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When you have a country filled with more than 1 billion people and it turns out more than half of them are financially illiterate, it creates a fertile ground for scammers to execute various types of financial fraud.
Financial literacy is the key to securing your financial wealth. Without financial knowledge, you are less likely to identify and prevent potential scams.
We are humans and are emotionally vulnerable to things that value us the most. Scamsters often use a mix of psychological manipulation to trigger your emotions, leading to fear, greed, and compassion.
Scamsters can impersonate anyone to approach you. They can pose as trusted authorities, institutions, or loved ones to gain access to sensitive information. Their goal is to build trust and deceive you, leaving you empty-handed.
You may not even realise that you are being scammed. It is not your fault if you fail to recognise them. There are numerous factors that contribute to scams, including physiological manipulation, information overload, exploiting trust, and many more.
Once you are being scammed, you may be able to retrieve your money by filing a complaint. But you will never get back the peace of mind.
Financial fraud is a growing threat to the economy. We may not be at fault for being scammed. But we are at fault if we do not educate ourselves about it.
Therefore, everyone must gain knowledge to prevent getting trapped in potential scams. Since most of us lack knowledge about various financial scams, fraudsters can take advantage of it.
So enough is enough. Today you will be exploring the most common types of financial scams that individuals face. You will also learn about the nature of these financial frauds and the necessary steps to protect yourself from these scams.
Before we dwell on the different types of financial fraud, let us understand what financial fraud is and how it affects individuals and the entire economy.
Financial fraud occurs when someone exploits or misuses your actions to their advantage to gain financial benefits at your expense.
Scammers may approach individuals and pose as institutional or government officers who manipulate your trust and take advantage of your lack of financial knowledge to misuse your personal information and financial accounts to steal your money.
Financial scammers possess the skills and resources to carry out various fraudulent activities such as identity theft, credit card fraud, insurance fraud, etc.
Each fraudster is trained to exploit your emotional vulnerability to their advantage.
If you are not careful, scammers can leave you with substantial financial losses, emotional distress, and self-doubt. Huge losses can often affect your entire livelihood.
Therefore, it is crucial to be aware of the financial scams and take necessary steps to prevent them from happening.
Financial frauds are so numerous that victims may be unaware of the type of fraud taking place if they lack sufficient knowledge. Common types of financial fraud include identity theft, credit card fraud, investment fraud, and many others.
The number of financial frauds is increasing year by year. As per the reports, a total of 1.13 million financial cases were reported in 2023, including various fraudulent activities.
At the same time, several victims have chosen not to report scams due to a variety of circumstances. The combined number of reported and unreported scams could be higher. Most of these financial crimes occur online, leading to an increasing number of online financial crimes.
In order to prevent this number from rising every year, we are here to educate you about the different types of financial fraud and prevention measures.
Here is a list of financial crimes that are both online and offline scams.
Identity theft occurs when someone steals your personal information, such as financial statements, bank account numbers, and credit card information, or anything to gain financial benefits or commit fraudulent activities at your expense.
Scammers can use your personal information to carry out other internet fraud activities under your name, which can lead to serious criminal offences in the future.
Thieves can get your personal information in various ways. Moreover, our data is connected all over the internet, allowing scammers to breach and obtain your information at their convenience.
Identity theft is difficult to detect, especially if you do not regularly review your financial statements. A clear sign of identity theft appears when you discover bills for items that you did not purchase, financial transactions you didn’t make, bounced checks, difficulties in accessing accounts, and many others.
Although, you can prevent it by using strong passwords, enabling two-factor authentication, and being cautious online. If an identity theft occurs despite script measures, immediately report it to the authorities and temporarily block your bank accounts. Reporting to authorities may help to prevent the rising internet fraud.
Credit fraud happens when an unauthorised user gains access to your credit card information and makes purchases on his/her behalf at your expense. Scammers can acquire your credit card information through physical theft, hacking, and skimming other devices.
Scammers can use your credit card information to open a new account under your name or pay for products and services without your knowledge.
As a result, a victim may experience various financial losses and might be required to dispute fraudulent charges, which can take time to resolve.
To prevent financial losses and charges, it is critical to report to the police about a credit card being stolen or misused by a person.
Also immediately contact your card issuer to block the card and dispute unauthorised transactions.
As a precaution, it is always wise to set a limit on transactions to prevent any attempt to make a sizable transaction.
Pyramid scheme is a fraudulent investment model that encourages individuals to participate in the scheme by promising high returns in exchange for bringing in new recruiters.
This creates a hierarchy where profits are made mainly from recruiting members rather than selling a product or service.
Pyramid schemes are encouraged by the participants for incentives by recruiting new members. The entire structure relies on receiving a commission from the new recruitment.
Pyramid scheme operators may sound very genuine about the workings of the pyramid structure. These scammers are highly manipulative, as they will provide social proof of false client testimonials and endorsements to build credibility.
They will appear with their schemes as a once-in-a-lifetime opportunity promising huge wealth and community.
In a pyramid scheme scam, the participants sitting at the top of the pyramid structure will most probably have received the profits as recruitment.
But when the pyramid collapses due to a lack of recruiters or for any other reason, the participants at the bottom of the pyramid will be left with significant losses, leading to losing trust in future investments.
Protect yourselves from pyramid schemes by questioning the legitimacy of the promising high returns and understanding how the business works.
Check online about the company organising the pyramid schemes. Research the business model and other information to determine the legitimacy of the pyramid scheme.
Insurance fraud is an illegal activity related to insurance. Insurance fraud can be carried by both policyholders and insurance providers.
A policyholder may commit insurance fraud through inflated claims, staged accidents, or exaggerating damages for financial gain.
Meanwhile, insurance providers may also commit insurance fraud by jeopardising premiums, selling policies from fake companies, and exploiting policies for extra commissions.
If caught, both policyholders and insurers who are in the wrong will face severe punishment ranging from substantial fines to jail time. Therefore, maintaining honesty and claiming what is insured would be beneficial.
So, it is critical for the insurers to double-check the policyholder’s information during the claiming process to avoid any complications. Also, educate the customers about common insurance frauds and advise them to refrain from any potential scams.
Insurance policy takers must verify the policy with the right authority before giving any information. For any related queries, only approach your insurance manager for any information.
Insurance companies do not share your insurance details with third parties. Therefore, be cautious and respond wisely when third parties approach you regarding any queries about the insurance.
A banking scam is a fraudulent activity that involves deceiving individuals or banking organisations by gathering sensitive information or money for personal gain.
Banking scams occur in two types: offline and online banking fraud. Offline banking fraud involves when a person or organisation illegally obtains money without any means of online activity. Offline banking fraud is riskier as it requires direct physical involvement.
Online activities are more trending as they happen online in various forms, such as phishing, where fraudsters pose as bank institutions through fake emails and messages and trick individuals into sharing important details without revealing any information about the fraudster.
Scammers can use skimming devices, fake banking apps, forged checks, or pose as advisors to lure victims. Exposure or breaching of your personal details to scammers can result in significant financial losses and emotional disturbance.
Banking scams can also go in another direction, where fraudsters find loopholes in the banking system and take advantage of them for their personal gain.
As an individual, if you fall victim to a banking scam, immediately contact your branch and report the potential scam. As a result, banking professionals will freeze your account until your account is recovered.
Mortgage scams involve deliberately misinterpreting the information of the mortgage application for personal gain. Mortgage scams are typically done for two things: for profits and housing.
Industry insiders such as real estate agents, brokers, or appraisers are more likely to inflate the mortgage terms to secure a high commission.
Fraudulent activities for housing gains are primarily carried out by tenants to secure home loans that they may not qualify for or to maintain or obtain homeownership.
Financial losses are not only limited to the borrower or organisation in a mortgage fraud. Illegal practices can cause housing market bubbles and subsequent crashes. Also may face legal penalties, loss of licences, and damages to the reputation.
Implementing strict security measures like thorough verification, fraud detection systems, and regular monitoring can prevent borrowers from practising illegal activities.
Meanwhile, borrowers must choose trusted professionals and avoid quick-fix schemes that are too good to be true.
This way, both industry players and homeowners can prevent falling victim to real estate scams.
Payment fraud involves carrying out any unauthorised transaction or illegal means to steal money or payment credentials from individuals, businesses, or organisations. Payment fraud primarily occurs online and is highly classified as an online cybercrime.
Due to the growing reliance on digital payment, scammers are utilising advanced digital technologies to carry out illegal payment activities.
Payment fraud can lead to substantial financial losses for businesses as well as individuals. Businesses can lose the trust of customers during the event of an illegal payment.
Moreover, investigation in correspondence to the scam can further disrupt the operations of businesses.
Both individuals and businesses can prevent becoming victims of illegal payment activities by practising secure payment methods, monitoring accounts regularly, enabling two-factor authentication, and being aware of phishing activities.
Phishing is the practice of using internet tools to send pop-up emails and messages that alert you to a problem in your bank account or something like you have a bonus or reward waiting.
These pop-up messages are designed so that the scammer can obtain all of your personal information by clicking on the link provided in the message.
A successful phishing attempt by a scammer can result in a breach of your data, including financial information. The victim may face significant losses and emotional distress.
This illegal practice commonly takes place through the internet. Educate yourself about possible phishing methods to prevent online fraud. If you encounter phishing schemes, advise against taking part in them.
Investment fraud occurs when someone deceives another person with the aim of personal financial gain by promising high-return investments with little to no risk. Many scammers take advantage of individuals due to their lack of knowledge about the principles of investments.
Vulnerable individuals with financial struggles who are looking for quick money may easily fall prey to investment scams. Let me tell you one thing: wealth building has no shortcut.
Investment fraud can be of many types. Scammers may pose as agents, brokers, or advisers. These individuals will persuade common people to act quickly, claiming opportunities will disappear, and will help you get good returns in the initial stage to build trust.
Once you gain trust, you will be willing to make huge investments. When you do that, the scammer will immediately cut you off and flee with your money.
If you feel that you are being scammed, immediately report to the authorities and cease any further payments. Scammers are likely to be in the guise of any well-known company. Also, notify your financial bank and seek a lawyer to understand the options for recovery.
Tax fraud is an attempt made by an individual or an institution to intensely falsify information about income to reduce or evade taxes. These illegal practices appear as if these fraudsters are looting from other taxpayers as well as the government.
Tax fraud can result in many ways, such as overstating deductions, hiding assets, failing to file tax returns, making fraudulent refund claims, and many others.
Each of these tax fraud activities directly or indirectly impacts the economic costs, increased tax burdens, and legal complications.
Those who are found guilty of tax fraud are charged with financial fines and imprisonment. In addition, it will also impact their reputation.
Therefore, practice honest tax filing with accurate information to prevent being charged with tax fraud.
Protect your information to prevent it from being taken by another person and used for illegal purposes.
Account takeover is a form of identity theft where fraudsters take over accounts and pose as real users. They mainly access the user’s accounts using stolen credentials, phishing activities, or other security valuable details.
You may face significant financial losses, reputation damage, and loss of sensitive information due to an account takeover.
Some of the most common account takeover scenarios can be detected by odd login behaviour, failed login attempts, changes in account details, or any other suspicious activity.
It can be prevented by implementing strict security measures such as two-factor authentication, multi-factor authentication, and data protection measures.
You can also use modern detection tools using artificial intelligence to identify legitimate users and fraudsters.
These are some common types of financial fraud practised by scammers. These deceptive activities, like identity theft, phishing, investment scams, pyramid schemes, and others, are aimed at stealing money and sensitive information. Understanding different types of scams and adopting preventive measures is crucial to staying protected.
Financial fraud is a growing threat, impacting individuals, businesses, and the economy at large. From identity theft to tax fraud, understanding the various types of financial fraud is essential to safeguarding your finances.
Each of these scams exploits vulnerabilities, but with awareness and protective measures, you can significantly reduce the risk of becoming a victim.
Scammers can approach you in many ways, such as by posing as an agent or an advisor. Take protective measures while dealing with individuals who promise quick money.
Always verify information, question suspicious activities, and educate yourself to stay ahead of scammers. Protecting your wealth begins with knowing the dangers and taking the necessary steps to prevent them.
Remember that scammers are not hackers; they won’t be able to access your account unless you share the relevant information. So, refrain from sharing any sensitive information.
If you come across anyone attempting to scam you, immediately notify the police. This will allow authorities to identify and apprehend the scammer.
In doing so, you will be not only saving yourself from the scammer but also protecting others from falling into the scam.
Disclaimer: The information provided in this blog is for educational and informational purposes only and should not be considered as financial or investment advice. Stock market investments are subject to market risks, and past performance is not indicative of future results. Readers are encouraged to do their own research and consult with a licensed financial advisor before making any investment decisions. The author and publisher are not liable for any financial losses or damages incurred from following the information provided in this blog.
Ibnu Jala
Ibnu Jala is an experienced professional in the financial markets of India and the Middle East, renowned for his trading expertise and mentorship. His passion for neuroscience drives his research, blending finance and science seamlessly. With a Bachelor’s in Law from India and an MBA from the UK, Ibnu Jala has a diverse academic background. In addition to being a seasoned investor and serial entrepreneur, he currently leads FinQuo Versity as its CEO.
