Cybersecurity Awareness: Evolving Fraud Tactics Need Evolving Solutions

The materials available in this article are for informational purposes only and not for the purpose of providing legal advice. You should contact your own advisors with questions regarding cybersecurity awareness. Opinions expressed in this article are of the individual authors and may not reflect the opinions of MeridianLink, Inc.

As Cybersecurity Awareness Month comes to a close, it's a timely opportunity to focus on the role that ongoing education and the implementation of strategic tools play in helping financial institutions mitigate fraud risk. As fraudsters become more sophisticated, financial institutions are under pressure to stay ahead. So much so that fraud prevention has catapulted to one of the top three investment areas for financial institutions.

In a recent fireside chat, Megan Pulliam, SVP of Marketplace at MeridianLink^®, and Isio Nelson, Managing Director of Research, Fraud & Thought Leadership at BAI, talked about the changing face of fraud and how banks and credit unions can protect consumers and their institution from these bad actors. The conversation highlights an important reality: As consumers increasingly seek fast and frictionless experiences online, FIs face the dual challenge of effectively combating fraud while still prioritizing a seamless consumer journey.

Here are some of the key takeaways from the discussion. To watch the full episode, click here.

Three Major Fraud Types

Megan and Isio highlighted three major types of fraud that are particularly challenging today-synthetic fraud, account takeovers, and credential stuffing-and discussed how financial institutions can effectively tackle these risks with robust cybersecurity measures.

Synthetic Fraud

Synthetic fraud, where fraudsters create fake identities by blending real and fabricated information, has emerged as a significant challenge for financial institutions. As Megan explained, bad actors often build these synthetic identities using legitimate data points, like valid Social Security numbers, cobbling them together to create what seems to be a legitimate "person." This manufactured identity allows fraudsters to pass identity checks, making it difficult for institutions to detect.

FIs are employing various digital tools to combat synthetic fraud, including identity verification (IDV) methods and device risk assessments. IDV tools verify a user's identity by validating their phone numbers or devices against known data, offering a low-friction way to confirm identity. The widespread adoption of one-time passcodes, which send a code to a registered phone number during login attempts, has also become a standard practice in preventing synthetic fraud attempts.

Account Takeovers

Account takeovers-which often target less digitally savvy customers through social engineering-are another top concern. Fraudsters use phishing schemes and convincing scripts to exploit unsuspecting individuals, extract their login details, and gain access to their accounts. Megan points out that AI advancements have increased the sophistication of these scams, making it harder for victims to recognize fraudulent attempts.

To counter account takeovers, FIs use device-based authentication, ensuring that even if a fraudster gains login credentials, they cannot access an account without the registered device. One-time passcodes can also alert legitimate users to suspicious activity, prompting them to take action before further damage occurs. Implementing robust cybersecurity practices, such as employee training and consumer education, can significantly mitigate threats by enhancing early detection of phishing attempts.

Credential Stuffing

Credential stuffing has also emerged as a popular cyberattack method. With this type of fraud, attackers use automated bots to quickly plug in stolen username and password combinations until they gain access to an account. Megan highlighted how these attacks have become more common, with fraudsters often relying on previously breached data to find valid login combinations.

FIs can utilize tools like reCAPTCHA to distinguish human users from bots and guard against these types of attacks. Systems that monitor and flag high volumes of login attempts can also be an effective measure. These proactive tools are essential in ensuring account safety and preventing unauthorized access.

Regardless of the fraud type, staying ahead of these threats requires vigilance, the right tools, and strong partnerships.

Balancing User Experience & Fraud Risk Management

Consumers now expect to do everything digitally, from opening accounts to applying for loans and accessing banking services; they want to be able to manage their finances from where they are-on their mobile devices. But while convenience is key, it can't come at the cost of security. The trick is striking the right balance-integrating security measures like multi-factor authentication, device verification, and background checks without introducing unnecessary friction.

Too many hurdles can frustrate users, but too few leave both the institution and consumers vulnerable to fraud. That's where clear communication comes in. When consumers understand why these protections are in place, it builds trust and reassures them that their safety is a top priority-without compromising the overall experience. However, maintaining effective fraud risk management can feel overwhelming, especially with AI and bots enabling increasingly sophisticated threats.

Megan shared some actionable strategies that financial institutions can implement to enhance their defenses:

1. Instead of trying to chase every new security tool on the market, focus on maximizing the capabilities already built into your platforms. Begin with foundational practices like "know your customer" (KYC) checks. From this solid base, seamlessly integrate tools like identity verification to bolster security without complicating processes.

1. Adopt a proactive stance by regularly reviewing customer activity to identify suspicious behavior early on. This vigilance not only mitigates risks but also reassures customers that their accounts are secure.

1. Collaborate with trusted solution providers and participate in industry roundtables. By sharing best practices and learning from one another, banks and credit unions can better equip themselves to stay ahead of fraudsters in this rapidly changing environment.

A Collective Effort to Combat Fraud

Addressing fraud risk is a challenge that no single institution can tackle alone. As fraudsters continually evolve their tactics, the financial industry must adapt in response. With increased investment in advanced tools and collaborative initiatives, institutions are better equipped to confront these threats head-on.

As Megan and Isio pointed out, it's crucial for the entire industry to unite in this fight against fraud. This year's Cybersecurity Awareness Month theme, Secure Our World, is a reminder that we all play a role in this journey. By sharing knowledge, tools, and strategies, financial institutions can pool insights and resources to strengthen their defenses. This collective effort not only enhances individual security measures but also creates a safer environment for customers across the board.

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