2023 Guide to Digital Banking Fraud Detection & Prevention


About ten years ago, a new generation of banks entirely transitioned to digital operations. Soon Digital Banking was the norm, with Neobanks, which are banks that only do business online and have no physical locations, catering to specific consumers’ demands by providing more convenience and reduced transaction costs.

However, for these newer, online-first institutions, digital banking fraud can be particularly difficult. Digital banks may be more susceptible to fraud since they are more recent to the banking industry and lack a physical presence.

This article examines the reasons why an increase in internet banking has coincided with an increase in financial fraud. We’ll discuss some of the major fraud problems neobanks face with fraud.

What is Digital Banking Fraud Detection?

A collection of methods and procedures are used to detect digital banking fraud in order to lower risk. Due to their easy access to cash and their capacity to transfer it, financial institutions are among the businesses that fraudsters target the most.

To safeguard their resources, systems, and clients, banks and fintech companies invest in strong digital banking fraud detection and prevention technologies.

Although technically speaking digital banking fraud detection and prevention are different since they focus on different aspects of stopping fraud, in practice these two concepts are quite similar because both tactics work together.

With a rise in digital banks, a rise in digital banking fraud

Neobanks, also known as challenger banks, are entirely digital, in contrast to typical banks that provide online banking through an app or web interface in addition to services at a physical storefront. Since they often don’t have a physical location, everything—from onboarding to transactions—takes place online. Their clients may benefit from quicker and more convenient service as a result, as well as low- or no-cost options.

Neobanks’ relatively high level of consumer convenience has fueled their appeal. However, innovation also entails higher danger. Fraudsters are skilled at making money off of anything novel, and digital banking is no different.


Digital banking fraud

Numerous new and altered sorts of banking fraud have been made possible by digital revolution, both in banking and elsewhere. New technology is an obvious target for fraudsters, who are always on the lookout for new flaws.

Fraudsters have benefited from the quick transition to digital banking, which has been made possible by both traditional banks and the rise of neobanks. With digital banking, there are an increasing number of transactions that happen quickly. The fact that banking fraudhas also evolved into a profession and an industry complicates the matter. The digtial banking fraud episodes that cause the greatest damages typically come from organised criminal organisations that seem like legitimate firms.

Without the appropriate tools, analysts and investigators risk developing blind spots that lead to expensive incidences of fraud.

New financial methods provide criminals with more options.

Which main aspects of Digital banking is most vulnerable to fraud?

We can classify the three primary types of digital banking fraud issues as follows:

Customer Onboarding

Digital onboarding is a dangerous component of acquiring new clients for banks due to rules like KYC (know your customer) and AML (anti money laundering). These conditions must be met by users in order to verify their identities and guarantee they won’t conduct financial crimes.

In order to circumvent the system and create bank accounts, fraudsters utilise phoney or synthetic IDs. The cost of verifying IDs will reach $35.2 billion in 2020. Neobanks and challenger banks, which must quickly and frictionlessly gain new clients, find it particularly challenging.

Credit Card Fraud Prevention

When a suspicious transaction or withdrawal occurs, issuing banks should be informed. They only have access to a small number of data points, such as the currency, quantity, category, and merchant name, making it challenging to detect trends.

They may produce significant rates of false positives if they attempt to reject fraudulent payments based on these criteria, which is annoying for responsible cardholders. Additionally, there are regulatory requirements like Strong Customer Authentication (SCA) and confirming the legitimacy of the source of cash.

Account Protection

Account takeovers (ATOs) occur when fraudsters get a genuine user’s login information. They treat the account as if it were their own, which has catastrophic repercussions for banks’ client relationships and makes it possible for several other forms of digtial banking fraud and criminality.

Banks must thus take all reasonable precautions to safeguard the accounts of their customers.

Of course, the larger issue is that digital banking fraud is adaptable. That is to say, when their operations are stopped, fraudsters will soon realize and switch to a different strategy. As a result, products like AML screening APIs and KYC APIs need to be both flexible and effective.


Risks of digital banking fraud

There are several methods for thieves to access digital banking systems and commit crimes, frequently because banking consumers lack security knowledge and write down passwords or are easily fooled into sharing them.

It’s commonly known that so-called phishing scams exploit links in emails to take victims to fictitious online banking web pages. Police discovered a phishing scheme that targeted individuals in 14 different countries and featured 2,600 bogus web sites in June 2013, and three guys were sentenced to a combined 20 years in prison in the UK as a result. After their arrest, the Central e-Crime Unit of the Metropolitan Police discovered servers with information on 30,000 bank clients, 12,500 of whom were in the UK, and 70 million customer email addresses. At the men’s trial, they presented evidence demonstrating how their arrest stopped the theft of up to £59 million from only UK bank clients.

Although fraudsters are increasingly using a wider variety of channels to acquire sensitive information, phone-based thefts, in which perpetrators pretend to be bank employees, remain common.

In order to impersonate their victims, fraudsters now frequently use “social engineering” techniques in their phishing-type scams. They gather information from their victims’ social media profiles, call them pretending to be officials in order to verify their personal information and even intercept their mail. Lists of potential passwords that may be used in efforts to break into their online accounts could be created using the information obtained. However, it may also be used to apply for financial goods fraudulently and steal the victim’s identity. According to Cifas, the UK’s digital banking fraud prevention department, a record 173,000 identity frauds were detected in the country in 2016 and 90% of fraudulent bank account and other financial product applications were submitted online.

What are the key problems for digital banks in terms of fraud detection?

Digital-first banks are brand-new to the financial services industry and do business with unique, cutting-edge methods. They thus confront certain special digital banking fraud challenges. Let’s explore a few specific difficulties that digital banks can experience:

Lack of historical data

Digital banks are newer. The majority of them only become prominent in the past ten years. This indicates that they lack the historical data, such as that on digital banking fraud and consumer behaviour, that traditional banks have. A financial institution can typically identify questionable conduct more precisely the more information it has. In comparison to the biggest banks, which have been in business for a long time and have amassed a wealth of historical data, neobanks have comparatively less information about typical customer spending patterns and fraud tendencies. Fraud in Digital Banks (Neobanks) may not be as visible without the same type of data.

New banking products, new fraud threats

According to digital banking fraud experts, fraudsters prefer to target new items or those with innovative features. New digital banking fraud prevention strategies will be used for new goods, some of which might not be as well-established as those for more established ones. Fraudsters are aware that these new measures might not be very effective.

Different KYC processes

KYC procedures at digital banks are constrained by the absence of face-to-face encounters. A neobank may not be able to perform customer identity verification the same way a conventional financial institution can without a physical location. Typically, a driver’s licence, passport, or another kind of official identity document would be required when opening an account with a traditional bank. This could not always be the case with neobanks in order to speed up the registration procedure. This might pave the way for synthetic identity fraud and other digital banking fraud schemes during digital customer onboarding.


Digital banks scale quickly

Neobanks, like more recent financial entities, are under pressure to expand swiftly. Rapid development can put pressure on the labour and resources available to combat fraud and weaken the defenses. 

How can technology solutions help digital banks with fraud prevention?

A technology-based approach is the only workable solution if banks are to succeed in preserving their brand name and consumer trust in an age where criminal gangs are using increasingly sophisticated technological tools to carry out more complicated frauds. Eight crucial advantages provided by cutting-edge anti-fraud technology help banks fight fraud.


Technology automates anti-fraud systems, enabling it to identify potential digital banking fraud cases as they occur. Due to workers being informed and able to review and confirm suspicious transactions before they are cleared, suspicious transactions may now be prevented as they move through the bank’s systems. Because they can’t be applied in real-time, controls intended to stop fraud committed through non-digital channels are ineffective against fraud committed during digital banking transactions.


Using technology instead of a human-based method enables the bank to keep track of every transaction occurring in its system. Technology is the only scalable means of adjusting to the rising numbers of digital banking transactions.

Risk sensitivity

Even loyal consumers occasionally engage in transactions that deviate from their usual course of conduct. With the use of sophisticated digtial banking fraud detection technologies, the bank is able to assess the risk of each transaction using a variety of factors, avoiding blocking legitimate transactions and spotting those that appear to be real but have questionable features.

Focus on the individual customer

The capacity of the criminal to pose as the account holder using stolen identity data and persuade the bank’s security checks that the transactions are legitimate relies on the particular customer: digital banking fraud. Banks must be able to recognise when a fraudster is utilising real identification information to conduct fraudulent transactions in order to successfully tackle this danger.

360-degree monitoring

Digtial banking fraud poses a constant danger to institutions. Up to 45% of all digtial banking fraud instances are believed to include collusion between criminal organisations and bank employees. Through the use of a single system and dashboard, technology-based monitoring allows banks to keep an eye on both their clients and their own employees, strengthening their defences against more sophisticated frauds involving both internal and external actors.


Expert workers must be used wisely since they are a costly and limited resource. Banks are better able to utilise the time and talents of their workers by concentrating them on the investigation and verification of questionable cases that have been detected by the anti-fraud system when employing modern technological solutions as their first line of defence.


Regulators want extensive records to show that banks have adequate anti-fraud procedures in place and can show that they are fully examining incidents. Automated solutions for detecting digtial banking fraud create thorough audit trails and make it easier to maintain accurate records, aiding the bank in meeting regulatory obligations.

Ability to learn

Machine learning-based new technologies allow anti-fraud systems to develop intelligence. This aids in spotting new dangers before they cause losses and in foreseeing new fraud.

So that every transaction makes sense when compared to each customer’s profile, banks need to be aware of their established patterns of behaviour. The only reliable way to track transactions and spot irregularities in this way is through technology.

What are the best procedures for fraud detection and mitigation in digital banks?

Neobanks may take steps to reduce the possibility of digital banking fraud, as well as implement tools and procedures that will help them more effectively identify and look into questionable conduct when it does occur on their digital banking platform.

Adopt the right anti-fraud tools

Having the correct tech stack to detect and look into suspicious activities may make all the difference when resources are few. Traditional, more well-established methods might not be the best option for neobanks. They can be pricey or fall short of their particular requirements. Instead, more recent technology, such as network analysis tools, AI, and machine learning, when combined, may provide online banks with both the cost and flexibility they need to combat continuously changing digital banking fraud risks.

With a graph database and a system like Linkurious Enterprise, analysts can access all of their data in one location with flexibility and scalability. It is designed to analyse and display complicated networks, making it simple to recognise and look into fraud situations.

Use open data

Open-source data may be a valuable resource for a digital bank in the absence of the historical data that traditional financial institutions rely on. To assist analysts to spot fraudulent behaviour, tools like social media or sanctions lists, like Open Sanctions, can offer further layers of data.

Automate detection with machine learning models and alerts

Neobanks can automate detection using machine learning models and warnings. Machine learning may be able to operate automatically in some circumstances, reducing the requirement for human assessment of specific instances. Using an identity verification system with alerts can also help banks stay ahead of the scam early during account creation. It’s preferable to prevent fraud than to just identify questionable transactions when they occur.


Digital Banking Fraud Patterns & Trends in 2023

There are a number of digital banking fraud trends to be on the lookout for in 2023 and beyond, and oddly, some of them depend on criminals cooperating.

Enhanced social engineering

Fraudsters are getting even more proficient at social engineering assaults, including spear-phishing like CEO fraud, thanks to technology as well as their propensity to pool their resources and collaborate. Keep in mind that there is an offline application for this.


Because so many criminals are now available for hire on the dark web, the entrance hurdle for them is lower than before. Online scammers provide instructions, walkthroughs, access to their specialized tools, and their services.

Biometrics fraud

Regrettably, biometric verification without AI intelligence is less reliable than people think—or, more precisely, is considerably simpler to fake. With the help of AI on the other hand, more robust selfie verification systems can be trained and deployed.

Synthetic IDs

Wise fraudsters will blend stolen data with made-up data or deep fakes to produce these. Customer onboarding for neobanks, BNPL, microlenders, and more calls for increased caution as the latter becomes more and more plausible.

All of the aforementioned factors are on the rise, making it more challenging for both challenger and legacy banks to remain secure while maintaining a smooth and pleasant client onboarding process.

The objective is to employ powerful, scalable risk technology while yet providing a seamless consumer experience. IDcentral provides a comprehensive set of modular APIs, allowing you to select only the APIs you need to integrate into your tech stack for improved client onboarding and flexible digital verification.

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