Fraud as a Service (FaaS): What Is It and How Does It Work?

Fraud has become a business, a well-structured, easily accessible one. Organized cyber criminals now sell their tools and services to anyone willing to pay.

Fraud as a Service (FaaS) turns complex fraud schemes into simple, turnkey operations that even a beginner can manage. For banks and financial institutions, this is more than just a challenge. It is an existential threat that grows every day.

AML and fraud professionals must face this reality head-on: fraudsters have evolved, they operate as businesses while marketing and selling illegal services with the efficiency of a legitimate enterprise. If institutions fail to understand this shift, they will continue to fall behind.

What is Fraud as a Service (FaaS)?

Fraud as a Service refers to criminal operations where cybercriminals sell their knowledge, tools, and infrastructure. This isn't one person hacking into a system; rather, it is a marketplace, much like Amazon or eBay, except everything sold here is designed to commit fraud.

Those buying the fraud services don't need to create tools themselves, they simply can purchase phishing kits, stolen credentials, botnets, or even the services of "money mules" with a few clicks. This model has turned financial crime into a low-cost, high-reward operation.

What Makes FaaS So Dangerous? 

The answer, in one simple word, would be accessibility. In the past, fraud required technical skills, and thus, even those who wanted to commit fraud often couldn’t because they lacked the necessary technical skills to do so.

On the contrary, those same people now have access to rent or buy the tools they need, sometimes with step-by-step guides. No expertise is needed anymore, they just need the money to pay for it.

How Popular is Fraud as a Service?

Fraud as a Service is booming, especially with the anonymity of cryptocurrencies like Bitcoin, combined with the growth of encrypted communication tools, which has made it easier than ever for these criminal enterprises to thrive.

Underground marketplaces, once obscure, now operate at scale. There are thousands of listings for fraud services on the dark web and other encrypted platforms.

The numbers speak for themselves: Ravelin's 2023 Fraud Survey reveals that 56% of fraud analysts globally have reported encountering fraud-as-a-service schemes targeting their organizations.

In 2022, over 23 million records of stolen credit card data were made available for purchase through FaaS platforms. Phishing-as-a-Service kits accounted for another substantial chunk of the market.

But it's not just small-time operators using these services, actually, organized criminal groups, as well as state-sponsored actors, tap into FaaS to target financial institutions globally. No bank or financial institution, regardless of size, is immune.

The Role of Social Media in FaaS

Fraud-as-a-service platforms are not confined to the dark web. Social media platforms play a crucial role in its growth because criminals use channels like Telegram, WhatsApp, and even Instagram to market their services.

These platforms allow fraudsters to reach a broader audience and recruit individuals willing to participate in money mule operations. They post enticing ads, promising quick cash with little effort.

In closed groups, these criminals offer tutorials on how to commit fraud, provide support for their customers, and even boast about their successes. While most social media platforms try to clamp down on these activities, the sheer volume of accounts and encrypted conversations makes this task difficult.

How Does Fraud as a Service Work?

FaaS operates like a professional service firm, the structure is well-organized, with defined roles and responsibilities. At the top of the chain are the developers, the experts who create and maintain the fraud tools. These individuals sell their products to resellers or directly to end users, the criminals who carry out the attacks.

A fraudster looking to perform account takeovers can buy credentials in bulk, or they can rent a botnet to automate the process of entering those credentials into bank websites, hoping to find a match. If they succeed, they can launder the stolen money through accounts provided by another service, the "mule network." All of this happens behind a wall of anonymity, often supported by cryptocurrency transactions.

Flexible Fraud as a Service Models

The operational model is flexible. Some criminals prefer subscription-based services, paying monthly fees for ongoing access to tools and infrastructure. Other criminals opt for one-time purchases. There are even "customer service" options, where buyers can get support on using the tools they've acquired. Frankly, this level of sophistication would have been unimaginable just a few years ago.

What Fraud Types are Used by FaaS Providers?

FaaS empowers criminals to execute a wide array of fraud techniques, most of which directly impact financial institutions because these services are designed to exploit the vulnerabilities or weaknesses of financial institutions:

• Phishing Kits: Pre-built phishing kits allow criminals to impersonate banks and steal customer login credentials. These kits come with templates, instructions, and even email servers to distribute phishing messages.

• Credential Stuffing: Criminals use lists of stolen usernames and passwords to automatically attempt logins across thousands of financial accounts, taking advantage of the fact that many users recycle passwords.
  

Read more: Two-Factor Authentication and Identity Verification 

• Account Takeovers (ATO): FaaS provides tools that facilitate account takeovers by gaining access to compromised financial accounts. This often results in unauthorized transfers or identity theft.

• Synthetic Identity Fraud: Criminals use FaaS to purchase fake identities created using a combination of real and fabricated personal information. These synthetic identities can then be used to open fraudulent bank accounts or apply for loans.

• Carding: Stolen credit card information is sold in bulk, and this allows fraudsters to conduct unauthorized purchases. As surprising as it may sound, some fraud service platforms even offer tools to validate which cards are still active.

• Business Email Compromise (BEC): Fraud service platforms help fraudsters execute BEC attacks by offering services that hijack corporate email accounts and trick employees into transferring money or revealing sensitive financial data.

What Steps Can Financial Institutions Take to Stop FaaS?

The battle against Fraud as a Service requires vigilance and a proactive approach. Waiting for a breach to occur is no longer an option. Financial institutions must take a more aggressive stance in their defense.

1. Invest in Advanced Fraud Detection Tools

Banks must upgrade their systems with real-time monitoring powered by machine learning and artificial intelligence (AI). These tools can help detect patterns indicative of fraud. Simple flagging of unusual transactions is no longer enough. Institutions need systems that can learn and adapt to emerging threats.

2. Strengthen Authentication Mechanisms

Multi-factor authentication (MFA) should be mandatory for all customers. MFA makes it more difficult for criminals to exploit stolen credentials in account takeover attempts. Additionally, biometric verification can offer another layer of protection.

3. Educate and Empower Customers

Customers are the first line of defense. Banks need to actively educate their clients on the risks of phishing, social engineering, and other fraud tactics. Regular communication campaigns, personalized alerts, and fraud prevention tutorials are vital. Too often, customers remain unaware of how their data can be exploited.

4. Collaborate Across the Industry

Banks must stop viewing fraud as an isolated problem. Cross-industry collaboration is critical. Sharing intelligence on FaaS trends and working with law enforcement can help dismantle fraud rings before they cause significant harm. Forming alliances with peer institutions allows for faster identification and mitigation of emerging threats.

5. Conduct Dark Web Monitoring

Monitoring the dark web is essential. Financial institutions should regularly search for mentions of their brands, employees, and customers on underground forums. When institutions detect compromised credentials or tools designed to target their systems, they can take swift action to mitigate the damage.

Fraud Solutions: Prevention, Detection, and Management

Fraud prevention as a service focuses on proactively stopping fraud before it happens, while fraud detection as a service focuses on identifying fraud as it happens. But fraud management as a service combines both the prevention and detection parts together.

Fraud Prevention as a Service

Being a proactive and preventative approach, fraud prevention as a service’s key features are:

• Risk Assessment: Evaluate potential vulnerabilities in systems and processes.

• Preemptive Controls: Implements measures to block fraudulent activities (e.g., setting up fraud filters or verifying transactions).

• Training and Awareness: Educates employees and users on recognizing and avoiding fraud.

Example Services:

• Identity verification services that validate user identities before transactions.

• Implementation of AI-based systems to flag potentially fraudulent behaviors before they occur.

Fraud Detection as a Service

Fraud Detection as a Service (FDaaS) key features are:

• Real-Time Monitoring: Continuously analyzes transactions or activities to spot suspicious behavior.

• Anomaly Detection: Uses algorithms and machine learning to identify deviations from normal patterns.

• Alert Systems: Notifies users or organizations when fraud is detected.
  

Example Services:

• Transaction monitoring systems that flag unusual transaction patterns.

• Tools that analyze login behavior to detect potentially fraudulent access.

Fraud Management as a Service

Fraud Management as a Service (FMaaS) encompasses both fraud prevention and detection but also includes the broader management and response to fraud incidents. The key features are:

• Comprehensive Approach: Integrates prevention, detection, and response strategies.

• Incident Response: Manages and coordinates the response to fraud incidents, including investigation and remediation.

• Reporting and Analysis: Provide insights and reports on fraud incidents to improve future strategies.
  

Example Services:

• End-to-end solutions that provide both detection and response capabilities.

• Platforms that include tools for managing fraud cases and recovering from fraud incidents.

Conclusion

If you want to keep your customers' money safe (which should be any institution's top priority), then you need to act proactively and ensure your institution and team are ready for whatever fraud techniques criminals come up with next.

Individuals who one day lacked the technical skills, today if they have the money, any fraud as a service group will be ready to serve them with the tools and guidance. This means that not only hackers but also any resourceful buyer is also a threat. 

The fight against FaaS requires an all-encompassing approach, as financial institutions must adopt advanced fraud detection tools, implement stricter authentication measures, educate their customers, and collaborate with law enforcement and industry peers.