Sources of Data in Fraud Detection: Internal & External

In the present time, fraud detection becomes one of the important tasks for any business and financial institution. Fraudsters are becoming cleverer with the help of fresh strategies and loot money. To detect those frauds, businesses are required to rely largely on statistics, i.e., external and internal sources. This data helps in the detection of abnormal conduct, project dangers, and guarding against fraud in advance.

This guide will deliver the information regarding two types of data sources, which are internal and external. Those help the business to uncover fraud.

Internal Data in Fraud Detection

Internal data refers to information that originates from within the business. It works as a window that shows how the business is operating on a regular basis. In the event of fraud detection, internal data is highly precious as it provides a clear view about the operations of the company, customers, and transactions.

Transaction Data

Whenever the customer buys something and pays for it, the business acquires information. This is transaction data. It involves transaction amounts, purchased items, time, and place of the transaction. If the customer is habitually spending Rs. 20,000 monthly and suddenly spends Rs. 20,000 in one day, that’s a warning sign. Fraud detection systems are capable enough to find the observations and warn the company of any irregularities.

User Behavior Data

This includes how people interact with the business online. Do they log in from the same device every time? Do they check out at the same time of day? When there’s a sudden change – like someone logging in from a completely different country or using a new device – it might mean their account was hacked. Analyzing this data helps businesses catch suspicious activity before it becomes a big problem.

 Account Information and Activity Logs

Account data tells a business everything about how a customer’s account is being used. This includes login times, changes to personal details, and failed login attempts. If a hacker tries to break into an account by guessing passwords, there will be multiple failed login attempts. Tracking these activities closely helps spot potential fraud early on.

Customer Interaction Data

This information is sourced from customer service. When the customer calls or chats with support teams regarding alterations in the information, seeking refunds, or reporting problems, those exchanges are captured. Fraudsters occasionally employ some tricks to gather sensitive information with the help of support staff to modify accounts. Studying customer service data aids firms in recognizing suspicious inquiries or atypical behaviors.

 Employee Access and Logs

Not all fraud comes from outsiders. Sometimes, it’s an insider job – an employee abusing their access to sensitive information. Businesses need to track which employees are accessing certain data, and when. If someone is accessing information they shouldn’t, it could be a sign of internal fraud.

 External Data in Fraud Detection

External data comes from outside the organization. While internal data focuses on what happens inside the business, external data gives a bigger picture. It helps companies spot trends, detect new fraud techniques, and understand the outside world better. Here’s how external data helps:

 Social Media Data

Social media is where a lot of people spill personal details – sometimes even more than they should. Fraudsters often use this information to hack into accounts. They might learn your birthday, mother’s maiden name, or where you went to school by looking at your posts. Companies can track social media for signs that someone’s information has been leaked or is being used by fraudsters.

 Third-Party Risk Data Providers

These are companies that specialize in collecting data on individuals and businesses. They pull together information on credit scores, financial behavior, criminal records, and more. By cross-checking their own customers against these external sources, businesses can detect fraud risks. For example, if a new customer has a suspicious credit history or criminal record, that’s a red flag.

Government and Regulatory Databases

Governments often keep records that businesses can check to make sure they’re dealing with legit people. These databases include tax records, criminal records, and lists of people involved in illegal activities. If a business is about to approve a big transaction and the person is on a sanctions list, that’s an obvious sign of potential fraud.

 Threat Intelligence Feeds

Cybersecurity experts and law enforcement agencies often share information about new fraud schemes and threats. These “threat intelligence feeds” include real-time updates about the latest fraud trends, like new hacking methods or scams that are becoming popular. By using these feeds, businesses can stay ahead of fraudsters and detect threats that are still in their early stages.

Publicly Available Data

Public data includes things like real estate records, business filings, and court cases. These are all available to the public and can be used to verify information about a person or business. For example, if someone claims to have a high income but their public business filings say otherwise, that’s a potential fraud signal.

How Internal and External Data Work Together

To catch fraud effectively, businesses need to combine internal and external data. Internal data gives them a close-up view of their own operations, while external data provides context and bigger-picture insights. By combining both sources, they can spot red flags that would otherwise go unnoticed.

For example, if a customer’s behavior suddenly changes (internal data), and they’re found on a fraud watchlist or they’ve recently had a court case filed against them (external data), that’s a big warning sign. Using both sources together creates a stronger fraud detection system that’s harder for fraudsters to beat.

Questions to Understand your ability

Q1.) Which one of these is internal data when it comes to fraud detection?

a) Data that comes from third-party risk providers

b) Information about customers and transactions within the company

c) Records from government agencies

d) Social media posts and public profiles

Q2.) What type of data would you call external data in the context of detecting fraud?

a) A customer’s shopping history

b) Patterns of how users interact on your website

c) Credit reports and criminal background from external sources

d) Details on failed login attempts within the company

Q3.) How can social media data help in stopping fraud?

a) It tracks how employees use company systems

b) It reveals sensitive info fraudsters might steal to scam you

c) It shows the time of day a transaction is made

d) It detects patterns in transaction data

Q4.) What’s the point of using threat intelligence feeds in fraud detection?

a) To monitor employees’ access to systems

b) To stay ahead of fraud by getting info on new scams and threats

c) To track how customers talk to support

d) To record failed login attempts across platforms

Q5.) How do internal and external data work together to detect fraud?

a) Internal data checks what’s happening with transactions, while external data helps spot bigger risks or fraud signs

b) Internal data tracks user behavior online, and external data looks at employee access logs

c) Internal data only tracks fraud after it’s happened, while external data prevents fraud from happening

d) They never work together – internal data does one thing, external does another

Conclusion

Internal and external data are both essential in fraud detection. Internal data gives businesses a clear view of their operations and customer behavior, while external data helps them understand what’s happening outside their walls. Together, these sources allow businesses to spot fraud early, prevent it, and protect both themselves and their customers.

For anyone involved in business, especially in finance or e-commerce, understanding these data sources is key to making sure that fraud doesn’t ruin the trust and security they’ve worked hard to build. Whether you’re just starting out in the business world or already have experience, using internal and external data effectively can make all the difference in stopping fraud in its tracks.