What is Fraud Detection?

Fraudulent activity can lead to major financial loss and irreparable reputational damage if not properly combatted, making the process of fraud detection essential for businesses across the world. This process works to identify suspicious financial activity that might point towards criminal enterprise, detecting fraud through specialised software that prevents the act from taking place. 

Fraud prevention is one of many anti-money laundering (AML) solutions that we offer at SmartSearch. Helping you and your business stay compliant with ever-changing AML regulations, our award-winning service allows you to protect your business by carrying out comprehensive Customer Due Diligence (CDD) checks, PEP screenings and much more.  

The importance of fraud detection

The importance of fraud detection cannot be overstated, with the Home Office reporting at the start of 2024 that “fraud accounts for around 40% of all crime in England and Wales, with an estimated 3.2 million offences each year”. In addition, the report summarised that the estimated cost of such fraudulent activities is around £6.8 billion in England and Wales.

In addition to the broader urgency of detecting fraud for the benefit of the national economy, following this process should also be deemed essential for individual businesses. Failing to identify fraudulent activities can lead to considerable financial losses in addition to reputational damage that can erode customer trust in a short space of time. 

In the UK, failure to prevent fraud is a criminal offence as of September 2025, therefore it is a legal requirement to follow fraud detection guidelines to not only protect your cash flow but also the future operational integrity of your business. Regulatory compliance can be achieved through several different techniques and solutions. 

Fraud detection techniques

With such a broad range of methods to carry out fraudulent transactions, detecting these methods has become an increasing challenge, particularly in the ever-more complex age of technology. Yet, with solutions such as our SmartSearch product, you can detect fraud early and make sure that you’re compliant with UK law at the very same time. Some of our fraud detection techniques include: 

TripleCheck: Our pioneering KYC and AML solution uses three methods of verification, including screening, facial recognition and digital fraud checks to ensure that customers are exactly who they say they are. Detecting fraud at the client onboarding stage means that you’re carrying out your AML due diligence with ease thanks to TripleCheck’s comprehensive techniques. 

Monitoring: Our AML platform makes it simple to continually check up on each of your clients, using real-time monitoring to judge their risk to your business on a constant basis. Performing transaction monitoring while also tracking bank card and mobile phone activity, our automated platform can alert you instantly to anything potentially suspicious. 

Customer Due Diligence (CDD): Properly identifying a customer is one of the first steps you can take to prevent fraudulent activities from taking place. Our robust CDD and KYC process allows you to easily create a profile for and carefully verify a customer, allowing you to easily comply with UK regulations against fraud and protect the integrity of your business. 

These three processes represent just a small part of our complete AML solution which includes essential components that assist in fraud detection. Our complete identity verification process ensures that customer due diligence is properly carried out, while our TripleCheck solution uses facial recognition to validate identity, a form of Biometric Artificial Intelligence, one of the most reliable ways of validating customers.

The most common types of fraud 

Recognising and preventing fraud is one of the biggest challenges for any business and can only be achieved by identifying the most common types of fraud that are committed. As outlined by the National Crime Agency, some of the most common types of fraud in the business sector include the following financial crimes.

Account Takeovers

Also known as ATO, Account Takeover Fraud is often performed through identity theft or hacking, since it requires the login details of a user account such as a bank account or payment service. Once login details have been obtained, the account is used to make fraudulent transactions, often without the knowledge of the account holder. Gambling services are among the many sectors to be targeted by such attacks. 

Credit Card Fraud

Recognised as the most common type of such crime, credit card fraud happens when a criminal illegally obtains the private information of someone else's credit card and uses this to withdraw funds or purchase goods. Once this fraudulent activity is discovered, a customer will usually apply for a chargeback in an attempt to recover their lost funds.  

Investment Fraud

Emerging in many different forms, investment fraud can take the form of a pyramid scheme or a ‘pump and dump’ scam, with the latter being particularly prevalent in the cryptocurrency sector. These fraudulent investment schemes will encourage people to transfer money into their service in return for the promise of great financial gain, only for no benefits at all to materialise. 

Money laundering

A serious form of fraud that refers to the process of ‘washing’ illegally obtained money so that it can be legitimately used in a country’s financial system, engaging in money laundering carries several offences. Money laundering is used hand-in-hand with other forms of fraud, with criminals disguising the origins of fraudulent transactions using the process.

Payment fraud 

Payment fraud includes a large array of other illegal practices, defining the process by which fraudulent transactions are carried out using stolen payment details. This can be done by stealing debit card information, hacking into online accounts or using fake checks, to name just three methods. Also included under the umbrella of payment fraud are E-Commerce Fraud and payment diversion fraud, which uses phishing attacks to encourage people to transfer money to criminal organisations.

The biggest challenges when detecting fraud

As we’ve established, fraud is an issue of countless twisting branches that can be difficult to separate, understand and combat. Disguised using complex methods that involve multiple parties that sometimes exist in separate legal jurisdictions, detecting fraudulent activity can be a real difficulty, with the following challenges being the most prevalent.   

• AI developments: The rapid growth and development of generative AI tools have given criminals access to powerful tools that can create business materials that appear legitimate, making fraudulent activities more successful. At SmartSearch we’re dedicated to combating such changes in financial crime, using AI ourselves to strengthen our own tools and solutions. As Client Services Director Julie Green states: “The adoption of artificial intelligence and machine learning will continue to grow, offering new ways to predict and detect compliance risks before they escalate…Blockchain technology offers a transparent and secure way to track transactions, reducing opportunities for tampering or manipulation”. 

• Ever-changing technologies: New methods of fraudulent crimes are being used that take advantage of emerging technologies in their infancy, such as AI and cryptocurrency. As a result, fraud detection software needs to think on its feet and be constantly adapting to new threats, making it an expensive and time-consuming process. 

• False positives: A false positive is defined as an occurrence when a customer is wrongfully flagged as being suspicious. This often happens when an AML process is too stringent as a result of the challenges of combatting fraud. False positives slow down the operation of a company and cost businesses money in the long run. 

• Range of payment methods The complexity of transactions in the modern world of banking can include everything from cryptocurrency to loans to credit cards and payment apps, making tracking fraudulent transactions very difficult. 

SmartSearch, you’re all-in-one fraud detection solution  

Fraud detection solutions are essential for your business to carry out its due diligence, protecting itself from financial harm while maintaining the integrity of the national economy. Using a fraud prevention framework like those we offer at SmartSearch will help you achieve this, with tools available that can detect fraudulent activity early in the process.  

With our robust platform that offers digital ID verification, transaction monitoring, AI-powered fraud prevention solutions and much more, SmartSearch is perfect for your business’ compliance. Indeed, your money laundering reporting officer (MLRO) will certainly be grateful for our comprehensive all-in-one platform that makes compliance utterly effortless.  

For simple identity verification solutions, our pioneering TripleCheck solution and much more to help your business, contact SmartSearch now to begin streamlining your operations. 

FAQs

What is fraud detection?

Fraud detection refers to the processes that are put in place to detect and prevent fraudulent, criminal activity. This is primarily achieved through the use of sophisticated and specialised software that is made to find anomalies in a crowd of customers and transactions, just like our own at SmartSearch. 

Who is primarily responsible for the prevention and detection of fraud?

It is the responsibility of business management to prevent and detect fraudulent activity from taking place in or around their business. Sometimes this job is given directly to one individual known as a Money Laundering Reporting Officer (MLRO).

In other cases, a board of directors or external auditors may be responsible for upholding fraud detection requirements. This will vary from one business to the next.