 

“The concept of reimbursing victims is great for consumers and for banks too, in terms of establishing more trust between the two,” he explains. “But many banks will see a big increase in first-party fraud in the claims area this next year because of these new programs. We are about to experience a first-party fraud bonanza.”

Get more advice from Frank on combatting first-party fraud. 

#3 SMB fraud

If banks and financial institutions are struggling to detect first-party fraud on the consumer side, we have some unfortunate news: SMB fraud is also on the rise.

According to Inscribe data, 46% of fraudulent SMB loan applications included signs of first-party fraud.

“SMB loans are often riskier for banks due to the amount that's being borrowed,” says Rachel. “The stakes are much higher when it comes to detecting fraud on the SMB side.” 

According to Alex, part of the issue is the difficulty of differentiating between a legitimate business and a synthetic company created by fraudsters.

“Some of these companies are passing KYB checks, but when you dig a little bit deeper around transactional activity, when you look at bank statements, when you look at how is this business actually operating and how are they making money, things start to fall apart,” says Alex.

“There's been a huge shift from personal synthetics to business synthetics,” agrees Frank. “These fake shell companies are just exploding. We’ve identified more than 11,000 such companies that are being used to supply verification of employment for auto loans.” 

According to Alex, the reason for the shift is because, in some ways, synthetic business fraud can be easier to commit than synthetic identity fraud.

“When you're creating a fake business, the barrier to entry can be lower as compared to consumers, which would require the fraudster to build a credit profile,” says Alex. “With the incentive of PPP loans a few years ago, bad actors have figured out this is a viable avenue to exploit.” 

#4 Image fraud

Fraudsters have gotten wise to the idea that it’s harder to detect fraud in an image file, such as a JPEG or PNG, as compared to a PDF. 

In some cases, document review tools being used by banks and other financial institutions don’t even support reviews of image files, which leaves organizations to choose between having a significant gap in their screening process or refusing to accept such files, which could create friction within the onboarding process and possibly have them lose out on customers. 

Inscribe not only supports image files but is continuously improving its detectors to better detect signs of fraud and manipulations that would otherwise be undetectable to a human reviewer. 

“Image submissions make for a better, faster and ultimately simpler experience for our customers’ customers,” explains Rachel. “So one of our priorities at Inscribe is to continuously increase the capability of our image tools.” 

#5 Fraud as a service 

For risk management teams, the only thing worse than a savvy fraudster is a group of savvy fraudsters working together to take their schemes to the next level. 

The unfortunate reality is that fraudsters are not only collaborating with each other, but also assisting consumers in fraud attempts by sharing resources and information, or offering services and expertise for a price.

“We’ve seen countless examples on forums like Reddit or Telegraph where consumers ask how they can edit their bank statements and established fraudsters are replying with tips and templates, or even offering to make the alterations themselves,” says Rachel. “This effortless access to what's known as fraud as a service is leading to a substantial increase in the number of unique document templates being used during the application process, which is making it far more difficult to manage and detect this form of fraud.” 

#6 Check fraud 

Check fraud is another area where the panelists expect the risk to persist. 

“I don't see it slowing down, the reason being because there’s no silver bullet yet for stopping check fraud,” says Frank. “There's a huge secondary market on Telegram and elsewhere for stolen checks, which is driving demand on the street.” 

He points to the need for banks to implement security measures, such as text message confirmations similar to those implemented by credit card companies at the point-of-purchase, to cut down on this type of fraud. 

#7 FedNow and instant payment fraud 

When the Federal Reserve created its real-time payment service, FedNow, the idea was to enable faster and more secure payments. The reality is that fraudsters are actively exploiting this service and fraud is likely to increase in the coming year.

“Instant payments means instant fraud,” says Frank. “Because of an increase in FedNow payment limits, we’re likely to see an increase in sophisticated account takeovers, as well as elements of first-party fraud.”

#8 Voice clones, deep fakes and AI-enabled fraud 

By now we’ve all seen the incredible creative ability of AI. From voice clones to deep fake imagery, this technology is making people question what’s real and what’s not. And banks and financial institutions are no exception. 

“Voice clones, voice ransom—that's going to be a big trend this year,” predicts Frank. “Because of technology, imposter fraud schemes are on the rise.” 

Rachel agrees, adding that generative AI technology is also leading to an uptick in document fraud, as these tools make it easier for people to edit their own files or make new ones using templates.

What’s next for banks and financial institutions

The biggest threat to risk and operations teams today is the unknown—new technologies and tools, as well as organized fraud networks, are fueling new attack techniques that banks and financial institutions are finding harder to defend against. 

At the same time, there are some long-time trends and risks that are still at the heart of every scam. To stay ahead of fraudsters, banks and financial institutions need to stay informed and remain vigilant, keeping an eye on what’s old and new, the latest and the tried and true. 

What trends are you seeing – and what do you think are the biggest risks facing banks and financial institutions? Watch our latest webinar, Fraud risks to watch out for in 2024 and download our 2024 Document Fraud Report to learn more about how you can protect your organization from these risks and others.

Ready to get started? Chat with a member of our team.