Top 5 Techniques Used for Fraud Detection and Prevention

Top 5 Techniques Used for Fraud Detection and Prevention

Over the past couple of years, the instances of fraud have increased substantially.  

For instance, there was a 40% increase in payment fraud in 2022 as compared to 2021, according to a report from Business Wire. The same report stated that the banking and crypto sector witnessed a 2-fold rise in ID frauds in 2022 alone.

This calls for better fraud detection and prevention techniques that businesses can implement to reduce instances of fraud. And this blog is there to help.

Below, we’ve listed the top 5 techniques businesses can use to identify, mitigate and prevent fraud effectively. Businesses can include these techniques and protect themselves and their customers from fraud.

What is Fraud Detection?

Fraud detection is the process of identifying and preventing fraud/fraudulent activity within an organization. It involves the deployment of processes, techniques, or dedicated departments that help detect potentially illegal activity, including:

  • Identity theft
  • Money laundering
  • Account hijacking
  • Chargeback Frauds

Let’s now learn about some common fraud detection and prevention techniques you can implement in your business.

Top 5 Fraud Detection Techniques

While fraud detection and prevention techniques may vary from organization to organization, some standard ones include:

1. Deploying Better Customer Onboarding Tools

One of the most common frauds these days is money laundering. Criminals open their accounts with online gaming, trading, and other types of companies just to use them to launder money. And this mostly happens with businesses that have poor customer onboarding tools lacking advanced security measures.

However, businesses can prevent this from happening using smart customer onboarding tools. Such tools use AI and ML to perform KYC and verify customer records against government data and criminal lists. This way, high-risk customers are filtered out, and only genuine customers are allowed to onboard.

2. Real-time Monitoring

The above step helps stop fraud right at the source. But what if the criminal manages to onboard or a genuine customer’s account gets hijacked? Well, in that case, businesses can opt for real-time monitoring.

Real-time monitoring involves an automated tool that monitors all the transactions that are taking place. And if anything out of the ordinary happens, the tool will inform or alert the respective department.

Let’s say a customer processes 1-3 transactions in a day generally. And that customer suddenly starts to process thousands of transactions in a day. Now, this behavior will be detected by the monitoring tool, and businesses can then investigate the same.

Pro Tip. Businesses should invest in reliable real-time monitoring tools as most report false positives, which can be a huge productivity loss.

 3. Factor Authentication

Easy entry to a system app or website is often what attracts cybercriminals toward a business. So, businesses must incorporate reliable authentication methods in their apps, websites, or systems.

One reliable authentication system is biometric authentication. Biometric authentication usually involves the usage of fingerprints for identity verification. And this is something hackers cannot easily forge.

Another approach is 2FA or two-factor authentication, wherein an individual needs to provide two types of authentication, such as an OTP and a password. While the password can be hacked, the user will receive OTP exclusively on their device, making it hard for hackers to access.

4. Limit Authorization

Customers aren’t the only target of hackers. Hackers often break into organizations’ databases by forging employee credentials. However, businesses can reduce the likeliness of this type of fraud by limiting access to employees.

 For instance, businesses can limit the access of certain confidential files/databases to managerial-level employees. If the high-level authority remains within a few trustworthy individuals, the chances of fraud will reduce substantially.

5. Data Analytics

This process involves analyzing all the data businesses collect from their customers via CRM tools or other interactions. By carefully analyzing this data, businesses can identify anomalous patterns and train their machine-learning models using the same. This will help identify and report any potentially fraudulent activity that may occur.

Wrapping Up

Fraud is a serious issue that not only leads to data and financial loss but also impacts business reputation, which cannot be redeemed. Therefore, businesses must implement and practice fraud detection and prevention techniques actively.


Q1. Do Fraud detection and prevention techniques offer 100% protection?

A1. Sadly, there’s no technique that guarantees complete protection against fraud. However, by implementing the aforementioned techniques, businesses can substantially reduce the likelihood of fraud and protect their customers.

Q2. What is the difference between fraud detection and prevention?

A2. Fraud detection is all about detecting or identifying fraudulent transactions that can be investigated thereafter. Fraud prevention is an attempt to stop any fraudulent activity before it happens.  

Q3. How much does fraud detection software cost?

A3. Usually, quality fraud detection software comes at a higher price. However, the actual price varies with the vendor and the features the software offers.