The fintech industry has revolutionised the financial services sector with innovative solutions like digital wallets making transactions faster, more convenient and accessible. However, with rapid technological advancement comes an evolving landscape of fraud risks.

Key fraud risks in the fintech industry

Payment fraud

Payment fraud remains one of the most common risks in the fintech space. This includes fake transactions, overpayments and card-not-present fraud, often affecting both businesses and individual consumers. Overpayments or ‘double spend’ can be a much deeper issue related to centralised ledger design or interaction with related applications, rather than a bad actor exploiting a system vulnerability which could be patched.

Identity theft and account takeovers

Digital wallets and fintech platforms often rely on personal data for transactions. Cybercriminals exploit vulnerabilities to steal identities, leading to fraudulent transactions and unauthorised access to funds.
 

Money laundering

Fintech services, especially digital wallets, offer quick and sometimes anonymous transactions, making them susceptible to money laundering. Weak know your customer (KYC) and anti-money laundering (AML) practices can exacerbate this risk.

Phishing and social engineering attacks

Cybercriminals use phishing emails, fake web sites and social engineering tactics to trick users into revealing sensitive information, which is then used for unauthorised transactions.

Insider threats

Employees with access to sensitive systems and data can exploit their positions for financial gain, creating significant risks for fintech companies.

Transaction reversal fraud

In digital wallet-based services, fraudulent claims of failed transactions or unauthorised payments often lead to wrongful chargebacks, resulting in revenue losses.
 

B2B and B2C fraud risks

In the B2B context these risks can take several forms – for example, business email compromise (BEC), where fraudsters impersonate legitimate business contacts to redirect payments. Other risks include vendor fraud, involving fake or manipulated invoices resulting in overpayments or duplicate payments, or data breaches, when compromised business data can lead to large-scale financial and reputational damage. Last but not least, intra-company reconciliation issues can see ledger design issues resulting in the fintech losing track of individual customers’ payments when collecting on behalf of a single party, such as a utility company.

In the context of B2C, the risks may include unauthorised transactions, when stolen credentials lead to fraudulent purchases or fund transfers, or refund fraud, with consumers falsely claiming non-receipt of services or products to obtain refunds. Fake accounts are another method whereby fraudsters create fake profiles to exploit promotional offers or launder money.

How BDO can help

At BDO, we combine deep forensic expertise with cutting-edge technology to help fintech companies manage and mitigate fraud risks. Our services include:

• Fraud risk assessments: Identifying vulnerabilities and strengthening internal controls
• Digital forensics: Investigating cyber incidents and tracing unauthorised transactions
• AML and KYC compliance reviews: Ensuring robust anti-money laundering and customer verification practices
• Employee training: Educating staff on recognising and preventing fraud attempts
• Incident response: Providing swift and effective action in the wake of fraud events.

As the fintech industry continues to grow, staying ahead of fraud risks is critical. BDO stands ready to support businesses with expert insights and tailored solutions, ensuring a secure and resilient financial ecosystem.

Please feel free to reach out to the author or your local BDO fraud and forensics expert to find out more.
 
Author:
Zeeshan Shahid, Senior Director, Forensic, BDO Saudi Arabia
z.shahid@bdoalamri.com  Mobile: +966 555 638 532

Further reading: if you’re interested in learning more about ‘double spend’, please see this separate article by Zeeshan Shahid.