LINE OF DEFENCE

The rapid development of digital finance inevitably brings new risks. While a few years ago banks primarily focused on expanding cashless payments and implementing remote services, today protecting users themselves is gaining increasing importance.

As fraudulent schemes become more complex, approaches to securing the financial market are evolving in response. Azerbaijan is gradually shifting from a reactionary approach to fraud, towards the establishment of a comprehensive system for fraud prevention. This system combines technological solutions, legislative improvements and coordinated action among all market participants.

Fraud changes the rules

The increasing popularity of cashless payments has also led to a rise in scams. According to the Central Bank of Azerbaijan (CBA), in the first quarter of 2026, there were 4,995 registered cases of card fraud within the country — almost 48% more than the previous quarter. In the rest of the world, the number of incidents of this kind totalled 6,020.

These figures alone do not fully illustrate the changes underway. Alongside a significant rise in fraudulent transactions, the total damage caused has decreased. For instance, domestic fraud losses fell from ₼1.78 million to ₼1.35 million, while overseas losses dropped from ₼370,400 to ₼325,300.

This trend indicates that as these schemes evolve, the detection mechanisms will also improve. Financial institutions are becoming more vigilant in their monitoring of suspicious transactions, and fraudsters are increasingly opting for smaller transfers that are more challenging to detect by automated control systems.

The nature of fraud is also evolving. A year ago, the primary threat was the direct access of criminals to client card accounts. Today, however, the focus has shifted to targeting the cardholder directly. To summarise, the attack has shifted from the payment infrastructure to the individual.

Elvin Juvarov, a senior specialist in the cashless payments analysis department of the CBA's payment systems and product development division, explains that scammers are increasingly using social engineering techniques: "Fraudsters who deceive cardholders typically request that they transfer a specific sum to another bank account. In such cases, their primary concern is typically the balance remaining on the card account.

Therefore, cardholders should never disclose OTP codes (one-time passwords), card details or even their account balances to strangers. It is also vital to contact the bank immediately if a suspicious transaction is identified, as the first few minutes are often crucial in determining the potential for recovering stolen funds.

Human factor as key vulnerability

Central bank specialists have established a classification system for common fraud schemes, which is based on three categories.

The first of these relates to unauthorised account access, which occurs when clients unwittingly provide fraudsters with one-time passwords or other confidential data.

The second category is based not on technical hacking but psychological manipulation. Scammers often pose as bank employees, government officials or law enforcement agents, and persuade their victims to transfer money to accounts they specify. Although these transactions are formally authorised by the client, this is done on a fully informed basis.

Elvin Juvarov has observed that such scenarios often appear realistic, resulting in victims withdrawing cash, visiting payment terminals and personally handing over funds to criminals.

Another serious problem concerns so-called mule accounts — intermediary accounts through which stolen money passes. Many owners are unaware that they are part of a criminal scheme.

"At some point, they were offered ₼20-30 to open a card in their name and hand it over to another person. Without understanding the legal consequences, they handed over the card… Thus a person—intentionally or unwittingly—becomes part of a fraud chain."

The use of intermediary accounts in this way significantly complicates the process of tracing the ultimate recipients of funds. Money is moved quickly through several cards and accounts, which makes it very difficult to track.

Consequently, the Central Bank is proposing legal measures to hold individuals accountable for handing over their bank cards and other payment instruments to third parties. This practice is already in effect in several countries, including Russia, where such actions can result in criminal penalties, including imprisonment.

From reaction to prevention

The increasing prevalence of digital crime is prompting a rethink of financial market protection models. Historically, each bank has primarily combated fraud on an independent basis. However, it is evident that this approach no longer aligns with the magnitude of contemporary threats. In the current climate, fraud schemes are frequently perpetrated by several financial institutions. Stolen funds are moved through accounts at various banks within minutes, which complicates tracking and blocking.

In response, the CBA intends to implement a model based on centralised information sharing among market participants.

According to Elvin Juvarov, the regulator is currently working along two lines: first, improving regulatory frameworks, including developing specific requirements for financial organisations; second, creating a centralised platform enabling banks to receive near real-time information on potentially risky transactions.

"We study international experience, notably legislation in Turkey, Russia and European countries, and aim to adapt it to local market conditions. Work in this area is ongoing," Mr Juvarov stated.

In essence, this involves the creation of a centralised system that functions as a unified hub for the analysis of suspicious payments. At present, each bank is only able to see its own part of a transaction. The new system will enable us to form a overall picture of fund flows, regardless of the number of banks involved in a transaction.

The Central Bank representative explains that similar models have been successfully implemented in Turkey, Russia, Kazakhstan and other countries.

"Discussions are underway with several companies and our roadmap includes creating a centralised anti-fraud system," shared the expert.

A key component of this platform will be mechanisms for detecting intermediary accounts through which multiple transfers from various clients pass. Such accounts will be subject to an automatic risk rating upgrade and placed on a designated grey list. Banks will then be able to conduct further checks on transactions directed at these accounts prior to the completion of transfers.

However, the Central Bank will not make decisions on behalf of commercial banks; its role is to provide market participants with necessary analytical information and timely warnings about possible risks. Thus emphasis shifts from investigating completed crimes towards early detection and prevention.

As we can see, Azerbaijan is developing a new model for protecting digital payments whose effectiveness will depend not only on technology but also on users’ trust in the modern financial system.