5 Common Types of Fraud that Threaten Neobanks

As neobanks evolve, the one downside of their innovation is that it opens up many new methods of attack for fraudsters, such as identity theft, fraud rings, and account takeover attacks.

We know neobank risk teams must stay aware of evolving threats and take an active approach to closing those routes to fraud. This is why, in this article, we examine the five most common types of fraud in neobanking and how to protect against them – no matter how mature your approach to fraud prevention is.

Protect Your Business from Account Takeover Fraud

SEON’s anti-fraud tools are designed to detect suspicious usage and uncover hidden fraudsters

Speak with an Expert

5 Most Common Types of Fraud in Neobanking

  1. Account opening fraud: Fraudsters often try to open new accounts by using stolen, synthetic, or fake identities to impersonate legitimate consumers.
  2. Identity theft: Scammers can commit identity theft by using methods like phishing and vishing to impersonate genuine users.
  3. Fraud rings: Fraud rings are organized groups of fraudsters with access to more resources than individual hackers. They launch attacks against neobanks, with social engineering and other manipulative tactics being the favored ways to breach their victims’ data.
  4. Account takeover (ATO) fraud: Brute force or stolen information is used to access an existing, legitimate bank account. Neobanks are common targets of ATO fraud due to the ease of access and lack of real-world infrastructure.
  5. Money laundering: Neobanks process transactions quickly through means such as payment gateways, the remote and digital nature of which can make them more susceptible to financial crime than traditional banking.

Neobanks should have strict anti-money laundering (AML) and general cyber-security controls in place to protect themselves and avoid penalties.

How to Protect Your Neobank From Fraud

Knowing the most common types of fraud in neobanking means you can take a targeted approach to block it. Thankfully you have trusted best practices and the team at SEON to support you. We know the tricks fraudsters use and how to stop them in their tracks.

Here’s what a robustly protected neobank looks like, and later in this article we’ll explain how to get there:

  • Proactive fraud prevention: Your neobank’s full infrastructure should incorporate sophisticated, robust fraud detection. In addition to meeting anti-money laundering (AML) standards, your onboarding needs to proactively discern each customer’s real intentions.
  • Specialized AML: It’s your obligation to ensure that anti-money laundering legislation compliance and other local laws are respected by implementing dedicated AML solutions.
  • Staff training: Fraud prevention software can introduce customer friction, which should be kept to a minimum. Train staff to detect fraudulent activity while leaving genuine customers unaffected.
  • Legal vigilance: Stay on top of new neobank regulations and prepare for upcoming developments, such as PSD3.
  • Consumer awareness: Launch public awareness campaigns alerting your customers to practical fraud prevention steps (we’ve shared some helpful and shareable customer tips below).

Support Your Customers in Fighting Fraud With These Shareable Tips

Fraud fighting is a joint effort between businesses and their users. We’ve helped by listing some simple tips to share with your customers.

  • Set up multi-factor authentication (MFA): Add one-time passwords (OTPs) or other types of MFA to all neobank accounts.
  • Choose a strong password: Use a unique password with a combination of letters, numbers and symbols.
  • Avoid getting duped by social engineering: Do not blindly trust email links. Do not assume that someone on the other end of the phone is who they say they are. Never make a decision under pressure.
  • Avoid using public Wi-Fi: Insecure connections allow criminals to access your information. Public Wi-Fi may be okay for web browsing but not for logging into your neobank account.

How SEON Can Protect Your Neobank From Fraud

SEON can support your neobank no matter how mature your approach to fraud protection is. With tiered functionality, we can help protect your business from fraud with reactive steps, advanced proactive prevention, and much more.

SEON operates across four levels of maturity described below. Underpinning all our support is the belief that fraud-fighting is more than simply stopping crime: It’s about not missing out on your genuine customers.

Level 1: Basic & Reactive

  • Monitor traffic and new account registrations
  • Device fingerprinting and geolocation run in the background stopping bad actors from creating accounts

Using SEON at Level 1 helps you monitor traffic and registrations for new accounts. With our device fingerprinting and geolocation running in the background, you can prevent bad users before they create an account.

Level 2: Strategic & Proactive

  • End-to-end activity monitoring detects anomalies during logins, account detail changes, and transactions
  • Keep a log of historical customer behavior to spot suspicious activities

With end-to-end activity monitoring to detect anomalies during logins, account detail changes, and transaction monitoring, you’ll begin to create a log of historical customer behavior allowing you to spot suspicious activities.

Level 3: Innovative

  • AI and machine learning detects patterns at scale
  • Reduce manual review times, so your teams can be more efficient
  • SEON gets smarter with the feedback you teach it

Leaning on our AI and machine learning helps you detect patterns at scale. By reducing manual review times, your teams can be more efficient and focus on what matters. With each piece of feedback you pass to SEON, our scoring model gets even smarter.

Try Machine Learning for Fraud Detection

Discover how your business can leverage powerful, ML-enhanced fraud detection.

Speak with an Expert

Level 4: Transformative

  • Revenue is a team sport
  • Top clients and industry leaders use our insights to better understand, profile and acquire the right customers
  • Cross-functional teams use SEON to identify high-value customers

Our top clients use our data and insights to understand their customers better and ultimately fine-tune their customer profiling and acquisition tactics. We’re here to help teams across your business get the most value out of SEON – because we know revenue is a team sport.

For more info on neobanks, read our article: Neobanking Index: The State of Neobanks in 2023. You’ll learn: 

  1. Which countries exhibit the greatest neobank adoption per capita
  2. Which countries are predicted to have the greatest rises in neobank adoption rates
  3. What neobanks should do to set themselves apart from the rest

Share article

Speak with a fraud fighter.

Click here

Author avatar
Tamas Kadar

Tamás Kádár is the Chief Executive Officer and co-founder of SEON. His mission to create a fraud-free world began after he founded the CEE’s first crypto exchange in 2017 and found it under constant attack. The solution he built now reduces fraud for 5,000+ companies worldwide, including global leaders such as KLM, Avis, and Patreon. In his spare time, he’s devouring data visualizations and injuring himself while doing basic DIY around his London pad.


Sign up for our newsletter

The top stories of the month delivered straight to your inbox