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Nefe Emadamerho-Atori


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Fraud Types and Prevention Tactics for Fintech Providers

We have seen the fintech industry disrupt traditional financial services. Over the years, fintech has provided unique banking services, streamlined customers' experiences, and eliminated the friction of traditional banking.

Fintech has revolutionized the way we manage and exchange money. However, like traditional finance, fintech is vulnerable to fraudulent activities. Fraudsters take advantage of security vulnerabilities to commit scams. With the increasing adoption of digital transactions and the growth of the fintech industry, there is a need to be vigilant about the risks of fraud.

To properly combat fintech fraud, we must understand what it is, its types, and the different prevention and detection methods available. 

What is Fintech Fraud?

Fintech fraud refers to the fraudulent activities that occur in the financial technology (fintech) industry. These fraudulent activities are performed through online banking, mobile payment systems, and other digital financial services.

Fintech fraud can take many forms, like identity theft, phishing scams, fake websites and apps, fraudulent loans or investments, resulting in financial losses for individuals and businesses.

Types of Fintech Fraud

These are some fraud patterns bad actors use to run scams in fintech. 

  • Automating and generating fake accounts with bots. 
  • Stealing customer data via phishing scams to access their accounts.
  • Using identity farming to create multiple fake accounts on one or more fintech platforms.
  • Hacking customer accounts. 
  • Stealing customers' payment cards to perform transaction fraud.

The Effects of Fraud on Fintech

The constant threat of fraud on fintech requires that they stay vigilant and deploy robust preventative strategies to stay safe. However, sometimes, fraudsters slip through the cracks and successfully run scams. Here are some cases that show how fraud has negatively affected fintech businesses and their customers.


While this is not a fraud case, Robinhood banned the transfer of funds from several neobanks, moderate-size banks, and large-scale banks. They enforced this ban to cut off access from financial institutions where high levels of fraud occur.

According to a Forbes spokesperson, "It is a standard practice to prevent transfers from institutions that are sources of sustained levels of fraudulent activity, whether digital or traditional banks. When Robinhood and other financial institutions take the step to prevent transfers from a particular routing number, it's because the fraud problem originates at that institution."


As part of its marketing activities, Cowrywise ran a referral program that involved giving qualified users a ₦1000 bonus when they successfully referred someone. 

However, Cowrywise stopped giving monetary rewards because it attracted fraudsters to its platform.

Hearing about the campaign, bad actors signed up and used the opportunity to commit referral fraud. In some cases, users created up to 10 accounts and referred themselves. Cowrywise eventually plugged the leak by removing the monetary incentive. 


PayPal's total customer base in 2022 was 435 million. Beyond offering excellent services, the payment processor used customer-acquisition tactics like cash rewards to grow its user base. Naturally, fraudsters created multiple accounts to take advantage of the campaign.   

PayPal identified 4.5 million fraudulent accounts that bad actors had created, and this fraud issue, among others, led to a loss of profits.

Ways to Prevent and Detect Fintech Fraud

  • Integrate KYC and Identity Verification Into Onboarding

The importance of verifying customers as you onboard them cannot be overemphasised. Not only is this important for AML regulatory compliance, but it is also an important security measure. 

Deploying digital identity verification methods like biometrics and document verification is a great way to balance customer onboarding and digital security. This way, you can securely onboard customers while also providing a seamless onboarding experience void of friction.

  • Customer Education

A chain is only as strong as its weakest link. In the same vein, 

The internet is filled with stories of how customers unknowingly gave fraudsters access to their accounts, losing their money in the process. Fraudsters always prey on the ignorance of their targets to perform fraud, and customer education is the quickest way to address this security loophole.  

Educating customers on the different fraud patterns that exist helps them become more proactive and vigilant about protecting their personal information and the security of their accounts.

  • Security audits 

Conducting regular security audits helps ensure that your system and processes are secure and up-to-date with the latest security measures. Security audits often involve reviewing risk management activities and strategies and identifying potential cybersecurity threats. It can also include checking for and ensuring compliance with the latest regulations in the financial service industry. 

  • Transaction Monitoring

Transaction monitoring provides insights into the actions and transactions customers perform on your platform. It uses machine learning algorithms to track customer behaviour and predict fraud before it happens.

Transaction monitoring systems also give you flexibility and control by allowing you to define custom rules and alerts based on your unique use case and customer risk profiles.

  • Liveness Checks

Liveness checks are an extra layer of security that makes it more difficult for fraudsters to get access to your platform. While fraudsters can bypass identity verification methods like document, address and government ID verification, liveness checks work with AI-powered facial recognition technology, making them more secure and harder to circumvent. 

You can combine liveness checks with other identity verification methods to increase the overall security of your fintech app. 

Stay Ahead of Fintech Fraud With Dojah

Working with the right onboarding and identity verification provider is a crucial step in preventing fintech fraud. Dojah's onboarding and anti-fraud solutions are the tools to avoid fintech fraud.

By leveraging our APIs, widgets, or no-code tools, you can automate your onboarding process, reduce fraud and achieve regulatory compliance by delivering a complete suite of identity verification and fraud prevention solutions.

Start verifying your users with ease todayContact us if you have any questions or schedule a demo session.

Explore our website and documentation to learn more about our product offerings.

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