What is Fraud Detection?

Fraud detection is a set of processes and analyses that allow businesses to identify and prevent unauthorized financial activity. This can include fraudulent credit card transactions, identify theft, cyber hacking, insurance scams, and more. Companies can incorporate fraud detection into their websites, company policies, employee training, and enhanced security features. The most effective companies combat fraud by using a multifaceted approach that integrates several of these techniques.

How Fraud Detection Works

Many criminals commit fraud by testing patterns and exploiting loopholes. For example, a hacker might develop a computer program that randomly tests thousands of 4-digit pins per second in order to crack the passcode on a credit card. Since fraud is often committed through patterns, fraud detection uses artificial intelligence to look for these types of patterns and sends an alert when one is detected. Depending on the severity of the alert, it could trigger a block of all activity immediately, or it may send the alert to a human evaluator for more investigation. For example, your bank may send you text message alerts to approve suspicious banking transactions.

Companies that Benefit from Fraud Detection

Businesses that are most at risk for financial fraud should have at least some fraud detection measures in place. These can include banks, credit card companies, insurance firms, and businesses that conduct significant online transactions. While any business carries some risk of being defrauded, companies with large transaction amounts, high numbers of transactions, or contactless business models are at a greater risk for fraud.

Advanced Fraud Detection Features

As fraud detection technology has advanced, so have the features available to business owners. Many fraud detection systems now offer several filters that can quickly flag abnormal transactions. Business owners can set filters to flag transactions from specific regions or countries, or that are above certain threshold amounts. Utilizing these filters gives the business owner some direct control to verify and approve transactions before the money exchanges hands.