What is a Transaction Fraud Explained: Types, Impacts, and Transaction Fraud Detection

  • By Steven
  • Published: May 19, 2024
  • Last Updated: May 30, 2024


In 2020, the world moved online, and the pandemic kicked industry demand into overdrive. Seemingly overnight, entire organizations yielded to the mandates pushed by health professionals, encouraging anyone not already online to make an account or two.

That year, transaction card fraud totaled around $149 million in losses in the US and has only increased since then, up to $48 billion globally. Transaction fraud is a significant risk for consumers and organizations, especially when considering who faces the consequences of it. By learning about transaction fraud, its signs, how to detect it, and what the future holds for AI defenses against it, consumers can better defend themselves against the looming threat.

Transaction Fraud

What is a Fraudulent Transaction

Understanding financial fraud is vital for organizations and consumers. Concerning organizations, these scams cost valuable processing time and resources that can hurt the company in the long run. At the same time, consumers face the consequences of these schemes through identity theft and financial abuse.

So, what is a fraud transaction? These are events where someone purchases goods and services with payment data, not theirs. Most often, these are cases of fraud where a criminal has obtained consumer information, like card numbers, and uses it to further their goals. Thanks to their ability to use card-not-present environments for transactions, E-commerce stores are the most targeted organizations for these activities.

What Counts as Transaction Fraud? 

When someone purchases a product or service, it is considered a typical transaction. The money comes from an account controlled by the owner of the funds, making it a legitimate purchase. In comparison, transaction fraud occurs when someone who does not own the purchasing funds uses those resources to make a purchase. They pretend to be the owner of the funds and use the money as if it were their own.

By this definition alone, transaction fraud has many variations. It can include fraud using credit cards, crypto fraud, money laundering, investment fraud, account takeovers, phishing, wire fraud, and all other activities of a similar class. Moreover, because these crimes have many variations, their judicial responses come in many punishments, from imprisonment to fines, misdemeanors, to felonies.

Common Types of Transaction Fraud 

Here are the most common types of transaction fraud you should be aware of:


Named after the fishing profession, phishing scams are deceptive practices orchestrated to obtain sensitive data. Although they come in many varieties, they all begin with an unsolicited message. The weaker versions of these scams are usually one or two emails, messages, or calls, typically with an infected link or attachment.

However, some phishing attacks implement entire websites to fool thousands of victims simultaneously. Phishing incidents are considered fraudulent transaction scams, but the practice also leads to other fraudulent transactions, including account takeovers and identity fraud.

Identity Theft

When someone steals and uses another person’s information, the crime is often charged as identity theft. Perpetrators may use a stolen identity in many ways, from conducting transaction fraud to opening accounts in their victim’s name. As a cyber incident, identity theft typically occurs after a scam or other security event.

Moreover, consumers are less likely to be identity fraud victims (unless they are tricked into sharing specific information) until their information is exposed through a data breach. Data breaches are increasingly occurring, and the more they occur, the more consumer information is misused by criminals.

Online Payment Fraud

These scams target online payment processes, including sourcing and using unauthorized transaction resources and exploiting those processes. Digital wallets, mobile payment platforms, and online financial solutions are vulnerable to these sophisticated cyber attacks, with little to no recourse for individual victims.

Online payment fraud is a broader classification than others on the list; the group includes digital credit card fraud, wire fraud, carding fraud, and e-commerce fraud. The category also includes exploiting payment processes for victimized systems, such as zero-day vulnerabilities, single-point-of-failure incidents, and card information loggers.

Check Fraud

Transaction fraud can also occur via printed fake checks (and invoices). Charges of this type usually include forged, stolen, or altered checks connected to authentic accounts. Also called counterfeit checking and unauthorized wire transfers, these scams were created for criminals to steal directly from their victims. However, some scammers wait to use the account information until they have a reason—like in connection with other schemes.

Account Takeovers

Consumers (and customer-facing access points) are the most likely to be targeted for account takeover fraud. These schemes are recognizable because they involve fraudsters or malicious agents to gain unauthorized access to authentic user accounts. How the attackers obtain the information for these incidents differs. They may steal the data themselves in a data breach or purchase entire consumer profiles on the dark web, sourced and parsed after multiple breaches impacting the same person.

When a malicious actor accesses a user’s account, they have a variety of actions available. In most cases, the system will notify the authentic account holder of suspicious activity through a notification to their phone. They’ll instantly call or attempt to access their account; the agent may have already stolen everything. Other times, they might access an account without issue and save the credentials as a manipulatable option for future schemes.

Wire Fraud

These crimes are specific and defined by both local and federal laws. The laws all follow the requirements and punishments of mail fraud, with one significant difference being that wire fraud occurs over an electronic communication method rather than over physical mail. Fraudsters committing these crimes are typically after information, money, bank accounts, or other valuables.

Most often, wire fraud occurs via unauthorized bank wire transfers. These transfers may include the malicious actor using the account to funnel stolen money from the victim’s account to theirs in another country. Wire fraud isn’t only conducted during an account takeover incident; it can also be charged if the perpetrator deceives their victim or uses an account without authorization to move funds across state lines electronically.

Zelle Fraud

Mobile payment platforms, from Zelle to Cash App, PayPal to Venmo, are a growing target for malicious agents. Each platform has unique threats, which the organizations have defenses for—but these defenses only work when we implement them. Notifications, multi-factor authentications, one-time tokens, face IDs, and more are access-based defenses; without them, a malicious agent could access any account the moment they obtain a password.

Subsequently, digital payment networks are increasingly the victims of cyberattacks, leading to data leaks. When this stolen data is put for sale on the dark web, other assailants can use it to take over authentic accounts for insider scams. Zelle scams come in many variations, including scammers creating mock Zelle login websites, false promotions to gather information from submitted data, or conducting refund scams—damaging the individual and Zelle.

Why Is Transaction Fraud Happening So Much? 

As the introduction demonstrates, transaction fraud is an ongoing issue for everyone. Many factors contribute to the rise of these activities, including technological advancements, the spreading application of online banking and digital payment methods, social engineering tactics, and more.

Each factor above contributes to a malicious actor’s ability to succeed while influencing the public and organizations. For example, developing technology like artificial intelligence (AI) is increasingly joining organizations for many reasons. These reasons range from communication automation to defense analytics; however, as companies apply more advanced tech to their systems, cybercriminals also utilize the advancing tech.

Transaction Fraud Detection 

Detecting and protecting an organization from transaction fraud can be challenging; however, recognizable signals can help individuals and businesses detect fraudulent transactions. Moreover, when officials can better identify authentic threats, they can better protect their consumers and interests.

  • Account monitoring: individuals and organizations must surveil their accounts as often as possible, reviewing significant and minor purchases. Depending on the type of scam, malicious actors may make a series of transactions, testing the validity and boundaries of the card or payment information in their possession.
  • Verification processes: individuals must enable the highest authorization securities available by a platform or institution, including multi-factor authentication and one-time tokens. These verifications also prelude notice that something may go wrong within an account. To that end, organizations must also adopt multi-factor authentication and role-based accesses.
  • Anomaly detection: surveillance and authorization policies won’t catch every threat actor. Some threat actors may access a network with stolen credentials. Unless they behave strangely (and there is a technology designed to analyze that behavior as “strange”), the system may not notice the threat. Consequently, as organizations adopt more behavior-analyzing and anomaly-detecting technology, individuals must enable notifications for all account activities.

How AI Prevents Transaction Fraud? 

The future of transaction fraud rests in the hands of AI for two reasons. On the one hand, AI used by the public is being designed with defense in mind. Developers worldwide are constantly creating and utilizing AI-driven tools to combat the threats that lurk online. These AI tools include anomaly detection, behavior analysis, predictive analytics, traffic analysis, unauthorized access detection, and more.

How AI Prevents Transaction Fraud? 

Simultaneously, however, cybercriminals are also benefiting from these developments. They have AI tools explicitly built to challenge their victims’ defenses. These tools can create nearly exact replicas of people’s voices, faces, websites, login pages, and more. As the cyber wars continue, AI will likely determine the success or failure of fraudulent activities—especially when completed online.

Transaction fraud is any purchase made with another person’s money without their express permission or authorization; the classification includes identity theft, account manipulation, phishing, money laundering, investment and crypto fraud, credit card fraud, and other transactional interactions. The increasing rate of transaction fraud is due to advancing technology, like cardless environments, and the convenience of digital shopping for consumers. However, with vigilance, education, and protective measures, individuals can secure their financial future against scams like pig butchering and false investments.

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