Regardless of their size, businesses must pay attention to cyber threats and risks. They can come in the form of malware or internal threats. Businesses have lost billions due to various types of fraud, and it’s essential to implement proper measures against it.
Fraud detection tools and methods are great at recognizing and stopping them before any serious harm is caused. However, businesses must prepare for worst-case scenarios and establish safety nets.
This article explores the importance of fraud detection, as well as some of the most helpful and efficient practices for risk management.
Why pay attention to fraud detection
Online fraud can wreak havoc on your business in multiple ways. The most obvious problem is that you or your employees can suffer financially. If you’re selling products, fraudsters might use chargebacks, leading to direct loss of both money and products.
On the other hand, some problems can be caused due to fraudsters using your platform. If you have a fintech, crypto, or gaming business, politically exposed persons or criminals can exploit your platform for money laundering or terrorist financing.
While you won’t be directly financially harmed by this, the problems are much worse. Allowing such actions on your platform is a breach of laws and regulations, and your business can suffer legal fines.
In both cases, if your platform is known to have fraudsters operating on it, your reputation and customer trust will plummet. Nobody wants to use platforms that are associated with such individuals.
The legal fines for breaching laws and regulations can be significant and even higher than the costs of implementing some of the practices below, like using a fraud detection platform. The goal of using them is to:
- Ensure compliance,
- Prevent financial losses,
- Protect customers and their trust,
- Ensure continuity of operations
7 Best practices for fraud detection and risk management
The practices mentioned here vary from principles that could be applied anytime to advanced and innovative tools that can be costly. Regardless, any measure that can help with fraud prevention will be worth the cost.
The best way to find the tool that benefits your business is to conduct a full-scale audit. Then, you can pick the solution for the fraud types that occur most frequently for your company. However, any of the practices from the list are helpful.
1. AI-powered fraud detection
One of the most innovative options for preventing fraud is leveraging detection tools. They can provide protection in real-time by analyzing users and their behaviors. Compared to doing this task manually, AI-powered detection platforms ensure scalability and save time.
These tools can include features like transaction monitoring, PEP screening and can reduce the amount of false positives when flagging users for suspicious behavior. Compared to manually observing users, AI tools in this category are costly, yet significantly more efficient.
AI uses historical data to determine which behaviors can be flagged as problematic. This can save you a lot of headaches.
2. Transaction monitoring
Besides tools that can provide general fraud protection, using transaction monitoring platforms can also help you significantly with prevention. For example, users have been making $100 transactions weekly for the year.
Then, all of a sudden, they make $10,000 to an unknown address. This could be a completely legit move, but it’s more likely that their account has been stolen. If a tool automatically flags this transaction as suspicious, you can ask them for additional authentication or contact them in order to confirm that they’ve made this transaction.
These tools provide real-time protection, and you can customize the fraud detection rules based on different behaviors and user profiles. Manual transaction monitoring is possible if you have a few transactions daily, but it’s impossible to keep up with this process as you scale.
On the other hand, transaction monitoring tools provide automated alerts, allowing you to act immediately if fraudulent activities are occurring on the network.
3. Multi-factor authentication
Implementing an MFA goes a long way to protect your customers and employees. MFA includes the use of additional authentication methods besides the username or email and password combo.
You should require users to verify their identities through biometric authentication or a one-time token. This token can be generated and sent on authenticator apps on mobile phones, emails, or SMS.
So, even in the worst-case scenario in which hackers steal someone’s account, they won’t be able to access it without access to additional authentication methods. You can also leverage one-time passwords and passkeys on an enterprise level for more advanced security.
In terms of employees, you should enforce policies that require them to add MFA and create strong passwords. The use of password managers can also ensure additional protection against cyber threats.
4. PEP screening
Politically exposed persons pose a higher risk to businesses than regular customers. While a fraudster can be anyone, PEP often has money and power they can misuse through online services for illicit actions like money laundering.
Implementing an automated PEP Screening process can help you recognize and monitor PEPs more closely. This is done by checking the customer’s personal information against the global PEP and sanctions list.
This process can be done manually or with the help of automated platforms, which are significantly more accurate and quicker. PEP Screening is in many locations an essential process in order to be compliant with anti-money laundering regulations.
5. Compliance audits
Following laws and regulations is a must for businesses. However, they are sometimes broken due to ignorance or new updates to regulations that the company wasn’t aware of or didn’t have the resources.
Regulations can also serve as frameworks, allowing businesses to minimize risks and fraud by implementing certain measures. Regular compliance audits can help businesses identify vulnerabilities in their detection processes.
Internal and external audits can significantly help with ensuring compliance. This can be done by hiring specialists who will periodically examine your processes or through platforms that automate this.
6. Employee training programs
Employees can sometimes cause harm unknowingly or knowingly. There are methods to minimize the risk of employees exploiting their permissions by using the principle of least privilege.
This concept revolves around giving employees only the permissions and privileges that they must have in order to conduct their tasks. This is achieved through account management platforms and applications.
On the other hand, employees can expose your business through ignorance. For example, they might leave their professional information on a phishing website. Fraud risks can be minimized by training your employees and ensuring that they are aware of which actions can be harmful.
Employee training should include lessons on password creation and the use of online services. If a hacker decides to attack your company, they can leverage brute force or social engineering attacks in order to get access to employee accounts.
You should encourage your employees to create complex passwords and use multi-factor authentication. However, they should also have knowledge of recognizing suspicious activities and online behaviors.
Your training program should teach them how to recognize phishing attacks or social engineering attempts. This can significantly help them avoid downloading malware or providing valuable information to fraudsters.
7. Incident response and crisis management
At times, avoiding fraud and cyber threats can be extremely hard. Whether the right measures weren’t implemented on time or the hacker found a specific vulnerability, it’s crucial to have a plan for worst-case scenarios.
One of the first steps you should take is to form a dedicated response team that will respond to cyber threats immediately once they occur. Collaborating with regulatory bodies and law enforcement during incidents can improve your crisis management process.
To ensure business continuity in case of an incident, you should have backups and multiple servers.
Fraud and risk minimization is key to business operations
Implementing all of these practices can be complex, depending on your business size. However, the problems that can be caused by the lack of fraud prevention measures are worth the hassle of implementing them.
Remember that none of the tools or principles can prevent all potential fraud, but this doesn’t mean that it’s not worth a shot. Combining traditional and modern tools ensures the detection and prevention of most problems you can experience.
If you pick the practices that can help you with your most significant and frequent problems, you can expect to have immediate positive results.
Veljko Petrović
Veljko is an IT student who has successfully combined his passion for technology with his exceptional writing skills. As an emerging specialist in cybersecurity, he has completed several courses and has been published in notable blogs in the industry. In his free time, Veljko enjoys weightlifting, reading, and programming.
Linkedin: https://www.linkedin.com/in/veljko-petrović-699ab0201/
Website: www.writerveljko.com
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