The convenience and speed of financial technology make it attractive to consumers, but also to fraudsters. Keep reading to learn more.
The Boom of Financial Technology
Since the mid-2010s, financial technology (fintech) has exploded! Most of the growth can be attributed to consumer demand because without it, there would be no market for these services. The United States is definitely the leader when it comes to flourishing fintech startups, followed closely by Asia and then Europe. The global fintech market was valued at $340.1 billion in 2024 and is expected to reach almost $400 billion by the end of 2025.
What exactly is Fintech?
Fintech is the term used to refer to any app, software, or technology that allows people or businesses to digitally access, manage, or gain insights into their finances or make financial transactions. If you’ve ever used PayPal, Venmo, or Zelle, you’ve used fintech. The rise of fintech has opened many doors for small business owners, people in developing countries, and those looking to build credit, however it has also gained the attention of those looking to take advantage of its speed and growth.
Fintech Fraud
Fintech fraud includes any deceptive or illegal activity within the financial technology industry. Fintech is used in financial services and products, including online banking, mobile payments, peer-to-peer lending, cryptocurrency exchanges, and digital wallets. Using any of these services is very user-friendly and simple, which makes them so susceptible to fraud.
Fintech fraud is a huge business that is costing consumers billions of dollars! Fintech spans over 200 countries with almost two billion users globally making it a prime target for fraud.
There are a lot of things to take into consideration when discussing fintech fraud. A list of frequently asked questions has been included below to answer some of those most common questions.
Fintech Fraud FAQ’s
1. Understanding fintech fraud means knowing what types of fintech fraud is occurring. What are some examples of common fintech fraud?
Identity theft: Fraudsters steal personal information to access financial information, open new accounts, or make unauthorized transactions.
Payment fraud: Fraudsters use stolen credit card information or hijacked online payment accounts to complete unauthorized transactions.
Account take-over (ATO): Criminals obtain a user’s login credentials, many times through phishing scams, social engineering, or by using previously leaked data, and gain unauthorized access to financial information.
Insider fraud: Employees of a fintech company abuse their access to systems and information to commit fraud against the company or its customers.
2. Fintech fraud negatively impacts fintech companies as well as consumers. What are the effects of fintech fraud?
Negative effects on fintech companies include: financial losses, increased costs, reputational damage, investor risk, legal issues, and operational delays.
Consumers may experience monetary losses, identity theft, account takeovers, credit score damage, emotional stress, and a loss of trust in their financial institution.
3. How can fintech fraud be prevented?
For fintech companies:
Strong authentication processes: Multi-factor authentication (MFA), biometric verification (such as fingerprint or facial recognition), and strict password policies make unauthorized access much more difficult.
Regular security audits: Regular audits of security infrastructure can address gaps and vulnerabilities before they become exploited.
Advanced encryption: Encrypting data at rest and in transit with strong, up-to-date encryptions standards ensures that data cannot be easily understood or misused, even if it is taken by fraudsters.
For Consumers:
Strong passwords: Use unique, complex passwords and change them frequently.
Monitor accounts: Review your account history once a week to check for unrecognized charges and to review transactions.
4. If your company has been attacked by fraudsters, or you are a consumer who has been a victim of fintech fraud, the results can be devastating.
If you are a fintech company, how should you respond to fraud?
Respond Immediately: Freeze all accounts, block all transactions, and confirm that fraud has in fact been committed. The damage should also be assessed.
Investigate: Check all customer accounts to see who has been affected. Security should be enhanced immediately.
Communicate: Notify any customers who have been affected and call law enforcement.
If you’re a consumer, how should you respond to fintech fraud?
Contact: You should immediately contact the fintech company and report any suspicious or unauthorized activity. If your account is connected with a bank, you should also contact the bank.
Change passwords: Change all passwords associated with the account and try to install a multi-factor authentication where possible.
Report: Contact law enforcement and file a police report, report the instance to any Federal agencies like the FTC (Federal Trade Commission) or the CFPB (Consumer Financial Protection Bureau).
Fintech fraud continues to be a hot button issue for both companies and consumers. As the pace at which these transactions occur increases, as well as the influx of new options become wider, the chances of fraud accelerate as well. While being a victim of fintech fraud can be devastating, so can being accused of committing fintech fraud.
If you or someone you know has been accused of fintech fraud, reach out to the legal team at the Law Offices of Robert J. DeGroot today!
