Calculating Risk: What Every Business Should Know About Digital Fraud

One of the most important considerations for any online business is fraud. While many entrepreneurs believe that there’s no need to worry about cyber threats and digital fraud, no business is too small or too large to become a target. 

 

Before making any steps towards implementing security solutions, it’s best to properly calculate the risk that your business is exposed to and its sources. Some companies are more vulnerable, but there are general ways in which one can protect their systems. 

 

We’ll delve into the basics of digital fraud and cyber threats and explore some of the most efficient ways of protecting your business. Hopefully, this article will help you protect your reputation and customers from fraudsters.

 

Digital fraud explained

 

Digital fraud refers to basically fraudulent activity that takes place through digital channels such as websites, apps, or online platforms. 

 

Types of digital fraud

 

  • Phishing attacks involve individuals who often pose as employees of a company. They’ll ask you to log in to that website from a link they’ve provided you with, or directly ask for your credentials. The website they send you to imitates the original, with small, almost unnoticeable differences. It also lacks the SSL certificate. So any information that you provide to that website won’t be encrypted. Once you try to register or log in to that website, the hackers can access your credentials and personal data and misuse them in the future. 

 

  • The second type of fraud we’ll cover is Account Takeover. In this scenario, the fraudster accesses someone’s account and uses it for financial gain. If that’s a customer, they might try to make unauthorized purchases or steal financial data.

 

  • Similarly to account takeover, we have synthetic identity fraud. This type involves a fraudster creating a fake identity by combining the personal data of multiple individuals or using AI to generate fake data.

 

  • Lastly, Payment Fraud includes a wide range of fraud types, such as credit card fraud and chargeback fraud. Regardless of the case, it’s conducted during the payment process. If we’re talking about credit card fraud, then the individual conducting it can make unauthorized purchases of products and services that will later arrive at their address. This primarily hurts the customer. On the other hand, chargeback fraud harms the business, and it involves the fraudster refunding a purchase without intending to send the products back.

 

Recognizing fraudulent activity

 

While there are many types of fraud to look out for, there’s also a myriad of tools and techniques that help you identify where fraudulent crimes may have taken place. 

 

There are features that allow you to check each customer’s data against multiple databases. You can check whether one account has overlapping personal information, like emails or addresses, with other accounts. This can help you recognize synthetic identities that are run by fraudsters. 

 

Costs of digital fraud

 

One of the most direct costs of digital fraud is fines due to breaking regulations. If your business happens to suffer from an attack that exposes your customers’ credentials and financial data, you’ll certainly get sued.

 

The legal process itself is costly, and there are numerous fines that can be imposed depending on the number of customers and the type of data you’ve exposed. By regulations, I mainly refer to data regulations like GDPR and CCPA, but other laws are jurisdiction-dependent and can also lead to high fines.

 

The previously mentioned chargeback fraud can also be problematic. If someone refunds $5 worth of items and doesn’t send them back, that doesn’t sound like a major problem. However, fraudsters can repeat this process hundreds of times, or they can refund singular, large purchases.

 

If your platform operates in industries with additional regulations like fintech, then you need to pay extra attention. In case a politically exposed person exploits your business to launder money, then you can be eligible for additional fines.

 

Regardless of the cause, companies that are deemed insecure by the customers can have a hard time recovering from that. The negative reputation will lead to fewer customers, and in turn, lower profits. 

 

Depending on the type of attack or fraud your business suffered from, operational disruptions aren’t uncommon. This basically means that you won’t be able to continue with your processes, limiting your earning potential. 

 

How to assess risk

 

The process of assessing risk starts by mapping the infrastructure, systems, and devices a business has connected. Depending on the size of the company, this can range from a few computers to hundreds of devices.

 

Once the network is mapped out, professionals in the field will be able to identify the areas that are considered high-risk. These can be servers where the customer’s data is stored or personal computers of decision-makers that contain valuable information on the company. 

 

The next step would be to recognize how much breaches in certain areas cost you, and what can be done to avoid this. Once everything’s checked, the risk that your company is exposed to can be properly calculated. 

 

Ways to minimize risk

 

There are endless ways in which you can protect your systems. Some are general and can help with various types of threats, while others are specific. We’ve made a list of some of the key methods of minimizing the risk of fraud. 

 

AML tools

 

As already mentioned, PEPs can be quite problematic for businesses in certain industries, as they can exploit their platforms for money laundering for financial gain. It’s crucial to implement tools that are able to check whether certain customers are considered high-risk.

 

These tools can help companies with SAR filings, but also with stopping potential fraud attempts before they cause any harm. 

 

Monitoring solutions

 

One of the most innovative and important ways in which you can protect your business is through the use of monitoring solutions. These tools often leverage AI and ML in order to recognize customers and transactions that are suspicious.

 

Monitoring solutions, depending on their complexity, can provide you with information on customers, their past transactions, and whether their behavior is out of the ordinary. This means that activities like making transactions from multiple locations, high-value purchases, and others notify the relevant employees in the company.

 

This allows them to properly analyze these transactions and customers and decide whether they’re real or fraudulent. 

 

Multi-factor authentication

 

Multi-factor authentication, or MFA, is one of the most important security measures that any business can implement. It revolves around enforcing policies that require your customers and employees to authenticate themselves through multiple methods.

 

This is important because passwords can be cracked through brute force attacks or stolen from databases of leaked websites. MFA includes adding another layer of authentication, which is often a one-time code through an authenticator app, SMS, or email confirmation.

 

MFA protects employees and customers in case their credentials are truly stolen. 

 

Employee training

 

Human mistakes are often at the core of data breaches and similar problems. Depending on the size of your business, there might be departments that are completely out of touch with technical skills.

 

This is completely fine, but there should always be some level of awareness regarding digital fraud and cyberattacks. Employees should know how to recognize phishing attempts and how to create strong passwords.

 

Employee training protects them individually, but it also protects customers from being exploited through employees’ stolen accounts. 

 

Staying informed about fraud is the first step to avoiding it

 

While it’s not impossible that your business won’t ever be directly attacked by hackers, there’s no need to risk it. Taking preventive measures and preparing for the worst-case scenario can go a long way.

 

You’ll be able to reduce the chances of your business becoming a target of cyber fraud. This means that you’ll protect your customers and employees, but also your business’s finances and reputation. 

 

Customers will always go to businesses that are reliable and care about their security. It’s unlikely that anyone would pick a company that suffered from breaches, fraud, and similar incidents in the past.

 

Overall, calculating the risk your business is exposed to and taking the right measures to protect your customers grants you a competitive edge.