Looking for Online Fraud Prevention: Here Is What You Can Do

Looking for Online Fraud Prevention: Here Is What You Can Do

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In an increasingly digital world, it is extremely important for online businesses to identify fraudulent activities happening in their system. In an online marketplace, a large number of transactions take place every second. Among those, 67% of fraudulent transactions remain undetected which results in heavy loss. According to the end 2018 record, online fraud has reached a loss of $6.4 billion. Fraudsters are always in search of the vulnerabilities in the system, they exploit the entry points and perform malicious activities. Online businesses if on the side focus on the better user experience in customer onboarding, on the other hand, they lack the security measures need for Online Fraud Prevention. It is a crucial need for banks, financial institutions, and online marketplace to reduce the risks of online payment scams and introduce high-level security in their system.
xOnline frauds are of different types. The purpose and intention behind each fraud could be the same only the way is different. Some common types are:
Identity Theft: Cybercriminals attack the system to get the personal information of the people and use them maliciously be assuming it to be someone else’ identity.
Credit Card Fraud: Fraudsters make a purchase into the weak website, enter all the essential information and fool the system using the credit card they have stolen.
Email Phishing Fraud: The fraudster sends an email to the victim (could be a bank employee) which appears to be an official email from some financial authority. This email contains the link which redirects the other person onto a login page of the bank appearing to be exactly the same as their official website. Once the employee enters all login credentials, the scammer gets all the personal information and uses the account for malicious activities.

Industries Affected by Online Fraud

63% of industries have experienced fraudulent online losses. With industrial digital transformation in both front-end and back-end operations, there is a need to take high-security measures against online fraud prevention. 75% of online businesses want a secure online system. For this to achieve, online businesses require solutions that enable trust within and out of the organization. Some of the major industries who faced online fraud are:

Online Retail Industry

In 2019, e-commerce sales are expected to account for 13.7% of retail sales worldwide. E-commerce sales are estimated to be increased by more than 240% which is $4.48 trillion by 2021. If on one side, this massive amount shows the demand for e-commerce on the other side, there is a record of 6% online frauds in the retail industry. The transactions happening in bulk are the great opportunities for the fraudsters to enter into the system. In the retail industry, the highest fraud is inventory fraud and due to a fake credit card. It is necessary for the online retail industry to secure its system in order to prevent online fraud.

Gambling Industry

Today, the gambling industry is generating a huge revenue which was $44 billion in 2016 and is expected to be $81 billion by 2022. The gambling industry is a very tempting platform for money launderers and cybercriminals. A recent report shows an $82 billion loss in the gambling industry due to Card Not Present (CNP) attacks. Also, 3.5% of all online payments that take place are fraudulent. The gambling industry needs to implement AML and KYC based checks back in their system to prevent cyberattacks and money laundering activities.

Healthcare Industry

The healthcare industry holds sensitive information regarding patients and hospitals. This information needs to be stored in a secured database in order to prevent data loss due to Online Fraud Prevention. In 2018, a report shows a $2 billion loss due to online fraudulent activities. This loss merely is not only associated o the bill healthcare industry paid but also the lives of several people were affected. The data of patients which includes insurance details, medical history, and personal information is stolen. Fraudsters use it to do money laundering, track their insurance details and blackmail them. For the healthcare industry, it is important to secure their data with significant security measures in order to prevent their system and patients from the heavy risks.

Online Fraud Protection

Online businesses should adopt serious security measures to mitigate the risks of online fraud. For this, identity verification and authentication are compulsory. Each identity entering into the system should be verified under certain AML and KYC regulatory compliances. The banking industry and financial institutions can prevent their system from cyberattacks using KYC compliance. This will reduce the risks of credit card fraud and online payment scams. Biometric verification (fingerprints, iris scanning, facial recognition, etc.) can help in customer verification. There are multiple other ways to verify and authenticate users. Below is a chart that shows the percentage of verification methods adopted by multiple online industries:
Online Fraud detection and prevention methods businesses

Regulation Governing online Fraud Prevention


General Data Protection Regulation (GDPR) is the EU’s most vital regulation for privacy protection. GDPR presents certain rules regarding how the data of people should be gathered, used, manage and protect. For any online business that holds any sensitive information are obligated towards the regulations defined in GDPR.


BaFin is the financial regulatory authority for Germany. On the basis of European supervisory standards, BaFin takes risk-oriented security approaches that are appropriate for industries and online businesses. It ensures reliability in the financial market and introduce policies accordingly.


PSD2 in the EU forms regulations that support forms of payment institutions, introduce interaction methods and facilitate open banking. Under these regulations, online businesses map their systems and provide their customers with several services.


EU’s regulation that defines policies for trust services and electronic verification of customers. These services help in the identification and verification of individuals online and through electronic documents. Banks and financial institutions can implement ceratin functionalities based on the regulation of eIDAS in order to prevent online payment fraud.


For any online business, along with better user experience, the implementation of security measures is equally important. The cost businesses pay with vulnerable systems not only affect the economy but also result in inevitable damage to business reputation. Adoption of secure technological solutions can lessen the risks of heavy fines and business fall. Also, this helps to fulfill the previous loss by encountering them in the future.

Fintech Compliance – Boogeyman for Trillion Dollar Industry?

Fintech Compliance – Boogeyman for Trillion Dollar Industry?

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Fintech industry is flexing its muscle by bringing onboard more and more customers and innovating their way to higher valuation and larger transaction volumes. Only in the US alone, the year 2018 saw $11.89 Billion funding go into Fintech ventures and more than $ 100 Billion was invested globally in Fintech Ventures. Right now there are 39 Fintech Unicorns in the world with a total estimated worth of $147.37 Billion. Digital payments through Fintech products surpassed $3.5 Trillion in 2018 and are expected to hit the benchmark of $6.6 Trillion in the next 5 years. Fintech companies have ventured into diverse business categories and financial services such as mobile payments, crowdfunding, P2P lending, online transaction platforms, and some Fintech are now even developing products for asset management as well. But this innovative brother of the conventional financial industry has had his own share of problems, with Fintech Compliance being the most prominent one among the rest.

It was recently declared on a Fintech forum that by 2030, the biggest bank of the world will be a tech company, but without properly introducing a tech-friendly regulatory landscape and investing substantial resources in regulatory compliance, this seems to be a distant dream.

The Cost of Non-Compliance

Several Fintech companies have been fined millions of dollars for one reason or another because of their inability to comply with specific user-centric regulatory guidelines. Dwolla was slapped a $100,000 fine by Consumer Financial Protection Bureau (CFPB) for misrepresenting its data security practices. Ripple Labs was made to pay $700,000 by FinCen for their inability to identify their business model as Money Service Business (MSB). One Fintech company had to pay $6 million after CFPB declared that the lending practices of the platform violated the consumer protection guidelines of the regulator. There are many other instances where Fintech companies were fined substantial penalties either for their inability to adopt consumer security compliance or because of lack of satisfactory safety net for user data protection.

Why Fintech Compliance is so complicated?

The idea behind Fintech was to use the latest technology, mobile phone leading the roost in the current decade, to create a streamlined user experience when it comes to the financial services industry. Small businesses and the common users were particularly sick of brick-and-mortar branch model and aspired for a service delivery model that was swift and efficient at the same time. Enter the Fintech products that championed the cause of “lightning fast transactions” and “minimal to no paperwork” business model.

But regulators were more concerned with the relative anonymity attached with Fintech products, transactions processed through these channels and susceptibility for these innovative solutions to be exploited by criminal elements to transfer funds for illegal activities. Money laundering and terror financing were even bigger concerns that called for strict financial technology compliance. But as one can assume, this was totally against the basic working principles of Fintech.

The Fog around Fintech Compliance

The complication of Fintech compliance is aggravated by the fact that the majority of regulators overseeing the financial service industry lack the specific guidelines to govern unique and innovative business models adopted by multiple Fintech companies. With the fluid and amorphous nature of Fintech companies, the brilliant minds behind such a booming tech industry also find it hard to pin down a single regulator that single-handedly deals with the kind of services that they have to offer.

And even when there is clarity about the regulator or the specific guidelines that a Fintech has to follow, it creates friction for user-experience. For example, if a Fintech startup is operating as a digital wallet, mobile payment system or peer-to-peer funds transfer service within US, they have to comply with Bank Secrecy Act’s (BSA) and will be designated as “Money Service Business”. As a result of this, the Fintech platform will have to develop an AML Compliance solution, perform KYC for every incoming user, report transactions beyond $10,000 and even have to file suspicious activity reports and if you are thinking that is it, then you are wrong. As a Fintech based in the USA, companies can fall under the purview of OFAC, FinCEN and SEC. For Canada, there is FinTRAC, UK has its FCA and Fintech companies Down Under have to follow the guidelines from Austrac.

But the hardest cooky of all was launched last year in the European Union, by the name of General Data Protection Regulation, a.k.a. GDPR that takes data security and user privacy to a whole new level even for the companies that are not based in EU but want to serve the clients based in its jurisdiction.

Recommended For You: 3 Reasons why RegTech is the Future of Innovation?

The Economics of Fintech Compliance

The cost of having a KYC utility or implementing an AML compliance solution can be really tricky for Fintech businesses. Not to forget the importance of a GDPR checklist for businesses to ensure that no provision of this EU data privacy law is left out in their business or service delivery practices. Now for conventional financial services companies such as banks or insurance industry, it is easy to bear the cost of compliance related expenses because of their large coffers of revenue, but for Fintech companies that are in their nascent stage of existence, it is important to scale the operations and balance their budgets accordingly. Fintech startups, like all other startups, are already limited in terms of resources and such huge regulatory fines can cripple the backbone of such early stage startups.

Another economic factor linked with Fintech compliance is that whenever a company, especially in their pre-valuation days, is fined by a regulator for non-compliance, it attracts a lot of bad press that is going to hit any future prospects of VC funding or pledge of investment from even a private equity as well.


It is not hard to guess that the future of the global financial system is dependent on Fintech products and even sovereign states and economic powers such as Germany has publicly admitted this fact in the recent G20 summit. But complying with regulatory guidelines will be crucial to sustaining the growth and trust in these products.

Regtech seems to be the right solution to counter the needs and demands of the Financial industry in general and Fintech companies in particular. There are several third-party service providers that are offering KYC services, AML compliance, and other tech products to comply with official guidelines of regulators. With a common technical background and hunger to disrupt conventional service delivery models, Fintech and Regtech can change the future of personal as well as institutional finance forever.

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Fintech Compliance