What is financial fraud?

Scammers are always on the hunt for their next victim. Here’s how to stay ahead of them and their ever-changing tactics.

Financial fraud can happen to anyone at any age and any income level. It can be as simple as not receiving a product you’ve paid for — or as involved as falling for an intricate scam that puts your identity and finances at risk. It’s also a persistent problem: U.S. consumers reported over $10 billion in losses to financial fraud in 2023, according to the Federal Trade Commission.

To protect yourself, follow this guide to financial fraud to understand how it’s changing and learn about the most common types you may encounter today.

The definition of financial fraud

First and foremost, financial fraud is about gaining a person’s trust and then prompting them to do something quickly. Many scams rely on “social engineering” tactics, which blend a plausible story or request with a sense of urgency. And while your money is often their objective, fraudsters also target personal information, such as your bank account number, Social Security number or account passwords. They can use this information to create a fraudulent identity that they can use in future scams. While some fraudsters target a specific population — such as college students, the elderly or Social Security recipients — many will launch an attack against anyone.

How financial fraud is changing

“Fraud today is not what fraud was even five years ago,” says Dave Pilot, vice president, Financial Crimes Disruption, at U.S. Bank. “It’s a whole different animal because of the sophistication and operations of the people behind it, as well as their ability to gain easy access to your money and information through new technology paths.”

At a time when millions of people post details about themselves on social media, industry-specific websites and other public online platforms, it is simpler than ever for scammers to learn a great deal about their targets to make their appeals more convincing. And consumers have an increasing number of devices — from smartphones to smart TVs — that create more ways for scammers to reach them.

Artificial intelligence (AI) may only make the problem worse. “AI is adding a level of sophistication to a lot of the traditional social engineering exploits that we haven’t seen in the past,” says Charles Banks, vice president, Information Security, at U.S. Bank. In the past, robocalls and phishing emails were more obviously fake. Today, AI can make it harder to differentiate what’s real from what isn’t.

The most common types of financial fraud

While there are many types of financial fraud that use certain features and tactics, most fall into one of these categories:

• Impostor scams. With this type of scam, fraudsters impersonate legitimate organizations and their employees. They may pose as officials from your bank (even the fraud department), the Internal Revenue Service, the Social Security Administration, a law enforcement agency or a package delivery service like UPS. They may claim you are behind on your payments, or that you must provide information to receive a payment, delivery or continued service. The best way to avoid these scams is simply not to respond. If you believe it might be a legitimate communication from an organization or agency you know, contact them via an alternate number or email to confirm.
  
• Investment and cryptocurrency scams. Fraudsters have long targeted individuals with promises of earning a substantial return on an investment — and quickly. Classic investment scams, while still common, are now dominated by cryptocurrency scams. Digital currency markets are often hard to understand and are not heavily regulated, which makes them fertile ground for scammers. The FBI received almost 70,000 complaints related to crypto scams in 2023, with $5.6 billion in losses — a 45 percent increase over the year before. 
• Romance scams. Fraudsters and international gangs create false online identities and reach out to people who are open to forming a relationship. Once trust is established, the scammer may request money or manipulate you into revealing sensitive information. In some cases, romance scam tactics blend with those of cryptocurrency investment scams in a specialized type of fraud known as “pig butchering.”
• Tech support scams. A fraudster may use adware or malicious links on websites to inform you that your computer, phone, tablet or other device is compromised, and then request money to resolve the issue. They may request payment via gift cards, cryptocurrency or digital payments.
• Online shopping scams. Scammers build fake shopping apps and message you with details about sales or bargains, or they set up online shops where they advertise products or services with too-good-to-be-true prices. They may simply never deliver what you paid for or harvest your payment information to use in other scams (or both).
• Charity scams. Increasingly, scammers are using AI tools to fake caller IDs or create messages that appear to come from legitimate organizations, including established charities, and ask for donations (which they pocket). These fraudsters may be especially active after natural disasters and emergencies, when people are highly motivated to give.
• Sweepstakes and lotteries. You receive a notice by mail, email, phone call or text that you are the recipient of a prize and need to make a payment or provide personal information to receive it. As with most other scams, fraudsters may be after a quick payoff. But they may also seek personal information about you to draw you into a more complex scam or perpetrate identity theft.
• Tax scams. Tax-related fraud schemes are often impostor scams featuring a bogus IRS agent claiming you owe money and demanding you pay immediately or risk arrest. During tax season you should also be on the lookout for so-called ghost preparers, who collect a fee for preparing your return and promptly disappear before filing it. Tax identity theft, in which a scammer files a return in your name to claim your refund before you can, is another serious type of fraud to be aware of.
• Job scams. This fast-growing category includes fake job postings, shady recruitment tactics, work-from-home pyramid schemes, phishing attempts disguised as legitimate interview offers and requests for up-front payments for training or materials. According to the Better Business Bureau, reports of employment scams rose more than 50 percent in 2023, making them the second most common scam. A variation of an employment scam is a scheme called money muling, which involves taking a “job” that involves transferring money from one person to another for a commission — which may amount to money laundering. 

What you can do to avoid financial fraud

The most effective way to prevent fraud is to stop and think, even when you believe you are speaking with someone in a position of authority who insists your finances or identity are at risk. Scammers depend on you suspending your critical judgment and giving into impulses to please, protect, do good work or be recognized.

“Be diligent and don’t take everything at face value,” Banks advises. “Understand all the things that could still possibly go wrong from a fraud perspective and stay educated on what’s going on around you.”

Here are additional steps you can take to minimize the risk of fraud:

• Be careful about what you share about yourself online. It is easier than ever for scammers to harvest information about people on the internet, which can make their appeals to you more convincing. Review your privacy controls on social media platforms and try to keep details about where you live, your relatives and your interests from public view.
• Don’t give out your personal financial information. That includes your bank account and credit card numbers, your Social Security number and your passwords. This is especially important if you didn’t initiate the call in which personal information is being requested.
• Never click on a link in a strange text or email. Even responding that you want to stop receiving unsolicited texts can alert a scammer that they’ve reached a real person.
• Maintain skepticism. AI tools are making it easier for scammers to impersonate people’s voices and manipulate videos. Even if you think you are talking to someone you know well, such as a financial advisor or a relative, stop and think before you fulfill any requests for money or account details.
• Partner with your financial institution. Banks are deeply invested in keeping their customers’ information and transactions safe. Find out what types of protections your financial services provider offers and what information they can provide to help you protect you and your family from fraud. 

Want to learn more about what you can do to help prevent financial fraud?