Digital Wallet Fraud: What It Is and How to Prevent It

Digital wallets have become foundational to modern financial ecosystems, especially in the Middle East and North Africa (MENA) region, where cashless economies are advancing rapidly. As governments push for greater financial inclusion and mobile-first banking expands, digital wallets have emerged as convenient, fast, and widely accessible tools for managing money. However, with this transformation comes growing concern over digital wallet frauds, which threaten not only individual users but also financial institutions responsible for securing these transactions.

Key Takeaways & 2025 Trends

• Digital wallet use in MENA is rising fast, with market value projected to reach over $44 billion by 2025 due to national digitization efforts and increasing smartphone adoption.

• Fraud risks remain high, especially in countries with lower card usage and weaker digital payment controls.

• AI and real-time analytics are becoming essential tools for fraud detection, significantly improving the ability to catch threats early.

• Contactless payments and tokenization are now common, but they also introduce risks like unauthorised contactless payment and SIM-swap attacks.

• Fintech innovation and embedded finance in digital wallets demand stronger, proactive digital payment fraud prevention measures.

What Is a Digital Wallet?

A digital wallet is a mobile app or software that stores a person’s payment details, such as credit cards, bank accounts, or even cryptocurrency keys. People use digital wallets to make payments in stores, online, or to send money to others.

Digital wallet examples include international services like Apple Pay, Google Pay, and PayPal, as well as regional solutions such as STC Pay in Saudi Arabia, e& money in the UAE, and Fawry in Egypt. These digital wallet examples amongst others make it easier for users to complete transactions with a few taps on their smartphones.

How Do Digital Wallets Work?

Most digital wallets work by storing payment data securely and allowing the user to make contactless payments through NFC (Near Field Communication), QR codes, or online checkout. When paying, users usually confirm the transaction with a fingerprint, PIN code, or face recognition.

Instead of sharing real card numbers, many wallets use a token—a secure, temporary code—during transactions. This adds a layer of protection. But even with this technology, problems with digital wallets still occur. Criminals are finding new ways to trick users or exploit technical gaps, which raises concerns about the overall safety of digital payments.

How Common Are Digital Wallets in 2025?

In 2025, digital wallet use is at an all-time high. A report from Juniper Research estimates that over 5.5 billion people globally are using digital wallets, with $10 trillion in payments expected this year alone.

In the MENA region, digital wallets are growing quickly due to:

• Government-led digitization programs like Saudi Vision 2030

• Strong smartphone usage and internet access

• Central banks encouraging digital payment adoption

This growth is positive but it also increases the chances of digital wallet frauds, especially when security controls aren’t strong. That’s why fraud investigators and AML teams must understand how these wallets work and where the risks lie.

What Is Digital Wallet Fraud?

Digital wallet frauds refer to any type of illegal activity where someone tries to steal money, data, or access from a digital or mobile wallet. This type of fraud can harm both users and financial institutions.

Fraudsters may hack digital wallets, trick people into giving away private information, or use stolen identities to open accounts. In some cases, they even use fake apps or websites that look like real wallets to collect user details. These actions can lead to money loss, reputational damage, and compliance issues, especially for banks and fintechs operating under AML regulations.

Digital wallet fraud is not only a user problem, it’s also a risk to the financial system. Fraudsters often move money through wallets quickly to avoid detection. This makes it harder for investigators and AML professionals to trace and stop suspicious activity on time.

Types of Digital Wallet Fraud

Digital wallet fraud can take many forms:

1. Account takeover: A criminal gains control of a real user’s wallet, usually by stealing login information.

2. Fake wallets: Some apps pretend to be real digital wallets but are designed to steal user data.

3. Synthetic identity fraud: Fraudsters create fake identities to open digital wallets and move money illegally.

4. Phishing attacks: Victims are tricked into sharing personal details through fake emails or websites.

Common Methods of Digital Wallet Fraud

Fraudsters use many methods to target digital wallets. Some rely on technical attacks, while others use social tricks to fool users.

1. Account Takeover (ATO)

One of the most common types of digital wallet frauds is account takeover. This happens when a fraudster gains control of a user’s wallet by stealing login credentials through phishing, malware, or weak passwords. Once inside, the attacker can make unauthorized transactions, transfer funds, or even add new payment methods.

Example: A user's digital wallet gets hacked after clicking a fake banking email. The attacker drains the account before the victim notices it.

Read more: How a Leading Fintech Reduced Fraud by Over 90% and Prevented Account Takeover with FOCAL

2. Stolen Payment Credentials

Fraudsters often buy or steal credit card numbers, bank details, or mobile payment data from data breaches or dark web markets. They add this information to a new or existing digital wallet and use it to make purchases or send money.

Banks and fintechs must flag such transactions, especially when user behavior changes suddenly or when spending occurs in multiple countries or currencies.

3. Synthetic Identity Fraud

Criminals sometimes use fake identities built from real and false information to create new digital wallet accounts. This is often used to bypass KYC (Know Your Customer) checks and commit mobile payment fraud or money laundering.

4. Social Engineering

In many fraud cases, victims are tricked into giving away personal or payment information. Fraudsters may pose as customer support agents, bank employees, or even government officers. These scams often spread through SMS, email, or phone calls.

This raises the question: Is wallet legit? Users and institutions alike must be able to verify whether a wallet is secure and trustworthy.

5. Man-in-the-Middle & Public Wi-Fi Attacks

When users connect to public Wi-Fi without protection, attackers can intercept wallet data during a transaction. This puts the security of mobile payments and digital wallets at risk, especially when no encryption is in place.

The Characteristics of Digital Wallet Fraud

Digital wallet frauds often share common traits, which can guide investigations and risk management efforts.

1. Fast and Automated Transactions

Fraudsters use technology to move money quickly through digital wallets. Automated tools allow them to make many transactions in a short time, trying to avoid detection by transaction monitoring systems. This rapid activity is a key characteristic of digital payment fraud.

2. Use of Multiple Wallets and Accounts

Criminals often open multiple digital wallet accounts, sometimes with fake or stolen identities, to spread out their fraudulent activity. This makes tracking the full scope of fraud more difficult.

3. Exploiting Weak Security Controls

Weak passwords, lack of multi-factor authentication (MFA), and outdated software give fraudsters easier access to wallets. Despite advances in digital wallet security, many users and institutions still don’t fully adopt strong protections.

4. Targeting Contactless Payments

Fraud related to unauthorised contactless payment is increasing. Since contactless transactions often require less verification, fraudsters exploit this to make small purchases that can add up quickly.

5. Social Engineering and Phishing

Many frauds start by tricking users into giving away sensitive information. Attackers use fake websites, SMS, or calls pretending to be trusted institutions. This method relies on human error rather than technical weakness.

Risks of Using a Digital Wallet

While digital wallets offer convenience and speed, they also come with several risks.

1. Security Risks

One of the biggest concerns is the digital wallet security risks. If the wallet app or platform is not properly secured, hackers can exploit vulnerabilities to gain access. This can lead to unauthorized transactions or theft of sensitive information.

Even when wallets use encryption and tokens, users may not always follow best practices, such as enabling multi-factor authentication or updating apps regularly.

2. Fraud and Theft

Digital wallet frauds often involve stolen or fake identities to create wallets or access existing accounts. Fraudsters may also use phishing or social engineering tactics to trick users into giving up login details.

Because transactions can be fast and sometimes anonymous, fraud can happen quickly and be harder to trace compared to traditional banking fraud.

3. Lack of Regulation and Standards

In the MENA region, regulations around digital wallets are still evolving. This means that some wallets may not meet the highest standards of digital wallet security or consumer protection, increasing the risk for both users and institutions.

4. User Behavior and Awareness

Many problems arise from how users manage their wallets. For example, reusing passwords, falling for phishing scams, or downloading unverified apps can expose users to risks. This points to the importance of education and awareness programs as part of mobile wallet fraud prevention strategies.

5. Technical Vulnerabilities

Technical issues like software bugs, outdated versions, or weak encryption can be exploited by hackers. For example, a digital wallet hacked through a security flaw could lead to widespread theft or fraud.

Protecting Your Institution from Digital Wallet Fraud

Financial institutions in the MENA region face unique challenges in combating digital wallet frauds due to rapidly evolving digital payments infrastructure, diverse regulatory environments, and varied customer awareness levels. To build effective defenses, institutions should adopt region-specific, AML-focused strategies.

1. Align with Regional AML and Cybersecurity Regulations

MENA regulators like the Central Bank of UAE, the Saudi Central Bank (previously known as SAMA), and others have issued detailed guidelines on digital payment security and AML compliance. Institutions must implement KYC and transaction monitoring systems aligned with these guidelines and ensure digital wallets meet mandatory cybersecurity frameworks.

1. Regulations in UAE

In the mainland UAE, the CBUAE oversees payment services and E-Wallets through regulations such as the Retail Payment Services and Card Schemes Regulation (RPSCS Regulation) and the Stored Value Facilities Regulation (SVF Regulation). The SVF Regulation is relevant for e-wallet services, while the RPSCS Regulation governs Payment Token Services. Financial regulators in DIFC and ADGM are the Dubai Financial Services Authority (DFSA) and Financial Services Regulatory Authority (FSRA), respectively.

2. Regulations in KSA

In Saudi Arabia, payment services are regulated by the Saudi Central Bank (Previously known as SAMA) through the Law of Payments and Payment Services and Payment Services Provider Regulations (PSP Regulations). The Saudi Central Bank issues licenses for Electronic Money issuance, distinguishing between 'Major Electronic Money Institutions' (Major EMIs) and 'Micro Electronic Money Institutions' (Micro EMIs). Micro EMIs have specific limits and requirements, offering a gateway to enter the KSA market.

2. Deploy Real-Time AML Transaction Monitoring Customized for Digital Wallets

Digital wallets often process numerous small, rapid transactions. Deploy AML systems tuned to detect unusual patterns such as:

• High-frequency, low-value transactions aimed at avoiding thresholds.

• Cross-border transfers common in MENA remittance corridors.

• Multiple wallet accounts linked to a single customer or suspicious device fingerprinting.

3. Strengthen Digital Wallet Authentication with Regional Considerations

Adopt multi-layered authentication that reflects regional usage patterns, such as:

• Biometric authentication widely accepted in Gulf countries.

• Mobile number verification tied to regional telecom providers.

• Use of SIM swap detection to prevent wallet takeovers, a growing threat in MENA mobile fraud cases.

4. Implement Customer Education Campaigns Tailored to MENA

Many wallet users in MENA are new to digital payments and may lack awareness of risks. Financial institutions should:

• Offer education in multiple languages commonly spoken in the region (Arabic, English, French).

• Use SMS alerts and social media channels popular in the region to warn against phishing and fake wallet apps.

• Promote awareness of digital wallet safe queries and provide clear advice on verifying wallet legitimacy.

Prevent Fraud in MENA with FOCAL Anti-Fraud Solution

Banks and financial institutions in the MENA region can improve their protection against different types of fraud by using the FOCAL anti-fraud solution. FOCAL uses technology like device fingerprinting and device risk analysis to identify suspicious devices and activities in real time. This helps detect fraud attempts, such as account takeover fraud. By using FOCAL, institutions can strengthen their digital wallet security, reduce unauthorized access, and better prevent mobile wallet fraud.

Conclusion

In conclusion, digital wallets revolutionize payment convenience. They allow users to store diverse payment methods securely. Digital wallet fraud and digital payment fraud are widespread globally. However, it poses risks like account takeover, stolen card linking, and friendly fraud. Understanding digital wallet cybercrime is vital. Adopting robust prevention measures is essential. They ensure secure financial transactions in this rapidly evolving landscape.

FAQs

Q1. Are Digital Wallets Safe?

Yes, digital wallets are generally safe. They use encryption and tokenization to secure transaction data, making it challenging for fraudsters. However, users should follow best practices like using strong authentication methods to enhance security.

Q2. What Is Mobile Wallet Fraud?

Mobile wallet fraud refers to unauthorized or deceptive activities involving digital wallets. It can include stolen credentials, account takeovers, or other fraudulent transactions. Vigilance and secure practices are essential to prevent and mitigate such incidents.

Q3. What Is The Most Secure Digital Wallet?

Determining the most secure digital wallet depends on various factors. Popular choices like Apple Pay, Google Pay, and Samsung Pay are known for robust security features, including tokenization and biometric authentication. Users should choose based on their devices and preferences.