Best Practices for Detecting and Preventing Fintech Fraud in 2025

The word "FinTech" originated in the 1990s when Citicorp (now Citigroup) created the Financial Services Technology Consortium. They wanted to get banks and tech companies to work together and see what new tech could do for finance.

But, it wasn't until the early 2000s that "FinTech" really took off. This happened because the internet grew fast, and digital tech changed how people used financial services.

That said, with the rapid evolution of technology, fintech now includes customer-oriented services like digital wallets and peer-to-peer lending. Financial technology has changed the way people manage and use their money.

In this comprehensive guide, we will highlight the following:

• Why is Fraud Detection important in Fintech?
• What are the types of fintech fraud?
• What techniques and best practices should you follow to prevent fintech fraud?
• How can you utilize AI platforms to prevent fintech fraud proactively?

What is Fintech Fraud?

Let's start with what fintech is. Fintech companies are those that use innovative modern technology to deliver financial services. And when we talk about financial services, fraudsters are always present and attracted to the scene. In simple words, fintech fraud is the fraudulent activity that happens within financial technology services, such as identity theft through digital banking or crypto platforms.

The Role of Fraud Detection in Fintech Security

The convenience fintech companies provide also makes them more vulnerable to fraud. Without effective fraud detection in fintech, fintech companies risk serious consequences, potentially leading to their downfall.

1. Keeping User Data Safe

Generally speaking, fintech companies deal with a lot of sensitive data like banking details and transaction histories. Hence, when customers trust X fintech with their personal data, it is fintech's responsibility to protect this data and keep its users from unauthorized access, breaches, or fraud. 

2. Avoiding Financial Losses & Cutting Costs

Not only in fintech companies, but any fraudulent incident can expose any company to significant financial losses for users and companies. If you're thinking of a solution that can save your fintech money in the long run, you will need to consider investing in fintech fraud detection software.

3. Compliance & Following Regulations

Fintech companies are required to comply with and follow many compliance rules and regulations to protect consumers and ensure financial stability. Otherwise, there will be several negative consequences, like financial penalties, legal complications, and operational disruptions, to mention a few. 

4. Improving User Experience & Building Trust

A secure platform means a better user experience. Trust is key in any financial service. Customers and other stakeholders need to know that their money and information are protected and safe. 

8 Common Types of Fintech Fraud

Money attracts fraudsters and hence fintech companies are a primary target for fraud. What's more, is that the more advanced fintech fraud detection techniques become, so do the techniques used by fraudsters. 

1. Phishing Scams

Phishing scams occur when scammers pretend to be real, established companies and trick employees/people into disclosing sensitive information like passwords and credit card numbers. This type of attack can happen through different methods, such as fake emails or text messages.

For example, assume that you received an email or text message that looks like it is from your bank asking you to update your account information immediately. This sense of urgency would urge you to click on the link, which is most probably a fraud attempt. 

2. Account Takeover

Account takeovers take place when someone has unauthorized access to your fintech app login and then uses it to steal money or conduct fraudulent transactions.

3. Synthetic Identity Theft

The word synthetic indicates that the fake ID is not just all made up but rather indicates that the information is mixed between real information and fake ones. Scammers use these synthetic IDs to apply for loans that they never intend to pay back, for example. 

4. Payment Fraud

Criminals use stolen credit card information or get into payment systems to make fake transactions.

5. Loan Fraud

Some people lie about their income to get loans from fintech lenders, and they end up with loans that are much more than what they can actually pay back. 

Learn more about Affordability Scoring here.

6. Money Laundering

Moving illegal money through fintech platforms to hide where the money came from.

7. Mobile App Fraud

Malicious apps impersonate legitimate fintech services to deceive users into disclosing personal information or making unauthorized transactions.

8. Social Engineering

Social Engineering is when fraudsters trick people into giving away private information or doing things that let them into accounts or systems they shouldn't be in. They might pretend to be someone else, makeup stories, or take advantage of trust to pull off their schemes.

Read more: Top 11 Fraud Trends & How to Prevent Them in 2025

Best Practices for Fintech Fraud Prevention

In the fintech sector, cases of identity fraud saw a 73% increase from 2021 to 2023, jumping from 0.67% to 1.16%, as reported in the 2023 Identity Fraud Report. This necessitates fintech companies employ more active efforts and follow effective measures to detect identity fraud in real time and better proactively prevent it.  

1. Identity Verification

This means verifying identities using methods like document verification, biometric scans (like fingerprints or facial recognition), or using identity verification services that cross-check information against databases. In this way, you ensure that only legitimate individuals can open accounts in your fintech or conduct transactions.

Read more: The 10 Best Identity Verification Software Solutions for 2025

2. Transaction Limits and Controls

You can set maximum amounts and how often transactions can happen. You can utilize fintech fraud prevention software to catch unusual patterns or actions as they happen in real time.

Detecting and preventing fraud in fintech requires advanced technological solutions and vigilant monitoring.

3. Biometric Authentication

Fingerprints, face scans, or voice recognition are biometric features that are unique to each person and hard to copy, and this makes it tough for anyone to get into accounts or steal identities. Regulatory frameworks must adapt swiftly to the evolving landscape of fraud in fintech.

In fact, biometric authentication and encryption technologies are reshaping fraud prevention in financial services.

4. Behavior Analytics

When you have an idea of how users normally behave or act, it would be easy for you to spot when something doesn't fit the usual pattern. Behavior analytics tools and comprehensive fraud prevention solutions like FOCAL notify you when there are odd spending habits or times when people log in from an exotic geographic location, which might be a sign of fraud. 

5. AI Fraud Prevention Software

A comprehensive fraud prevention solution should have all the features you need to prevent fraud. It should give you a 360 defense shield to find signs of fraud and proactively prevent it. The good thing about fraud prevention software solutions is that they analyze large amounts of data in real time, learn from new information, and change tactics as fraudsters come up with new ones.

Fraud prevention in financial services requires technological solutions that can provide vigilant monitoring of transactional patterns.

Protect Your Fintech from Fraud with AI-Powered Solution

It is established that fintech scams pose a significant threat, and thus, adopting a fraud prevention software solution is a necessary measure to detect and stop fraudulent activities in real-time.

FOCAL fraud prevention solution blocks suspicious connections, including VPNs and hosting services, before they compromise your systems. The point here is that the platform proactively protects your business from fraud.

The solution also analyzes data instantly and in real-time, providing accurate Fraud Scores to detect and respond to fraudulent activities quickly. It also uses advanced techniques like device fingerprinting, behavior analysis, and device risk to detect anomalies that may indicate fintech scam attempts.

Conclusion

In conclusion, the fintech industry is prone to fraud attacks, and, relatively speaking, it is more vulnerable to fraud than other industries because it heavily depends on digital transactions. Therefore, these companies need effective systems and solutions to detect and prevent fintech fraud.