Data
Tearsheet termsheet: What you need to know about financial services fraud
- The ways in which a person can commit fraud is growing so much and so fast the word become kind of vague. We break down what fraud is and how it happens
- There are three distinct patterns of fraud: transaction fraud, application fraud and account takeover fraud

In the digital age of digital transactions and other digital engagements, the word fraud gets thrown around a lot. Just see here, here and here.
That’s particularly true in financial services, since gaining access to cash “fraudulently” is harder now. As much as technology has raised the bar for the customer experience, it’s also raised the bar for hackers and fraudsters.
Here’s what we’re really talking about when we talk about “fraud.”
OK, what is fraud?
Fraud happens when someone tries to take money that doesn't belong to him or her for any number of reasons and has an increasing number of ways in which to do it. That person could find a card in the back seat of a cab and use it for the next meal or somehow know enough of someone else’s personal information to walk into a bank and get a new debit card issued, which is why Chase removed that feature of its card business last week.
In the digital age, however, it can get more complex than that — and so can the consequences for the victim. Creating passwords that meet certain companies’ standards for security is more difficult and people move more quickly in the digital age and have shorter attention spans; it’s led consumers to care more about speed and convenience that security and privacy.
“It’s incredibly hard for people to get stuff done digitally because we’ve made it so hard to prove who you are at the places where you want to share your data,” said Greg Wolfond, CEO of SecureKey, which is partnering with Canadian banks on a solution to that problem.
Are there different types of fraud?
In finance, there are three distinct patterns of fraud: transaction fraud, application fraud and account takeover fraud.
Most people who use plastic cards have experienced transaction fraud. The card or card number is stolen or otherwise obtained by some bad actor and then fraudulent charges begin to appear on your account. In this case it’s pretty likely the you alerted the bank, which reversed the fraudulent transactions and replaced your card, and you moved forward with your life. Card issuers lost $15.72 billion (72 percent) in gross fraud losses in 2015 and merchants and acquirers lost the remaining $6.12 billion (28 percent), according to the Nilson Report.
Application fraud is the fastest-growing type of fraud in financial services and happens when a fraudster actually pretends to be you using actual account credentials to open new lines of credit. We can break it down even further into three types:
- Third party fraud: when someone gets enough of someone's personal information from a compromised data set to go to a bank and pretend to be that person to apply or a loan or credit card
- First party fraud: when the person coming to the bank (or other service) really is the person he or she claims to be but intends to not pay back the loan or credit card; in instances of first party fraud, the bank or business is the victim, not the customer
- Synthetic fraud: when someone creates a persona using fake or borrowed information, like a social security number, and adds other, made-up elements of personally identifiable information like a name, address or date or birth