written by | March 2, 2022

How to detect fraud activities in fintech?

The fintech industry has progressed tremendously over the years. The usage of technology to minimise difficulties in various day to day business related activities, as well as emerging technologies challenging old business models, has created a new industry called 'Fintech,’ which is a combination of finance and technology. The fintech industry has seen remarkable growth in India and around the world in recent years. This is not just relative to the number of companies that are involved in money lending. The usage of machine learning technology has enabled a variety of digital transactions all around India. This has resulted in an incredible rise in firms specialising in online financial transactions, as well as consistent rise in online fraud, which is a trouble for every business or user who performs online transactions. As the industry moved forward, internet fraudsters improved their techniques for committing fraud and deceiving businesses, resulting in huge monetary loss. Phishing or spoofing, account fraud, identity fraud, and transaction fraud are the most typical types of online frauds currently popular in India.

Did you know? India is placed first with 25.5 billion real-time payment transactions conducted in one year, according to research by ACI Worldwide, which records and analyses real-time payments across 48 worldwide markets.

What is Financial Fraud Detection?

Many businesses, such as banking & financial services, government organisations, insurance, and healthcare industry are affected by fraudulent activities. Therefore, fraud detection in the fintech industry is very important. First of all, let’s understand what exactly is fraud detection and prevention in this industry. It is a method used for detecting and stopping suspicious activity to protect the business from getting monetary losses. The old way of identifying fraud before computers and software technologies became smart was to examine a large amount of organised financial records. Fraud detection is hard and time-consuming since fraud usually comprises multiple occurrences involving continuous breaches of the company's finances.

Also read: How To Generate Form 16 A For Payments Other Than Salary

Although the mode and structure of fraud activities are often similar, they are rarely alike, which is why organised financial records created so many false results. The old approach to fraud detection may find clear examples of fraud, but it takes a long time to understand and requires a lot of human effort to identify solutions for protecting against it.

Why is Financial Fraud Detection important?

As the amount of electronic transactions continues to rise, Fraud detection and prevention using traditional approaches becomes increasingly difficult. Users are unable to defend themselves against fraud, as it grows more complex and technologically advanced, and building solutions for traditional approaches is also time-consuming work. The amount of information in every business is increasing at a rapid rate, which makes spotting fraud for fintech-related ventures more difficult. Machine learning systems will aid in quickly detecting hidden fraudulent activities.

Types of online fraud in India

Bank Account related Frauds

When fraudsters get unauthorised access to a person's bank account, they take advantage of the chance to empty their account balance. Victims are unaware that their personal information has been stolen until they are informed of the loss of money. Another type of account fraud happens when clients with good credit decide to commit fraud by taking out a big amount of loan from a bank and then running away after getting the amount. This type is particularly difficult to detect since determining the intentions of the individual seeking a loan is difficult. This situation is most common when the society is experiencing difficulties, such as job loss.

Transaction Frauds

In the financial year 2020/2021, about 1.4 lakh incidents of transaction frauds were recorded, resulting in a loss of around 600 million rupees. This is due to leaked card transactions and net-banking credentials. When scammers use stolen credentials to make a bigger transaction, the amount of time it takes for the bank to identify the trustworthiness of a user is very short. After the victim reports a loss of money in their account, the fraud is discovered, and the bank pays the victim, but the scammer typically escapes unnoticed.

Synthetic Identity Fraud

The most common type of fraud present in the fintech industry is Synthetic Identity Fraud, which involves criminals impersonating personal information. Fraudsters easily obtain personal information such as contact numbers, addresses, ID proofs, and images from social media sites.

There's also something known as the deep web, which is the portion of the internet that is hidden behind password protection, making it inaccessible to ordinary search engines such as Google and Bing.

It is simple to generate and remove user identity in deep web. The fintech business as a whole operates in a fast-paced atmosphere, which offers lenders little time to analyse their customers' applications, making fraudsters' job simpler.

Spoofing or Phishing

This is the recent trend and it is one of the most common social media frauds in India, in which targets are contacted through email, call, or text message, acting as a genuine person. They make the user to reveal sensitive data or getting access to their organisation's computer network. The data obtained in a computer of the user is then utilised to acquire all kinds of information such as social media account details, website credentials, account numbers, and other important things to cause financial loss to the company.

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Another method is to imitate famous software/links, which, if downloaded, will take all of your data in a fraction of a second. PayPal, for example, is one of the most common fake brands used in phishing attempts. Spammers include a link in their spam emails that takes users to a fake PayPal website or app. In the email, scammers attempt to induce fear by informing about fake suspicious behaviour in the victim's account and urging them to safeguard it by following the instructions provided in the message. Users who provide sensitive information such as their bank account number, complete name, address, and other personal information are vulnerable to identity theft and have their bank accounts wiped of funds.

Fraud detection and prevention in the Lending Industry

  • Fraud detection and prevention is a constant process. Machine learning (ML) and artificial intelligence (AI) are useful in fraud detection and prevention in the fintech industry
  • Multiple transaction-related activities, such as income, location, job history, education, and digital identities (contact information and email id), must be thoroughly checked before proceeding with the application form. Fraudsters develop innovative methods to get through the checks that are in place. Hence, people in the lending industry must update themselves regularly.
  • To keep ahead of the competition, each organisation must improve its identification methods by educating their employees on upcoming techniques. 
  • Small and medium-sized businesses can also use a collaborative method, in which fraudulent clients' profiles and financial data are contributed to a shared central database for the larger benefit of both companies. 
  • Depending on a company's transparency, this collaborative method can be extended to other functions. For example, companies can collaboratively use solutions provided by start-ups and enterprises that develop programs to prevent frauds.
  • There is no one-size-fits-all solution to preventing fraud. To stay ahead in this game, you must continue to study and update yourself on a regular basis.

How to prevent fraud as a user?

  • If you're on the phone talking to anybody and they ask your account number, don't give it to them.
  • Keep track of your bank account.
  • Never use a public computer to conduct a credit card transaction.

What to do in case of fraud happens?

  • As soon as you become aware of a questionable transaction on your credit/debit card, notify the card issuer right away. One should file a formal complaint with the bank and, if possible, call the customer service line to have the card or account blocked right away.

Also read: Add Bank Account in Khatabook App | Get Payments Faster - Khatabook


A good fraud detection and prevention system should be able to detect fraud and highlight transactions that need to be investigated. Detecting and preventing fraud is an ongoing activity. The Fintech sector is developing with the introduction of innovative products that use Artificial Intelligence to prevent and identify frauds, similar to how fraudsters continually come up with fresh ways to deceive financial institutes. Financial institute that use these technologies are going to develop and become more effective as technology advances, allowing the finance sector to construct a digital wall that is safe and secure against fraudsters.

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If you see any money related fraud that is taking place, kindly report the case to either your card issuing bank or reach out to the nearest Cybercrime branch. Send an email to cybercell@khatabook.com to report the case.

Important: Never share OTPs, PINs, or any other codes that you receive via SMS or other channels. Never share your Account Number or Credit and Debit Card details on a public platform.


Q: How long does it take a bank to investigate a case of fraud?


Investigation of a bank fraud can take up to 45 days in order to identify and resolve the issue.

Q: How is fintech frauds be avoided as a beginner fintech business owner?


Several fintech firms are dedicated to assisting other businesses in the industry in fraud detection and prevention. If you are a beginner starting in the fintech industry, then it is crucial that you collaborate with them in order to spot fraudsters.

Q: What are the types of online frauds in India?


 There are many online based fraudulent activities take place in India.

  • Bank Account Frauds
  • Spoofing or Phishing
  • Synthetic Identity Fraud
  • Transaction Frauds

Q: Why is bank fraud detection important?


Customers and banks run the risk of being duped by fraudsters. Types of bank frauds include insurance fraud, card fraud, account related fraud, are some of the examples. As a result, detecting fraudulent behaviour is crucial.

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