The banking industry tends to focus on the most common types of fraud: check fraud, debit and credit card fraud, safe deposit box fraud, and ACH fraud. But there are many additional types of bank fraud both within and beyond these basic categories. Protecting your financial institution from fraud starts with understanding the risks.

Here are 25 types of bank fraud with links to resources with more information.

1. Account Takeover

In this type of fraud, thieves take over legitimate accounts. They may obtain the accountholder’s sign-in details through a phishing scam or buy them online after they’re stolen in a data breach. Once the thief has access to the account, they may change the address and order checks or replacement cards. They may also just transfer or wire money to another account.

2. Accounting Fraud

Accounting fraud primarily affects business lending. Businesses that commit accounting fraud “cook the books” so they look more profitable on paper than they are. Based on these fraudulent statements, banks grant loans to these businesses, but ultimately, because the businesses are insolvent, they can’t repay the loans. Then, the banks are left with a loss. The classic example is the Enron scandal.

3. ACH Fraud

The phrase ACH fraud refers to any fraud using the Automated Clearing House (ACH) system. Fraudsters may use social engineering to trick targets into sending funds to criminals through ACH transfers. Or they may steal an account holder’s details and then transfer funds to an outside account.

4. Advance or Upfront Fee Fraud

These types of fraud demand an upfront fee in exchange for promises of money, services, or special deals. The fraud takes multiple forms and overlaps with other types of fraud such as cashier check and money order fraud.

One of the most common iterations includes fraudsters posing as Nigerian government officials and asking victims to help them transfer money out of the country. Scammers tell the targets that they will receive a payment for depositing a check or money order. However, once the targets pay the fee, they realize the money order or check is fake.

In another version, scammers convince targets that they work for a debt reduction company, and that they can eliminate debts for an upfront fee. However, the scammers quickly disappear as soon as they receive the fee.

5. Application Fraud

Fraudsters submit fake applications for bank loans, credit cards, etc using stolen, forged, or “Frankenstein” identities. Then, they max out the funds or spend the loan and disappear without making any repayments. This type of fraud emphasizes the importance of monitoring all bank transactions, not just payments.

6. ATM Fraud

Bank ATM fraud may occur when someone puts a fraudulent deposit into an ATM and then withdraws the money before the bank spots the issue. Machines that still accept deposits in envelopes are a particular risk. It may also include criminals putting skimming devices on ATMs or placing cameras near ATMs to steal victims’ account details. In some cases, criminals obtain ATM user manuals online, and then, they break into machines that have default security codes.

7. Bill Discounting Fraud

Although this type of bank fraud is relatively rare, you should still understand the risk. Generally, with bill discounting fraud, the fraudster opens a business account at the bank. Then, the “business owner” convinces the bank to start collecting bills from the business’s clients.

The so-called clients are part of the scam, so they always pay the bills. After a while, the financial institution gets lulled into a false sense of security about this customer. Eventually, the customer asks the bank to credit the bills in advance. When the bank does that, the fraudster takes all the money and runs, and the bank never gets those funds back.

8. Card Fraud

Bank card fraud includes any fraud committed with debit cards, ATM cards, and/or credit cards. Criminals may steal physical cards and attempt to make in-person transactions, or more often, they steal card numbers to make card-not-present transactions.

9. Cashier’s Check Fraud

This type of bank fraud involves fake cashier’s checks or money orders. The fraudster may create a story to convince the target to deposit the check. For instance, the fraudster may contact someone who is selling something online and offer to pay with a cashier’s check. The target deposits the cashier’s check and gives the item plus potentially some cash to the criminal, but once the bank realizes the cashier’s check is fake, they reverse the deposit.

10. Check Fraud

Although the use of checks has been declining for over 30 years, check fraud has been on the rise over the last few years. Fraudsters target this payment method because committing check fraud is relatively easy to do. Crimes involve forging checks, washing checks, stealing checks, etc. There are many different types of check fraud including paperhanging, check kiting, floating, forgery, and theft.

11. Demand Draft Fraud

Like rogue trading, demand draft fraud happens internally. One of the bankers simply generates a demand draft payable at another branch or even at another bank. Then, they leverage what they know about the system to avoid detection, they cash the demand draft, and they keep the funds.

12. Identity Theft

Criminals steal people’s identities by hacking into databases, buying credentials online, or using phishing attacks. Once they have someone’s identifying details, they may take over their bank accounts, open new accounts in their names, or try to borrow money in their names. Bankers must be vigilant about data compromises that may put their customers at risk of identity theft. They also must be vigilant about new account and loan fraud related to stolen identities.

13. Internal Fraud

Bank fraud doesn’t always happen from outside attacks. Bank employees at all levels can commit internal fraud. Employees often have the knowledge to get around fraud detectors because they’re aware of the controls. A culture of honesty, employee training, duty segregation, and required days off can help to reduce the risks of internal fraud.

14. Loan Fraud

Accounting fraud can lead to loan fraud, but this type of fraud isn’t just limited to businesses presenting fraudulent information on their loan applications. When individuals present false information to obtain a loan, that is also loan fraud. Similarly, if a thief steals someone’s identity and applies for a loan in their name, that is another type of loan fraud. Additionally, if someone has a line of credit and a scam artist draws funds from that line, that also falls into this category.

15. Money Laundering

Money laundering is when criminals deposit fraudulently obtained sums of cash into a bank. They typically try to make the funds look as though they have come from a legitimate source. For instance, if someone is selling drugs, they may try to pretend that the cash is from a business, and they may deposit the funds in that business’s account.

Legally, you are obligated to report cases of suspected money laundering, and failure to do so can put your financial institution in a precarious position. The phrase money laundering refers to the fact that criminals put dirty money (derived from criminal activities or theft) through multiple transactions so that it looks clean or legitimate.

16. Money Mules

Money mules are people recruited by criminals to help them carry out fraud. Some money mules know that they’re participating in crime, while others are duped into the role. Criminals use mules to deposit stolen or fraudulent checks and open bank accounts for crimes. Catching this type of fraud can be difficult for banks as mules tend to be non-criminals who can pass know-your-customer (KYC) and Anti-Money Laundering (AML) rules.

17. New Account Fraud

Criminals need bank accounts for many different types of fraud, and that means they either have to 1) recruit mules, 2) trick legitimate accountholders into using their accounts, or 3) open new accounts. Fraudsters typically open new accounts to cash stolen checks. To commit new account fraud, they use their own details, stolen details, or a hybrid of stolen and made-up details.

18. P2P Payment Fraud

Fraudsters find ways to commit new crimes as quickly as new payment methods are invented, and this fact is especially evident with the rise of peer-to-peer (P2P) payment platforms such as Zelle, Venmo, PayPal, Apple Pay, etc. Most scams rely on social engineering attacks to trick victims into sending money over one of these platforms.

For example, a fraudster will call a target and direct them to send a payment immediately to prevent a utility shut-off. If the target falls for the scam, they use a P2P service to send the criminal the money, and once sent, the funds are irretrievable.

19. Payment Fraud

This umbrella term includes many different types of bank fraud. It happens when criminals try to make illegal payments. Payment fraud includes fraudulent ATM withdrawals, check fraud, card-not-present fraud, paying with a stolen bank card, and wire transfer fraud as well as any other fraud involving payments.

20. Phishing Fraud

Phishing is when a scam artist uses email, text, phone calls, or other methods to try to obtain a victim’s banking details. This type of fraud often overlaps with other types of fraud. For instance, fraudsters often use phishing emails to get bank account details from their victims so they can commit ACH or wire transfer fraud.

21. Prime Bank Fraud

Also called high-yield investment fraud, this type of fraud involves tricking people into buying fake investments. Criminals convince targets that they will receive high yields if they invest in certain instruments, but unfortunately, all of the investments are fake. Once the targets “invest”, the criminals run with the money. However, in some cases, the criminals take the fraud to the next level with a Ponzi scheme.

22. Rogue Traders

If you run an investment bank, you likely have traders on staff, and in this situation, you need to ensure that you protect yourself from rogue traders. These are traders who engage in unauthorized trades and manipulate the system to make it look as if their trading activities are generating more money for the bank than they really are.

23. Safe Deposit Box Fraud

Fraudsters also target safe deposit boxes. They pose as box holders and trick bank employees into giving them access. Then, they empty the box and leave with the contents. Savvy thieves may target multiple safe deposit boxes at once.

24. Social Engineering Attacks

In social engineering attacks, fraudsters use emotion to trick people into giving them details. For example, fraudsters may contact your customers and claim that fraud has occurred on their account. Then, when emotions are high, they convince the customer to give them log-in details, PIN numbers, or other private information. Fraudsters may also launch social engineering attacks on bank employees – for example, by tricking call center employees into sharing private data.

25. Wire Transfer Fraud

Wire fraud includes all cases of fraud involving wire transfers or the internet. In some cases, the scammers steal the username and password of a banking customer, and they wire money to themselves. Often, however, with this type of fraud, the scam artist convinces the victim to wire money to them.

For instance, in the all-too-popular secret shopper scam, the scam artist convinces someone that they’ve been hired to be a secret shopper for a wire transfer company or a bank. The scam artist directs the victim to wire some funds through that institution. The victim believes that if they do this, they will be compensated for the funds they sent and for their work as a “secret shopper”. However, after they wire the funds, the other party disappears, and the victim never gets their money back.

FAQs About Types of Bank Fraud

What is bank fraud?

Bank fraud uses illegal tactics to steal money, data, or property from financial institutions. It includes account takeover, check fraud, card theft, and other attacks against consumers. It also includes loan fraud and new account fraud where criminals attempt to steal directly from the bank.

What is financial institution fraud?

Financial institution fraud includes bank fraud as well as all other fraud attempts against financial institutions such as security brokers, money services, casinos, card clubs, or anyone else subject to supervision by any state or federal bank supervisory authority.

What is e-banking fraud?

E-banking or online bank fraud is any bank fraud that takes place online or through a bank app. For example, it includes a criminal stealing a victim’s sign-in credentials and taking over their account online. It also includes tricking a victim into making an online payment to a criminal.

What are the three types of fraud?

There are significantly more than three types of fraud. The three stages of fraud include planning, launching, and cashing. Three types of fraud may also refer to the fraud triangle which states that these three elements must be in place for someone to commit fraud: incentive, opportunity, and rationalization.

What are the top 10 bank frauds?

According to the FTC, the top 10 types of fraud against consumers are 1) credit bureau frauds, 2) identity theft frauds, 3) imposter scams, 4) online shopping and negative reviews, 5) banks and lender scams, 6) debt collection scams, 7) auto-related scams, 9) internet service scams, and 10) credit card and loss prevention.

With so many types of bank fraud and new ones constantly on the horizon, you need fraud protection you can trust. Our fraud solutions and services analyze transactions in real-time, assign a risk score based on multiple data points, and alert your team for manual review as needed.

Driven by machine learning, modern fraud solutions learn from different examples of fraud and they also get to know your customer’s patterns. These tools improve fraud detection, reduce strain on fraud prevention teams, and safeguard the customer experience by reducing false positives. To learn how SQN Banking Systems can help, contact us today.