Behind the Scenes of a Fraud Attempt: How Fraud Attempts Work
As technology advances and the world becomes more connected, fraud is an ever-growing concern. Fraudsters are not a new threat. However, these criminals are becoming more sophisticated, using stealthy tactics to defraud consumers and businesses. According to the Association for Financial Professionals (AFP), a staggering 79 percent of companies were victims of payment fraud attacks and attempts in 2024. The Federal Trade Commission (FTC) reported that consumers lost over $12.5 billion to fraud in 2024 alone, a marked increase from years prior.
Whether you operate a marketplace with thousands of sellers or hire international contractors to tap into a larger talent pool, you must do everything possible to mitigate the risk of fraud. Failing to do so could cost your business and put your users in harm's way.
There are many ways to prevent fraud but to understand what's appropriate for your business, it pays to familiarize yourself with how fraud attempts work. From phishing attempts to stealing sensitive user data, criminals can attack your business in many ways. Keep reading to get a behind-the-scenes glimpse of fraud attacks and learn how to safeguard against them with Dots.
Scouting For Victims
The first step in any fraud attempt is scouting for potential victims. While most fraud attacks don't cause physical harm, it's far from a victimless crime. Innocent people fall prey daily, and fraudsters take time to identify those most susceptible to their evildoings.
Criminals often target the most vulnerable, including elderly individuals. The FBI reported over $3.4 billion in losses due to elder fraud targeted at people over the age of 60 in 2023. Because seniors are often less tech-savvy and more trusting overall, seniors are an unfortunate prime target.
For businesses, criminals often look for vulnerabilities they can exploit. Unsecure onboarding processes, little to no identification checks, and glaring security flaws make companies the victim of attacks. Fraudsters will take advantage of any vulnerability they see in a company's processes, stealing money or sensitive data they can further exploit.
Infiltrating Without Being Noticed
Once they have clear targets, fraudsters will work to infiltrate systems. While some criminals gain access to sensitive systems through brute force attacks, most manage to get in unnoticed. They can use technical exploits in a poorly designed and low-security system, or they may use social engineering tactics to obtain information.
The latter is among the most concerning. Known as phishing attempts, criminals may pose as a legitimate or reputable entity. Then, they trick victims into willingly providing financial information, access codes, passwords, etc. When successful, these phishing tactics allow swindlers to essentially stroll into a secure system where they can wreak havoc under the guise of a standard user.
Manipulating the Process
Here's where scams truly begin to hurt victims, whether they're companies or individuals. After infiltrating secure systems, such as payout systems or bank accounts, they can do substantial harm.
Depending on the nature of the attack, fraudsters may manipulate existing processes to divert funds or sensitive data their way. Once scam artists have access, they often have free rein to cause a great deal of harm to your company and payout recipients. Many will do what they can to cover their tracks, making it difficult to regain control and minimize the impact of their activity. Even worse, criminals may manipulate processes in a way that allows them to continue defrauding victims for months before anyone raises a red flag.
Execute the Plan
After gaining access and manipulating the system in their favor, criminals can execute their plans. There are many ways that scammers can steal money, harm your business, and negatively impact users.
They can compromise legitimate user accounts within your payout system, changing financial information to direct money into a separate account. This tactic steals from your users and your business. Fraudsters can even create brand-new user accounts to steal and withdraw funds right under your nose. Chargeback fraud, wire transfer scams, fake invoices, payout manipulation, and other nefarious tactics can allow criminals to steal from your company. Some will launder those illicit funds, making it difficult to track activity.
In some cases, criminals are less interested in financial fraud and more interested in stealing personal data. As a company that sends payouts, you likely have sensitive financial and personal data for every recipient. If fraudsters get access to those, their activity and impact can be far-reaching.
Repeat
From here, all that's left is to rinse and repeat.
Many assume that they would notice fraud soon after it happens. That might be true in some cases, but criminals are more savvy than you think. They can continue harming your company and users for months if not years. According to the Defense Logistics Agency, some fraud schemes last 12 to 18 months before detection.
Without the proper tools and detection procedures in place, criminals can repeatedly commit payout fraud against your business.
How Fraud Can Impact You or Your Business
Payout fraud can have a catastrophic impact on your business.
The most obvious issue is clear financial losses. Successful phishing attempts can give criminals access to your entire financial operation. They can wreak havoc in many ways, directly stealing from your company and hurting your bottom line. That alone can take years to recover from. However, that's not the worst of it.
If fraud results in the theft of your users' personal or financial information, you could end up in a sea of legal troubles. Failing to protect payout recipients from fraud can lead to legal and regulatory consequences. You may pay steep penalties or find your business on the other end of lawsuits. Data security and payment protection are no joke, and various regulatory bodies, including the FTC, could take action.
Additionally, successful fraud attacks could harm business resilience and create immense operational disruptions that further harm. Consider the impacts of investigating the situation, undergoing remediation measures, audits, etc. All of those measures take time and money. Furthermore, there's the headache of restoring payouts.
One often overlooked impact of payout fraud is the damage it can do to your reputation. Falling prey to scammers and criminals doesn't reflect positively on your business, and subsequent payout delays will further sink your reputation. Building a positive company image among customers, contractors, and users isn't easy. It can all go down the drain in an instant, taking years to rebuild.
Why You Are at Risk of Being a Target
If you don't think you need fraud protection, think again. Any business has the potential to become a target. However, when you send payouts or receive payments of any kind, criminals will try to exploit your company.
Payout processes have many vulnerabilities, especially those not built with fraud mitigation and security in mind. No matter what type of business you run, there's always a risk if you onboard users, collect financial information, and send payouts. You must remain vigilant about protecting your business and users because criminals will see your operation as ripe with fraud opportunities.
Prevent Becoming a Victim With These Tips
No business wants to become a victim, but it happens more than most realize. Fortunately, there are ways to protect yourself and payout recipients.
Do Your Due Diligence
When onboarding new users, always do your due diligence. Complete Know Your Customer (KYC) checks and perform periodic reviews to ensure you're always working with legitimate users.
Verify Recipient Identities
Beyond due diligence checks, verify the identities of users receiving payouts through your platform. Validate information against verified data sources and ensure recipients are who they say they are.
Comply with All Applicable Regulatory Requirements
There are many regulatory requirements to follow. What those may be will depend on your business type and who you're sending payouts to. Cover all your bases and ensure full compliance.
Limit Access
Limit the number of employees who have access to sensitive data. The more restricted access is, the stronger your protection against fraud.
Prioritize Data Security
Security should be a top priority when sending payouts. Use advanced encryption and tokenize user data to protect sensitive information from prying eyes.
Invest in Fraud Management and Detection
Strong fraud management practices and detection tools can help you identify attack attempts early. The proper measures can identify suspicious activity, allowing you to proactively prevent fraud.
Train Your Team
Finally, train your team on how to identify and avoid phishing attempts. Educate them on the types of fraud that might affect your business, and invest in ongoing training to help them stay current on the latest strategies criminals use.
How Dots Can Help
Dots is a unified platform that can simplify how your business handles payouts. With the Dots API, you can send payouts to users around the globe using a myriad of payment methods. Dots gives you greater control over moving money while streamlining payout processes. More importantly, Dots has robust fraud mitigation and security features.
Data security is at the forefront. With bank-level security, strong encryption, OFAC compliance, and more, multiple safeguards against data theft exist. To mitigate the risk of fraud, Dots has a comprehensive suite of features that help with due diligence, regulatory compliance, and fraud management. Dots even has algorithmic fraud detection that monitors transactions and raises red flags for suspicious activity.
These features make a difference, allowing your business to maximize productivity and better manage payouts without sacrificing safety.
Get Started With Dots Today
If you're searching for a payout platform that can actively help you prevent fraud, look no further than Dots. Dots offers powerful safety features to protect your business, bottom line, and payout recipients. The Dots payouts API is a solution that can cater to many different types of companies. From telehealth and marketplaces to companies that support the gig economy, Dots simplifies payouts for all while mitigating the risk of fraud.
Schedule a demo today to learn more and see how Dots can benefit your business.