14 Next-Gen Fraud Solutions for Banks

Have you ever wondered how financial institutions protect themselves from sophisticated fraudsters? In this article, we look at some smart fraud solutions for banks to create a strong digital defense. Solutions focus on advanced security, sharing intel with other institutions, and building a central hub to manage it all. By doing this, banks not only save reputation and keep regulators happy but also build rock-solid trust with customers.
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Ravi Sandepudi

June 7, 2024

14 Next-Gen Fraud Solutions for Banks To Stay Ahead of Scams

Are banks prepared for the relentless rise in fraud? 

It’s like playing a never-ending game of cops and robbers but with way higher stakes!

Over the past three years, global digital payments fraud has surged by 25%

Banks need to adopt solutions to protect customers’ assets. Artificial intelligence (AI), machine learning (ML), and biometric authentication are no more advanced technologies. It’s now emerging as the safest and the sole line of solid defense. These efforts can also ensure maintaining trust in the digital banking ecosystem.

In this blog, we explore 14 next-gen fraud prevention solutions banks can explore to safeguard against online scams. These tools and strategies work together to create a multi-layered security framework. It ensures that customers enjoy a secure and seamless online banking experience while fraudsters are kept at bay.

But before getting into mitigation measures for banks, let’s put the lens on top 

Top Online Banking Frauds to Watch Out For

The landscape of online banking fraud is constantly evolving. With every passing day, cybercriminals are devising new methods to exploit vulnerabilities. 

In 2023, the FBI’s Internet Crime Complaint Center got more complaints about Internet crimes than ever before. Almost 880,500 cases were reported, which is about 10% more than the year before. The total amount of money lost to these crimes was over $12.5 billion, a shocking 22% increase from 2022.

Here are some of the most common types of online banking fraud:

  • Imposter Scams

Imposter scams have become increasingly prevalent, with reported losses reaching $2.7 billion in 2023. In these scams, fraudsters pose as representatives of trusted organizations, such as banks or government agencies, to steal sensitive information from unsuspecting victims.

  • Phishing Scams

Phishing remains one of the most persistent and successful forms of banking fraud. Cybercriminals send fraudulent emails or text messages that appear to be from legitimate financial institutions, tricking users into revealing their login credentials and personal data.

  • Fake Banking Websites

Criminals host fake bank websites that closely mimic legitimate ones to steal money and personal information. A notable example is the 2023 case where financial aid startup Frank defrauded JPMorgan Chase of $175 million by misrepresenting its user base. The founder, Javice, now faces charges including conspiracy, wire fraud, bank fraud, and securities fraud.

Key Causes of Frauds in Banks

Banks face a multi-pronged attack from fraudsters. Here’s what weakens their defenses:

  • Security Gaps:
    Outdated protocols and weak passwords act like unlocked doors for cybercriminals. 
  • Insider Threats :
    Disgruntled employees or those tricked by scams can become the enemy within, exploiting their access.
  • Customer Blind Spots:
    Lack of awareness about phishing and other scams leaves customers vulnerable.

14 Next-Gen Fraud Solutions for Banks To Pause & Note

As the old adage goes, prevention is better than cure.

Fraud prevention is not just about protecting banks’ bottom lines. It’s about maintaining the trust and confidence of customers and the digital ecosystem. 

In a world where a single data breach can shatter reputation, banks can’t rely on one-size-fits-all propositions. Each institution has its unique risks, challenges, and customer needs. 

And the best way is to adopt a tailored approach — combining the best of internal expertise and AI. 

In the following sections, we’ll introduce 14 solutions that can be customized to fit any bank’s specific requirements. It can ensure maximum protection and minimum friction for customers.

  • Real-Time Transaction Monitoring

Real-time transaction monitoring is like having a high-tech surveillance system for your bank’s transactions. It monitors every move, ensuring that any suspicious activity is caught and dealt with promptly. This proactive approach is essential in today’s fast-paced digital world, where fraudsters are always looking for new ways to exploit vulnerabilities. 

By monitoring transactions as they happen, you can quickly identify unusual patterns that might indicate fraud, such as identity theft, account takeover, or unauthorized transactions.

Let’s understand how real-time transaction monitoring helps prevent fraud with a real-world example.

Cardless, a company specializing in creating custom credit card programs for brands, struggled with its customer acquisition process. 

To address these challenges, Cardless partnered with Effectiv to build an end-to-end platform specializing in fraud risk and compliance automation. Here’s a quick overview:

Results Achieved

Engineering team had limited time and resources to build custom in-house fraud prevention solution.

Implemented Effectiv’s real-time transaction monitoring platform.

Created new fraud prevention rules in under 3 minutes (previously took up to a month), effectively gaining 30 days of productivity per rule.

Previous in-house solution required manually creating fraud prevention rules, leading to delays.

Effectiv’s platform allows creating customized rules directly within the platform using a Visual Workflow Builder.

Automatically blocked $78,000 worth of fraudulent transactions out of $11 million processed in 2 months.

Fraud prevention duties distracted engineering team from core platform development and innovation.

Effectiv’s solution automated fraud prevention, freeing up engineering resources.

Achieved 99.5% auto-approval rate, reducing the need for manual reviews.

Lack of real-time automated monitoring and alerting, leading to missed fraud detection opportunities.

Effectiv provides real-time alerting, advanced analytics, data enrichments, and visualizations.

Flagged an additional $80,000 in suspicious transactions that would have gone unnoticed previously.

fraud mitigation bank

  • AI-Driven Anomaly Detection

AI-powered anomaly detection systems keep a close eye on a huge amount of transaction and behavior data to figure out what’s considered “normal” activity. They constantly watch this data and can spot when something seems off, marking it as possible fraud. 

For example, if a customer’s account suddenly has a bunch of big transactions from a new place, the system will flag it as unusual and send an alert. This helps catch different types of fraud, such as:

  • Identity Theft: 

Helps flag suspicious activity like failed login attempts or sudden personal info edits, potentially indicating identity theft.

  • Account Takeover:

Helps identify compromised accounts with logins from unexpected locations, suggesting a takeover attempt.

  • Synthetic Identity Fraud:

helps identify inconsistencies in fabricated data, like mismatched addresses or odd spending patterns, to uncover fake identities.

  • Automated KYC

Automated KYC systems use advanced technologies like AI, ML, and optical character recognition (OCR) to verify customer identities. When a new customer signs up, the system captures and analyzes their identification documents, such as passports or driver’s licenses. It then cross-checks the information with various databases to confirm the authenticity of the documents and the identity of the individual.

For instance, automated KYC can help with identity-proofing issues by cross-referencing customer data with multiple sources. This ensures that the person opening an account is who they claim to be, thereby preventing fraudulent activities.

This streamlines the customer verification process, making it faster, more accurate, and compliant with regulatory requirements.

fraud solutions for bank

  • Automated KYB

Automated KYB solutions make business verification quick, efficient, and accurate. This allows businesses to check the legitimacy of corporate clients and partners easily. It ensures they are not unknowingly dealing with fraudulent entities or those posing significant risks.

It examines company registrations, operations, and the backgrounds of ultimate beneficial owners (UBOs) to find warning signs like shell companies. This helps prevent identity theft and account takeovers. Advanced solutions can also automate thorough checks for high-risk clients. These checks include financial reviews and continuous monitoring for hidden dangers.

For example, automated KYB can mitigate business identity fraud risks by cross-checking company data from diverse sources. This ensures that the organization being onboarded is a legitimate, legally operating entity, thereby preventing fraudulent activities and minimizing exposure to potential risks. This accelerates client onboarding, making it faster, more accurate, and compliant with relevant regulatory requirements for corporate due diligence.

  • Multi-Channel Protection

Banks offer many ways to access money – through a physical branch, via the Internet or through a mobile app. While this makes banking easier, it also means there are more ways for scammers to try and steal money or assets. That’s why banks need multi-channel protection measures using advanced encryption. 

For online transactions, banks use special codes to protect customer information. For mobile banking, it might ask for a secret code and your fingerprint, which is like having a secret password. This makes it harder for anyone else to get into your account.

Even when you visit a branch, there are security measures in place to make sure you are who you say you are. It’s like having a trusted guard check your identity at every step.

This multi-channel protection watches over all the different ways one can access funds and prevents anyone from stealing your identity or taking money from a customer account without permission. It is considered one of the ideal uses of AI for detecting bank fraud, with the potential for further advancements.

Effectiv implements multi-layer security measures to prevent payment fraud within milliseconds via:

  • Graph-data
  • Machine learning
  • External data sources 
  • Customized rules

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  • Automated Alerts and Notifications

Automated alert systems continuously monitor transaction data and user behavior. When the system detects an anomaly—such as an unusual login attempt, a sudden change in transaction patterns, or a high-value transfer—it triggers an alert. This alert can be sent to the bank’s fraud team, the customer, or both, depending on the severity and nature of the detected activity.

These systems are designed to detect and respond to potential fraud incidents swiftly, ensuring that both the bank and its customers are protected from financial crimes such as identity theft, account takeover, and suspicious transactions.

With the help of advanced Large Language models, fraud solution platforms can detect anomalies in real-time and send immediate alerts. 

  • Advanced Data Encryption and Security

Data encryption is like a secret code that keeps information safe. It’s like putting a lock on a diary so that only the owner can read it. When one sends information over the internet, encryption makes sure that only the right people can see it. It’s like sending a letter in a special envelope that only the person you want to read it can open.

Think about when you use online banking. While typing in personal identification numbers (PINs), passwords, or account numbers, encryption keeps that information safe as it travels through the internet. Without encryption, it would be like sending a postcard – anyone who sees it could read your private information!

Banks work with other companies to make their services better. It’s important that these companies also use strong security measures to keep customer information and data integration safe. 

Good security is like having multiple layers of protection. Encryption is one layer, like a lock on a door. Multi-factor authentication is another layer, like having a guard ask for ID before letting someone in. Access controls are like giving keys only to people who are allowed to enter. Regular check-ups help find any weak spots in the security, like making sure the locks and guards are always working properly.

  • Fraud Prevention Training Modules

Bank staff are the first line of defense against fraud. Ongoing training equips them to identify and prevent identity theft, account takeover, and synthetic ID fraud. Think of it as a constantly evolving shield. Training covers red flags like unusual login attempts, large transactions from unexpected locations, and data inconsistencies. Role-specific training and interactive learning further strengthen this defense.

online banking fraud solution

Additional Fraud Prevention Solutions

Let’s look at some additional fraud solutions that can further bolster a bank’s defenses.

  • Integrated AML Compliance

Anti-Money Laundering (AML) transaction monitoring solutions are essential for banks to ensure compliance with global regulations. These solutions help detect money laundering activities and suspicious transactions across various fraud types. By continuously monitoring customer transactions, AML systems can identify unusual patterns that may indicate illicit activities. For example, if a customer suddenly starts making large international transfers, the system will flag this as suspicious.

AML solutions, like those offered by Effectiv, provide real-time alerts and detailed reports, enabling banks to take immediate action. These systems also help reduce false positives, ensuring that only genuinely suspicious activities are flagged for further investigation. This not only enhances compliance but also improves operational efficiency by reducing the manual workload on compliance teams.

  • Customizable Risk Thresholds

Configurable risk thresholds are like a special tool that banks use to spot and stop fraud. It can be adjusted based on how much risk the bank is willing to take and the types of transactions they want to keep an eye on. 

For example, a bank might set a lower threshold for transactions that are more likely to be fraudulent, like big wire transfers. This means they’ll take a closer look at those transactions to make sure they’re not suspicious.

A real-life example is the USAlliance Federal Credit Union. With the help of Effectiv’s platform, it developed a unique risk management plan. By being able to customize the risk thresholds, the credit union could focus attention on the biggest threats and use resources wisely.

Think of it like a security system for a building. You can set different levels of sensitivity for different areas. The main entrance might have a lower threshold, so the alarm goes off more easily, while the back door might have a higher threshold because it’s not used as much. This way, you can make sure you’re always paying attention to the most important areas and not wasting time on false alarms.

USALLIANCE Financial faced challenges with its existing fraud detection and risk management solution, lacking capabilities for customized reporting, clear visibility into decision rationale, and efficient member onboarding processes.

Enter Effectiv’s Comprehensive Risk Management Solution:

  • Customization:
    Effectiv worked closely with USALLIANCE to build a tailored solution with customized fields, aggregators, workflows, and case management visualizations.
  • User-Friendly Reporting:
    Effectiv provided user-friendly reports and dashboards, improving USALLIANCE’s decision-making process.
  • Data Integrations and Features:
    Effectiv’s platform offered a comprehensive dashboard with linked cases, geolocation, and device tracking, streamlining fraud detection and decision-making.
  • Scalability:
    USALLIANCE is exploring expanding the use of Effectiv for KYC checks and KYB screening for business account applications.

The Result? Improved Operational Efficiencies.

With Effectiv, USALLIANCE achieved:

  • Reduction in manual reviews from 50% to 25%.
  • Time savings through process automation.
  • Proactive Identity Verification

AI-driven identity proofing during onboarding is crucial for establishing legitimate identities. This process helps prevent identity fraud and mitigates the risk of identity theft and account takeover. During onboarding, AI systems verify the authenticity of identification documents and match them with the individual’s biometric data, such as a selfie.

For example, when a new customer opens an account, the system checks their ID against various databases and uses facial recognition to ensure the person presenting the ID is the rightful owner. This proactive approach not only enhances security but also streamlines the onboarding process, making it faster and more efficient.

  • Layered Security Controls

Implementing strong customer authentication measures and data encryption is vital for preventing unauthorized access and data breaches. Layered security controls involve multiple levels of protection, such as two-factor authentication (2FA), biometric verification, and advanced encryption techniques.

These measures ensure a strong defense against payment fraud detection. Even if one layer is compromised, additional layers provide continued protection. For instance, a customer might need to enter a password, receive a one-time code on their phone, and use facial recognition to access their account. This multi-layered approach significantly reduces the risk of identity theft, account takeover, and fraudulent transactions.

  • Collaborative Fraud Intelligence

Industry fraud information-sharing initiatives are critical in combating emerging threats. By sharing data on fraud patterns and suspicious activities, banks can collectively enhance their fraud detection capabilities. This collaboration helps identify new fraud tactics and develop more effective countermeasures.

For example, banks can share information about phishing attacks or mule accounts, enabling others to recognize and respond to similar threats more quickly. Effectiv’s platform supports such collaborative efforts by integrating with industry-wide fraud intelligence networks, ensuring that banks stay ahead of evolving fraud schemes.

  • Integrated Fraud Management

Centralizing fraud detection and prevention capabilities into a cohesive platform is essential for effective fraud management. An integrated fraud management system consolidates various tools and processes, providing a unified view of all fraud-related activities. This centralization helps banks identify and mitigate different types of fraud, including identity theft, account takeover, and fraudulent transactions.

Effectiv’s platform exemplifies this approach by offering a comprehensive suite of fraud prevention solutions. By integrating real-time transaction monitoring, AI-driven anomaly detection, and automated KYC/KYB processes, the platform ensures robust protection across the banking ecosystem. This holistic approach not only enhances security but also improves operational efficiency and compliance.

Automate customer onboarding and ensure AML/KYC compliance with customizable workflows.

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Strengthening Bank’s Defenses Against Online Banking Fraud

Cyber threats are constantly evolving, demanding a proactive defense approach from banks. Banks can no longer be reactive. To stay ahead, banks must embrace a multi-layered security strategy. This includes leveraging cutting-edge AI for anomaly detection, streamlining KYC/KYB processes, and implementing effective multi-channel protection. 

Additionally, real-time transaction monitoring, collaborative intelligence sharing, and integrated fraud management systems are crucial.

By adopting a proactive, technology-driven approach, banks can safeguard customers’ money and build trust within the financial ecosystem. Ultimately, the success of banks in the digital age depends on their ability to adapt and innovate in the face of evolving security challenges.

Ready to consolidate your fraud and risk tools into one unified solution? 

Contact Effectiv to learn how our modular platform can help you prevent multiple forms of fraud in days, not months.


1. What are the primary causes of online banking fraud?

Online banking fraud is primarily caused by weak security measures, insider threats from employees, and customer unawareness of threats like phishing and social engineering. Cybercriminals exploit these vulnerabilities to gain unauthorized access to sensitive information.

2. How can banks control and mitigate online fraud?

Banks can control and mitigate online fraud by implementing multi-factor authentication, regularly updating cybersecurity measures, and providing comprehensive training to employees and customers. Utilizing AI for real-time transaction monitoring and anomaly detection, and ensuring robust identity verification and continuous customer education are also essential.

3. What solutions are available for combating online banking fraud?

Solutions for combating online banking fraud include AI-driven anomaly detection, automated KYC/KYB processes, real-time transaction monitoring, and multi-channel protection. These solutions help identify and prevent various types of fraud, such as identity theft, account takeover, and synthetic identity fraud. Additionally, automated alerts and notifications, advanced data encryption, and comprehensive fraud prevention training modules are effective in enhancing security.

4. How do advanced fraud solutions benefit banks in fraud prevention?

Advanced fraud solutions benefit banks by proactively detecting fraud, reducing financial losses, and improving customer trust. AI-driven systems analyze data in real-time to identify suspicious patterns, reducing the need for manual reviews, optimizing efficiency, and ensuring regulatory compliance.

5. What strategies can banks use to reduce and solve online banking fraud?

Banks can reduce and solve online banking fraud by adopting a multi-layered security approach:

  • Strong authentication: Make logins tough to crack.
  • Real-time monitoring: Catch suspicious activity as it happens.
  • AI & Automation: Use smarts to identify fake users and prevent fraud early.
  • Educate & Share: Keep staff and customers informed, and collaborate with others to stay ahead of evolving threats.

6. Are there regulatory standards or guidelines for implementing fraud solutions in banks?

Yes, regulatory standards for bank fraud solutions include Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations to verify customer identities and monitor transactions. Bodies like the Federal Financial Institutions Examination Council (FFIEC) provide guidelines on authentication, risk assessments, and layered security. Compliance is essential to avoid penalties and ensure transaction security.

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