fbpx
Sunday, October 17, 2021
Home Categories Covid-19 COVID-19 Driving Fraud Increase in U.S Fintech Industry

COVID-19 Driving Fraud Increase in U.S Fintech Industry

Fraud in the fintech industry is increasing in conjunction with the growth of the industry itself. Since the onset of COVID-19, chances are that you are shopping and banking online more often now. While pandemic-driven lockdowns have actually decreased incidences of petty crime across the U.S., financial technology (“fintech”)-enabled crime continues to rise.

Increase In Fraudulent Transactions Using FinTech Platforms

COVID-19 is prompting a noticeable increase in fraudulent transactions using fintech-powered platforms. With staying home now a public health imperative, fintech platforms that enable online real-time financial transactions, such as Zelle, Revolut, and TransferWise, are becoming more popular among consumers of all demographics. In addition, for many, the draw of social media is only increasing as a result of being confined at home all day.

Using TikTok For Cybercime?

Fintech cybercriminals are taking advantage of both these trends, using social media apps such as TikTok, Instagram, and Facebook to recruit potential victims, many of whom are new to or inexperienced with online banking. Consumers during COVID-19 are particularly vulnerable to being defrauded because global crises like pandemics create mindsets of desperation and perceived urgency, psychological factors that cybercriminals can and do use to their advantage. 

Most Common Types Of FinTech Fraud

The most common types of fintech fraud are conducted via online banking platforms and with the use of cryptocurrencies. Online platforms and cryptocurrencies both ensure that cybercriminals’ illegal activities are as anonymized as possible. One prevalent form of online banking fraud is “bank loading,” in which online banking platforms are used to facilitate illegal transfers of victims’ funds.

Using Cryptocurrency Platforms To Facilitate Fraud

To use cryptocurrency platforms to facilitate fraud, cybercriminals may advertise money-flipping or bank-loading services—often via social media—to obtain the banking information of consumers with cryptocurrency accounts. Fraudulently-acquired crypto coins are “tumbled” to hide the origins of the transferred tokens, often by combining multiple transactions and using different crypto-wallets. Many of these fraudulent schemes rely on intermediaries or “accomplices” who help to obscure and anonymize the fraudulent transactions. Some cryptocurrency platforms including Coinbase and Crypterium host their own mobile banking applications, making these platforms especially attractive for fintech cybercriminals.

Vulnerable Position Of FinTech Startups

Fintech startups are particularly vulnerable to fraud, often more so than their more staid competitors. Fintech startups, like all startups, are often most strongly focused on rapidly growing and achieving scale, and as a result, tend to impose fewer restrictions on prospective customers. Fintech startups, having limited resources, also are often not prepared to robustly investigate fraud and engage in the dispute-resolution process that follows. Fintech startup founders are typically entrepreneurs with visions, funded by growth-minded venture capitalists—neither of whom possess substantial expertise in risk management.

Cybercriminals Using The Weaknesses Of FinTech

Cybercriminals adeptly perceive these weaknesses and prioritize new fintech market participants as their primary targets. Using their stored caches of fraudulent credentials, cybercriminals barrage the newest fintech startups with attempts at fraudulent activity upon their entries into the market. The fintech startups’ newness makes the fraud especially difficult to detect because the startup platforms lack robust fraud-detection systems supported by years of accumulated transaction data. Fintech startups entering the online banking market must overcome a criminal gauntlet of sorts as they face an early onslaught of attempted fraud.

US FinTech – Bigger But Less Experienced

The U.S. market accounts for the lion’s share of the global fintech industry, and at the same time is less experienced than other countries with real-time payment schemes, creating more opportunities for fraudulent schemes to succeed. Consumers in other developed countries like the United Kingdom have long used real-time payment systems to conduct banking activities.

57% Of Global FinTech Market

Relatively recent advances in financial technology, often driven by U.S.-based companies, are responsible for the global advent of real-time payment platforms. As the United States accounts for 57 percent of the fintech market, fintech fraud being the most prevalent in the U.S. is not surprising. And as the U.S. fintech market continues to grow—the industry’s compound annual growth rate is predicted to be 8.6 percent through 2024—fintech fraud is likely to increase accordingly. 

Negative FinTech Fraud Predictions

Fintech, particularly as it increases online banking platforms’ convenience, simplicity, and personalization, is continually transforming the way that consumers borrow, lend, invest, and purchase insurance. But along with increased transaction speeds and greater access comes increased instances of fraud and deception. Until the fintech boom subsides—which is not likely to occur any time soon—the fintech industry, and the U.S. fintech market in particular, is likely to encounter increasingly more fraud.

The combination of so many new U.S. fintech startups, so many banking customers new to online banking, and a relatively immature market for real-time payment systems—not to mention the immense volume and value of the U.S. banking sector—creates an enticing scenario for cybercriminals worldwide.

If you find any mistakes or inaccuracies in this article, please don’t hesitate to contact us via email at info@regtechglobal.com

 

Allie Grace Garnett
Allie Grace Garnett is a Harvard Business School graduate and serial entrepreneur with a background in project finance and institutional fund raising. A civil engineer by training, she began her career as an environmental consultant before moving on to leadership roles in renewable energy & energy efficiency finance.

LEAVE A REPLY

Please enter your comment!
Please enter your name here

KEY STORIES

Stay Connected

16,985FansLike
1,384FollowersFollow
78FollowersFollow
2,458FollowersFollow

TWITTER

https://regtechglobal.com/state-of-fintech-in-africa-how-neighboring-countries-can-utilize-nigerias-unfavorable-policies/

Two of the largest emerging economies are one step closer to launching #CBDCs, the proposed #AI law in the EU sparks more controversies, and #Revolut expands into the travel sector
https://regtechglobal.com/alphabets-robotics-venture-revoluts-expansion-into-the-travel-sector-ai-law-controversy-tech-weekly/

We have compiled a list of the most promising #biotech companies, from the established players that we have been hearing about for the past months to #startups hoping to influence the industry https://regtechglobal.com/here-are-biotech-companies-that-should-be-household-names-this-year/

Tech Weekly: KT launches one of the first #5G SA globally, #Binance continues to struggle, and #Microsoft decides to acquire a #CyberSecurity startup.
https://regtechglobal.com/kt-debuts-with-5g-sa-binance-discontinues-stock-tokens-microsoft-invests-into-crypto-tech-weekly/

London #fintech is surprisingly soaring post-Brexit, Salvadorans are not as excited about making #bitcoin a legal tender in #ElSalvador as the president, and #BIS calls for collaboration on #CBDCs as China leads the race.
https://regtechglobal.com/salvadorans-hesitant-about-bitcoin-london-fintech-soars-post-brexit-bis-calls-for-cbdc-collaboration-tech-weekly/

Load More...
Skip to content