Financial fraud in digital transactions: The growing threat

4 min read

Financial fraud in digital transactions

Financial fraud in digital transactions is a growing concern as technology advances, and more and more people embrace digital transactions.

In FY 2022, the Reserve Bank of India (RBI) reported a total of around 9,103 bank fraud cases across India. This was an increase compared to the previous year and turned around the trend of the last decade.

As financial institutions have started providing online services through multiple channels, technological advancements have also made it easier for fraudsters to access the same tools. Thereby making the tracking and prevention of financial fraud in digital transactions increasingly challenging.

Let’s explore the common types of financial fraud.

Types of Financial Fraud in digital transactions

Financial fraud in digital transactions

Falsifying Documents

Fraud that occurs when a borrower tries to deceive lenders by presenting fabricated information to gain approval for the loan.

Identity Theft involves the borrower using someone else’s identity to obtain a loan. Without proper KYC processes, like verifying PAN, Voter ID, Aadhar, and phone number, the fraudster can easily escape with the loan funds.

The only victim in creating a Fake Bank Account is the lending institution. The borrower creates a completely false identity and uses it to establish a fake bank account to secure the loan.

Fake Information involves providing false information about one’s income or assets. Some fraudsters may also include fake personal references or employers, often with the help of a co-conspirator.

Mortgage Fraud involves providing false information on a mortgage application to obtain a loan. It can be done by overstating income, or by understating liabilities or the value of the property being mortgaged.

The aim is to obtain a larger loan than borrower eligibility or a property loan less than the property worth.


Phishing is a type of fraud where scammers posing as trusted entities use emails, websites, or phone calls to obtain sensitive information from victims.

So, thoroughly verify the authenticity of any documentation provided to you or presented with seemingly too-good-to-be-true loan offers.

Card Skimming:

Card skimming involves criminals capturing the information from the magnetic strip of an ATM or debit card. The information can include the cardholder’s name, card number, and expiration date.

A small device attached to an ATM or point-of-sale (POS) terminal, reads the information and transfers it to the fraudster. The fraudster then uses the information to make unauthorized purchases or withdrawals.

Fake account statements:

Document forgery, is a tactic to deceive financial institutions and gain illicit financial advantages like tax breaks or loan approvals.

To safeguard against this type of fraud, it is imperative to consistently review account statements. If there are any discrepancies, immediately report the suspicious activity to relevant financial institutions.

Not only do the victims of financial fraud in digital transactions incur losses, but the reputation of the financial institution involved in the fraudulent transaction is also negatively impacted.

Additionally, financial regulators may impose significant penalties on banks and NBFCs for any fraud committed on their platforms under the Banking Regulation Act, 1949.

Emerging trends of financial fraud in digital transactions

Financial fraud in digital transactions

Synthetic ID fraud:

As fraudsters become more sophisticated, the use of synthetic IDs created from stolen personal information and fabricated details have become a prevalent method for bypassing know-your-customer (KYC) checks during loan applications.

Wire Transfer Fraud:

Wire transfer fraud involves criminals posing as a trusted organization and requesting to transfer funds to a specific account. To prevent this, verifying the legitimacy of fund transfer requests when sending money to unfamiliar accounts is crucial.

Unauthorized transactions:

The proliferation of e-commerce has led to an increase in instances of credit and debit card fraud, where unauthorized transactions are made using stolen card information.

To safeguard against this type of financial fraud in digital transactions, individuals should take measures to ensure the security of their personal information and regularly review their financial statements for any suspicious activity.

A National Cyber Crime Reporting Portal has been launched by the Ministry of Home Affairs. This allows the public to report incidents about all types of cybercrime.

Mitigating the risk of financial fraud in digital transactions

Financial fraud in digital transactions

Automated Bank Statement Analyzers

Onboarding new customers is a crucial step in any financial institution’s operations. During KYC banks and NBFCs can prevent fraudsters from exploiting their platform by thoroughly screening potential borrowers.

Analysis of bank statements provides valuable insight into a customer’s financial behavior. This can be used to assess their income and spending patterns.

An automated BSA can quickly and efficiently scan bank statements to identify several key parameters. This includes cheque returns, penalties, frequent cash deposits and withdrawals, and so on.

Digital Footprint data:

Digital footprint data includes information about an individual’s online activity, such as search history, social media activity, and online purchases. Unlike an ID, a digital footprint can’t be stolen or falsified.

By analyzing this data, financial institutions can better understand a potential customer’s behavior and financial habits, which can be useful in identifying and preventing financial fraud in digital transactions. This proactive approach to analyzing customer data plays a vital role in enhancing the security measures implemented by financial institutions.

It is crucial that digital footprint data should be used in conjunction with other forms of customer screening and not as a standalone method.

Multi-factor authentication and biometrics:

Multi-factor authentication involves using multiple forms of authentication to verify the identity of a user.

This can include a combination of a password, a security code sent to a registered mobile number. This added layer of security makes it harder for fraudsters to gain access to a user’s account and commit fraud.

Biometric authentication uses unique physical characteristics such as fingerprints, facial recognition, or voice recognition to verify the identity. It is difficult to forge and provides an additional level of security beyond traditional methods like passwords.

One Time Passwords (OTP) are used in most payment systems for transactions to prevent fraudulent activities. But it is not always fraud-proof. If the mobile phone is stolen, it is easy to complete the transaction.

With digital wallets, there is no need to expose one’s credit and debit cards to anybody. Digital payment systems can also use advanced biometrics that cannot be forged to authorize the transactions.

Toolyt masks Aadhaar and phone number as a defence against identity theft; freezes the key data fields once the customer information is entered. It also has integrations to validate the bank accounts.

This provides an additional layer of security and helps to prevent sensitive information from falling into the wrong hands, avoid changing the information for loan applications, and validate bank accounts.


With a steady flow of stolen information available to criminals, there is a constant risk of IDs being used for fraudulent purposes.

To stay ahead of evolving fraud methods, digital customer onboarding processes must evolve and improve. Companies must implement stricter verification measures such as multi-factor authentication and using secure sources for identity verification.

Using a CRM that has multiple integrations can help minimize the risk of financial fraud in digital transactions by giving a comprehensive view of the customer’s financial activity and detecting any suspicious behavior that could indicate fraud.