How to Prevent Online Fraud

Online fraud (or internet fraud) refers to the various types of fraud that occur over the internet and via email—such as identity theft, phishing, account takeover, etc.

Online fraud is a serious problem for everyone, from individual consumers to huge enterprises and tech companies. Even before COVID-19, “digital transformation” and “Industrial Revolution 4.0” (powered by the internet) were popular buzzwords. Then, the global pandemic accelerated digital transformations across many different industries all over the world.

Unfortunately, the increase of online activities, especially online transactions, has invited a massive number of cybercriminals to execute various forms of attack. According to the FBI’s 2021 Internet Crime Report, there were more than 800,000 complaints related to online fraud in 2021. The top three crimes reported were phishing, non-delivery/non-payment scams in e-commerce transactions, and online extortion.

We created this guide to cover all you need to know about online fraud and other types of cyberattack vectors, especially how to protect your digital assets from fraud.

What is online fraud?
Different Types of Online Fraud
How to Protect Yourself and Your Digital Assets From Online Fraud

What is online fraud?

Online fraud is an umbrella term to encompass all sorts of scams committed using the internet. Online fraud comes in many different forms, and different attackers pursue different purposes. For example, an attacker would use phishing emails for a one purpose (obtaining private user credentials) and a credential stuffing attack for a different purpose (testing to see if the credentials have been used more than across different sites).

Most online fraud involves either identity theft or financial fraud. Identity theft happens when the victim’s identity is used (without the victim’s knowledge) to perform or aid a crime. Financial fraud, as the name suggests, is a type of fraud where the attacker gets a monetary gain from the scammed victim.

Identity theft and financial fraud crimes can be related. For example, a cybercriminal may gain access to a consumer’s credit card information, and then pretend to be the consumer (identity theft), using the credit card credentials to purchase products from an e-commerce store (financial fraud).

While they can be related, it is crucial to understand that the crimes of online financial fraud and identity theft are considered to be distinct from each other and are often carried out in different ways. When planning to protect your business, customers, and digital assets from online fraud, you should plan prevention for each type of online fraud.

Different Types of Online Fraud

While online fraud can come in many different forms, here are some of the most popular:

Medical Identity Theft

Attackers can gain unauthorized access to health insurance information, and then use victims’ credentials to get prescription drugs, file illegitimate claims to insurance providers, and so on.

To prevent medical identity theft, patients should review insurance and medical statements carefully, as regularly as possible. If an individual has any suspicion that their records have been accessed by an unauthorized party, they should call the health entity’s customer service to cross-check the details immediately.

It’s important to alert medical and insurance providers of a potential breach as soon as possible. Patients should be prepared to present supporting documentation to substantiate their disputes.

Once a complaint has been filed, the investigation process can take some time, so make sure to follow up as needed to make sure everything is clear.

Social Media Identity Theft

With the increase of social media users all around the world, many cybercriminals are now targeting social media accounts for various fraudulent purposes.

Cybercriminals may attempt to gain access to social media accounts via various forms of account takeover (ATO) fraud. Even when they can’t gain access, attackers can use information from users’ posts for fraudulent purposes.

For example, if a user posts a picture of their house on Instagram, a cybercriminal can trace the address and use it to apply for a credit card.

To prevent social media identity theft, users should be extremely careful before posting anything that could be used to compromise their security. Social media users should also decline connection invites from users they don’t really know.

Social Security Number Identity Theft

Protecting Social Security information may seem like common sense. But many people are not aware that once attackers gain access to a Social Security number, they can also gain access to tax records, which can then be used to launch various financial fraud attempts.

Phishing

In a phishing attack, cybercriminals use social engineering tactics to gain sensitive information (e.g. username/password credentials, credit card information, and Social Security number).

Phishing attacks can come in various different forms, for example:

Email Phishing Scam: A cybercriminal sends emails to users impersonating a known entity (e.g. a bank) and leads victims to download something or click a link. The link or download either steals the victim’s credentials or infect the victim’s device with malware.
Spear Phishing: To target a specific individual (e.g. a large company’s CFO), the attacker conducts research, and then impersonates someone the victim knows (e.g. the CEO, using his/her real name and phone number).
Fake Hotspot Interception: Attackers can create a fake Wi-Fi hotspot (which is free) that will intercept data from victims who connect to the Wi-Fi network.
Work-From-Home Scam: A very common form of phishing in today’s post-pandemic era in which cybercriminals dupe victims (real job-hunters) looking for work-from-home opportunities.

Phishing is difficult to defend against, since it targets people. No matter how solid your security infrastructure is, your organization’s phishing defense is only as strong as your least vigilant employee.

Invoice Fraud

In invoice fraud, the cybercriminal impersonates a business (or any party that might actually send an invoice to the target) and contacts the target via email or other means, requesting that they update the banking details for invoices sent by the real vendor. Then, when the payments are made, the cybercriminal intercepts them.

If the attacker has conducted enough research into the supplier/vendor’s background, invoice fraud can be very difficult to detect, as the request may appear very authentic.

E-Commerce/Online Shopping Website Fraud

E-commerce fraud is very common today. Attackers set up a fake online shopping site, typically offering high-demand products (iPhones, VGA cards, PS5s, etc.) at very low prices. The fake website is designed to attract many potential victims and lead them to make a purchase by entering their credit card credentials. Sadly, the victims never receive the product, and the perpetrator gets their money and credit card information.

There’s also a modification called triangulation fraud, where the attacker uses the credit card information they got from the fake e-commerce site to purchase the real product from a legitimate site. That way, the victim does receive the real product and does not realize that their credit card information has been compromised. Triangulation fraud buys attackers more time to use the stolen credit card information before getting blocked.

Lottery Fraud

A relatively “old” type of online fraud that people still fall victim to is lottery fraud. The victim receives a notification/email/text that they have won a lottery (money or other lucrative prizes like iPhones, laptops, free tickets, etc.). But the perpetrator asks the victim to pay a fee to claim their prize. For example, the attacker might ask the victim to pay for taxes, insurance costs, courier charges, etc.

Account Takeover (ATO) Fraud

ATO fraud happens when a cybercriminal gains access to a legitimate user account via account takeover (by brute force, credential stuffing, phishing, etc.), and then uses the legitimate account to perform fraud. For example, a perpetrator might gain unauthorized access to a social media profile, and then attempt to scam the account followers via DM.

How to Prevent Online Fraud

Although there are many different types of online fraud, we can group them into three basic methods:

Phishing (Social Engineering): Exploiting personal information to trick humans/people into taking an action that is against their best interest, with a goal of exposing their credentials, making a wire transfer to a fraudulent account, etc.

Bot-Driven Online Fraud: Using malicious bots or automated programs to perform account takeover attempts, especially brute force attacks and credential stuffing attacks. Attackers then use the stolen credentials to perform other types of fraud.
Malware Infection: Infecting the victim’s device with malware that allows the attacker to gain useful information (e.g. by recording all keystrokes entered on the infected device’s keyboard) to perform more fraud.

To completely protect your business, customers, and systems from online fraud, you must cover all three methods. Heres how:

1. Make sure everything is up to date.

One of the easiest and most effective ways users and businesses can protect themselves from online fraud and identity theft is to keep everything in their systems up to date—the operating system (OS), all apps and software solutions, equipment firmware, and so on.

Ideally, users and businesses should update their software as soon as updates are available, especially if the update is a security patch. No one wants their data to be compromised due to software vulnerabilities that the vendor has already patched.

Set all software solutions, including and especially antivirus/anti-malware solutions to auto-update. If for some reason, that’s not possible (e.g. if you can’t allow any system downtime), then you should schedule regular updates as often as possible.

2. Regularly train your people.

In the event of a phishing attack, your organization’s defense is only as strong as your least vigilant employee. Empower your people to protect themselves.

It’s critical that you provide your employees with at least basic phishing awareness training, and ideally in-depth cybersecurity awareness training. It’s also crucial to understand that training your employees should not be a one-off initiative. Knowledge that isn’t refreshed and maintained will erode.

Keep your training program up to date, covering the newest phishing techniques and cybersecurity attack vectors. Make sure your team’s training is interactive, not solely requiring employees to read each module. Involve phishing simulations and apply gamification approaches when possible.

Last but not least, measure the effectiveness of your training program. Focus on actual progress—not just participation.

3. Identify and protect high-risk employees.

Spear-phishing, whaling, and other forms of targeted phishing schemes may be specifically directed at high-risk employees in your organization. To prevent targeted phishing attacks, you should identify high-risk employees and prepare them for potential incoming attacks.

There are two main types of high-risk employee:

Naturally Attractive Targets: High-level executives, HR managers, finance managers, etc. Basically, anyone with access to sensitive information and/or anyone with influence over other employees in the organization. (The perpetrator will try to impersonate them.)
Especially Vulnerable to Phishing: If you conduct regular phishing simulations, you’ll identify employees who often fail to identify a phishing attempt. Those who fail to recognize a threat are not usually the people you’d expect. It’s also crucial to keep a record of training program progress, because program analytics and statistics might help you predict vulnerable employees.

4. Have the right infrastructure to prevent bot-driven attacks.

Malicious bots have two different roles in online fraud attempts:

Vulnerability Scanning: Cybercriminals utilize malicious bots to scan your system for potential vulnerabilities (e.g. unpatched software). When vulnerabilities are identified, the attacker can launch follow-up attacks and fraud attempts. Learn more about how to prevent vulnerability scanning with our guide.
Performing Automated Attacks: Common automated attacks include brute force and credential stuffing attacks, as well as other forms of account takeover (ATO) attacks. Attackers can use bots to gain access to legitimate user accounts and use the accounts to perform fraud.

But protecting yourself and your system from bot-driven attacks isn’t just about blocking bots. There are two more key considerations:

Good Bots vs. Bad Bots: Not all online bots are malicious. There are beneficial bots owned by well-known companies (e.g. Googlebot) that can provide substantial benefits to your website or application. You don’t want to accidentally block good bots.
Sophisticated, AI-Driven Bots: Distinguishing between bots and legitimate (human) users is increasingly difficult. Malicious bot programmers are getting more sophisticated, often incorporating the latest technologies to mask the bot’s identity. AI-driven bots can now perform human-like behaviors, such as nonlinear mouse movements, to fool bot detection tools like Google’s reCAPTCHA.

To really protect yourself and your system from bot-driven online fraud, an advanced AI-driven bot detection and mitigation solution is now a necessity. DataDome is an advanced anti-bot and online fraud protection solution that deploys in minutes on any web infrastructure and runs on autopilot to protect your system 24/7 from vulnerability scanning and bot-driven online fraud attempts.

DataDome uses AI and machine learning (ML) to quickly determine whether a visitor is a human or a bot by analyzing trillions of signals daily. Once a bot-driven fraud attempt is detected, DataDome blocks it right away, so you can continue operations.

5. Make two-factor authentication mandatory.

One of the most effective ways to prevent online fraud caused by account takeover is by requiring employees to use two things:

Strong Passwords: At least 10 characters, including a combination of uppercase letters, lowercase letters, numbers, and symbols.
Two-Factor Authentication (2FA) or Multi-Factor Authentication (MFA): Requiring users to provide a second piece of information before allowing them to access their account.

The second factor in 2FA can be something:

Real Users Know: A second password, PIN, answer to a secret question, etc.

Real Users Have: From a fingerprint or iris/retina scan to a USB dongle or a phone to pair with.

To protect your enterprise from phishing and other forms of social engineering attacks, 2FA is essential because it means that fraudsters won’t be able to access your employees’ accounts, even after a successful phishing attempt.

6. Secure an advanced anti-bot solution.

Don’t underestimate bad bots, malware, and computer viruses. There has been close to a 90% increase in malware infections in the last decade, many of which lead to various forms of online fraud. As bad actors continue to find new ways to access people’s online accounts, almost a quarter of all adults in the US have been victims of account takeovers. Plus, approximately 450,000 new malware programs are being invented every single day.

If you don’t properly protect your business and customers from harmful software and malicious automated attacks, you are at risk. It’s crucial to invest in the right solution to protect your whole system. Here are some tips for choosing the right one:

Choose a solution that offers total protection for your systems from various forms of malware: bad bot, trojan, spyware, worm, ransomware, crypto-malware, and so on. Most vendors advertise what types of malware their solutions protect against, so check before making your choice.
Choose a vendor that regularly updates their solution. As discussed, thousands of malicious programs are being invented every single day. The more frequently a solution updates, the better. And always turn on auto-update for your antivirus solution.
Check whether the protection offers autopilot and real-time protection, meaning it can immediately take appropriate actions (delete, quarantine, etc.) when it detects bots and online fraud. The faster the solution acts, the better.
Choose a solution that can integrate well with your current system. This isn’t solely about whether the solution is supported by your computer’s OS, but also whether it is light enough for your hardware. No use in choosing an antivirus solution that offers all the right features but ends up slowing down your whole system.
Last but not least, make sure the antivirus solution fits your budget. There are free antivirus solutions that are decent, but in most cases, paid solutions work better and offer additional features like data backup, firewall, the ability to create bootable USB drives, secure data erasure features, and more.

The easiest and most accurate way to identify and stop advanced online fraud before it reaches your business and customers is with a specialized bot and fraud detection solution. Try specialized bot and online fraud protection that leverages machine learning and aggregate global detection to protect your mobile app, website, and API from scalpers in real time

7. Protect your personal information.

Always protect your personal information, and maintain a training program that teaches your employees to do the same. Cybercriminals may use information from a social media post, for example, to perform a phishing scam, guess your password, or answer security questions to reset your password.

Social media users should avoid posting things like their address (including a photo of the house number or car plate number), birthdays, mother’s maiden name, and so on.

Wrapping Up About Online Fraud

Protecting yourself and your business from online fraud can be a challenging task, and fraudsters will only get trickier and better at online fraud in the future. Whether you are a big enterprise, a small business, or even an individual, you are always at risk of various different types of online fraud.

With that being said, you should be proactive in protecting your digital assets—from your social media accounts to your websites and databases. The tips shared above can help you build a comprehensive online fraud prevention strategy.

By investing in the right infrastructure and performing best practices, you can prevent online fraud from impacting you and/or your business.