5 Common Types of Digital Fraud and How to Stop Them
Digital fraudsters cost online businesses billions of dollars every year. In 2020, payment fraud alone cost companies $32.39 billion in 2020 — and it’s estimated that this will rise to more than $40 billion in the next five years.
Online fraud is becoming more common, but there are ways to combat it. See how you can stop the most common types of digital fraud from damaging your business.
What types of online fraud are there?
The main types of digital fraud impacting online retailers and customers are:
- Account takeover
- Fraudulent payments
- Identity theft
- Phishing
- Ransomware attacks.
Each fraud scheme impacts businesses in a different way — so how can you prevent each type of fraud?
- Account takeover
22% of US adults have been victims of account takeover, making this one of the most prolific types of fraud. With more activity taking place online, more people than ever are vulnerable to online account takeover attacks.
How it works
Account takeover usually occurs following a credential stuffing attack. Credential stuffing bots verify account login credentials, allowing attackers to access unauthorized accounts.
Account takeover often affects financial services such as banks, investment firms, and credit card companies. But any company with account creation functionality is at risk, with loyalty and reward schemes often targeted.
How to stop it
Using complex, unique passwords can prevent attackers guessing passwords through dictionary attacks. Multi-factor authentication also alerts customers to unauthorized login attempts, which they can then report to the service provider. However, as threats become more difficult to detect, you need to use credential stuffing mitigation techniques to prevent account takeover.
- Fraudulent payments
Financial fraud is one of the biggest sources of anxiety for online customers. In 2020, customers lost almost $3.3 billion to fraudulent payments — a rise of more than 50% year-on-year. So protecting customers’ and businesses’ finances is essential.
How it works
Bank account takeover often leads to financial theft, but there are other ways for cybercriminals to steal money online, too. Card cracking is one of the most common types of financial fraud. Card cracking involves using a network of robot computers to test and verify credit or debit card details at scale. Fraudsters can then sell or use this information to make or steal money.
How to stop it
The only way to prevent card cracking is to ensure your payment gateways can’t be accessed or used by bots. Prevent bot traffic from making payments on your site by ensuring your firewall is updated, or deploy a bot management system to protect against even more online threats.
- Identity theft
When third parties get hold of personal data, they can use it to commit identity theft. This often leads to financial loss, credit card or insurance fraud, and credit score damage, which may prevent people from getting a mortgage or buying a car.
How it works
Account takeover and card cracking give attackers access to lots of personal data. By aggregating this data, attackers can create a profile of a customer and steal their identity. Fake account creation is another type of identity theft that often affects businesses and individuals on social media.
How to stop it
You can prevent identity theft by blocking the bots that steal personal data and automate fake account creation. Many companies use CAPTCHA or a dedicated bot management system to block malicious bots like these.
- Phishing, spoofing, and whaling
Email and SMS scams are one of the biggest causes of fraud. Phishing, spoofing, and whaling scams trick people into revealing credentials, bank details, or other personal information to attackers.
How it works
Most phishing scams are received via email. Fraudsters attempt to make email recipients reveal sensitive information either by clicking a link to install keylogging malware, asking people to input data into an unsecured web page, or simply responding to the email with the requested information.
How to stop it
Anti-spam filters minimize the risk of suspicious emails that may contain phishing links. Blocking email scraping bots also prevents attackers from collecting staff email addresses from your website.
- Ransomware attacks
Ransomware is a huge threat to businesses, especially since the introduction of privacy regulations like GDPR and CCPA. These laws enable governments to impose significant fines on businesses that allow data theft from their websites or apps.
How it works
Attackers use malicious bots to steal data from businesses. They then hold companies to ransom over the stolen data, demanding huge sums of money for returning the data and not notifying the authorities of the data breach.
How to stop it
The best way to prevent a ransomware attack is to prevent data theft. Ensure all sensitive data is encrypted, so it can’t be read, used, or sold, even if it’s stolen. You should also use a best-of-breed anti-bot solution to prevent automated data theft.
What’s the best way to protect your business from digital fraud?
Almost all modern types of digital fraud are performed by bots. Bots allow attackers to perform large-scale automated fraud on your site — and reducing bot attacks is a big challenge.
But protecting your site from bad bot traffic is the best method of online fraud prevention. See how to choose the best bot detection software for your business.
