New account fraud – Understanding and preventing it

New account fraud in an emerging significant threat to both consumers and businesses, it is is more than an inconvenience; it’s a crisis with serious implications. Fraudster continually evolve their methods, which makes it essential to understand and address this growing menace.

This article explores the mechanisms of new account fraud, its impact on victims, and proactive steps individuals and organizations can take to protect themselves. Understanding new account fraud is crucial to defending against it and mitigating its effects.

Table of Contents

What is new account fraud

New account fraud occurs when fraudsters use stolen or synthetic personal information to open new accounts, such as bank accounts, credit accounts, secure loans, or establish services in the names of unsuspecting victims. This information is typically obtained through data breaches, phishing schemes, or purchased on the dark web. Victims often remain unaware of the fraudulent activities until significant damage has been done, severely impacting their credit scores and finances.

For businesses, new account fraud presents a dual challenge: maintaining a seamless user experience while implementing robust security measures to detect and prevent fraud. Failure to effectively address new account fraud can lead to substantial financial losses, legal complications, and damage to the company’s reputation.

Types of new account fraud

New account fraud can take various forms, each with distinct methods and targets. Here are some common types:

Synthetic identity fraud

Fraudsters create a new identity by combining real and fake information, such as using a real social security number with a fake name and birthdate. This synthetic identity is then used to open new credit card accounts or loans, making it difficult for traditional fraud detection systems to catch.

Account takeover

Account takeover fraud happens when fraudsters use stolen personal information to hijack existing accounts, leading to identity theft. By manipulating account recovery processes and using the stolen identity or using social engineering tactics, they gain control of the account and change key details like passwords and contact information, eventually creating new accounts under the victim’s name.

Phishing and social engineering

Fraudsters trick victims into revealing personal information through deceptive emails, messages, or phone calls for phishing and social engineering attacks. Once obtained, this information is used to create fake accounts or steal identities.

Application fraud

Application fraud involved fraudsters using stolen or fake identities, fraudsters submit false applications for credit cards, loans, or other financial services. They often manipulate documents and use counterfeit IDs to bypass identity verification checks.

Social media exploitation

Criminals gather personal details from social media profiles to piece together enough information to create new accounts in the victim’s name. Publicly shared information can make it easier for fraudsters to pass identity verification.

Business account fraud

Fraudsters target businesses by using fake or stolen business credentials to open new accounts. This can involve applying for business loans, credit lines, or setting up fake vendor accounts to siphon off funds.

Loan stacking

Criminals simultaneously apply for multiple loans from different lenders using stolen or fake identities, securing funds quickly before lenders catch on. This type of fraud exploits the time lag in the credit reporting system.

First-party fraud

This occurs when an individual deliberately opens a new account with no intention of repaying the debt. They may use their own identity, but with the intention of committing fraud from the outset, such as taking out loans or credit cards and maxing them out without repayment.

Third-party fraud

In this type of fraud, a third party uses someone else’s identity to create new accounts. This is typically done without the knowledge or consent of the individual whose identity is stolen, resulting in the victim being unaware of the fraudulent activity until much later.

By understanding the various types of new account fraud, individuals and businesses can better recognize and prevent potential threats, safeguarding their finances and personal information.

How does new account fraud work?

New account fraud involves a series of deliberate steps by fraudsters to exploit personal information and create new accounts for financial gain. Here’s how this type of fraud typically unfolds:

Gathering personal information: Fraudsters obtain sensitive information, such as social security numbers, through data breaches, social engineering tactics, or purchasing data on the dark web. They might also scrape details from social media profiles.
Creating a synthetic identity: In some cases, criminals combine real and fake information to create synthetic identities. This synthetic identity fraud makes it harder for traditional fraud detection systems to recognize the deception.
Opening fake accounts: Using the stolen or synthetic information, fraudsters create new accounts, such as credit card accounts or bank accounts, under the victim’s name. These fake accounts allow them to make unauthorized transactions or secure loans.
Bypassing identity verification: To bypass security checks, fraudsters use techniques to manipulate identity verification processes. This can involve using a stolen personal information paired with fake addresses or phone numbers.
Exploiting the accounts: Once the accounts are created, fraudsters quickly exploit them by making purchases, withdrawing cash, or committing other fraudulent activities before the victim or financial institution notices any red flags.
Avoiding detection: To evade fraud detection systems, fraudsters may use tactics like masking their IP addresses and rapidly changing contact information. This makes it challenging for businesses to trace and shut down the fraudulent accounts.
Impact on victims and businesses: Victims often remain unaware of the fraudulent activity until they notice unexpected charges or a decline in their credit score. For businesses, failing to prevent new account fraud can result in significant financial losses, legal issues, and reputational damage.

Recognizing and responding to these steps is crucial for both individuals and businesses to prevent new account fraud. Implementing advanced fraud detection systems, thorough identity verification processes, and being vigilant about red flags can help mitigate this growing threat.

How to detect new account fraud

Detection is the first line of defense against new account fraud. As fraudsters adapt and refine their techniques, detection methods must evolve. Here’s how individuals and businesses can spot potential new account fraud:

Regular monitoring and alerts: Consistent transaction monitoring of financial statements, credit reports, and bank accounts is critical for early fraud detection. Many financial institutions provide alert services for unusual activities, such as the opening of new accounts. Setting up these alerts helps ensure that any unauthorized activity is quickly flagged and addressed.
Pattern analysis: Businesses can use advanced analytics to scrutinize application patterns for anomalies that deviate from normal customer behaviour. Rapid application submissions, mismatched details, and unusual geographical activity are common indicators of fraudulent attempts.
Advanced verification technologies: Implementing robust verification technologies during the account creation process can help catch fraud early. Techniques such as multi-factor authentication, biometrics, and behavioural analytics that examine user interaction patterns are effective in identifying inconsistencies.
Information sharing and collaboration: Exchanging information about fraud trends and tactics with other businesses and participating in industry forums can help organizations stay ahead of emerging fraud techniques. Collaborative efforts often lead to the development of unified defense strategies across the industry.

How to prevent new account fraud

Preventing new account fraud requires creating obstacles that deter fraudsters. Here are proven strategies to enhance fraud prevention:

Strong authentication measures: Enforcing stringent biometric authentication requirements makes it harder for fraudsters to use stolen or synthetic identities. This can include additional proof of identity, sophisticated identity verification services, and knowledge-based authentication questions.
Employee awareness and training: Training employees to recognize the signs of fraud is essential. Staff should be knowledgeable about common fraud tactics, such as requests for expedited approvals or inconsistencies in application information. Regular training sessions ensure that fraud prevention remains a priority.
Enhanced data protection: Securing the data you possess is crucial to preventing fraud. Implement and maintain high-level security measures, such as encryption, secure access management, and frequent security audits. These practices help minimize the exposure of sensitive customer information to potential breaches.
Rigorous application processes: Regularly review and tighten application processes. Ensure that all applications undergo thorough scrutiny, especially for high-risk products like credit cards and loans. This includes validating documents and cross-referencing information with multiple sources.

By employing these detection and prevention strategies, individuals and businesses can significantly mitigate the risk of new account fraud, protecting financial and personal information from this ever-evolving threat.

How to protect against new account fraud

New account fraud can impact both individuals and businesses. Here are detailed strategies for each to effectively protect against this threat.

New account fraud protection for individuals

Individuals can take several proactive steps to protect themselves from new account fraud:

Strong authentication:

Multi-Factor Authentication (MFA): Enable MFA on all accounts. MFA adds an extra layer of security by requiring multiple verification methods, such as a password combined with a one-time code sent to your phone or email or generated through an authenticator app. This makes it significantly harder for fraudsters to gain access.
Biometric verification: Use biometric data like fingerprints, facial recognition, or voice recognition where available. Biometrics are unique to each person, providing a higher level of security compared to passwords alone.

Regular monitoring and alerts:

Financial monitoring: Regularly review your bank statements, credit reports, and account activities. Look for any transactions or accounts that you do not recognize.
Alerts: Many financial institutions offer alert services that notify you of suspicious activity, such as new account openings or large transactions. Setting up these alerts can help you detect fraud early.

Enhanced data security:

Encryption: Use encryption tools to protect sensitive information on your devices. Ensure that data transmitted over the internet is encrypted to prevent interception.
Secure access management: Create strong, unique passwords for each of your accounts and consider using a password manager to keep track of them. Regularly update your passwords and avoid reusing them across multiple sites.
Security audits: Regularly update your software and devices to protect against the latest security vulnerabilities. Perform security checks to identify potential weaknesses.

Education and awareness:

Recognizing fraud tactics: Learn about common fraud schemes, such as phishing and social engineering, where attackers manipulate you into revealing personal information.
Staying updated: Stay informed about new top fraud trends and adjust your security practices accordingly. Subscribe to alerts from trusted sources about the latest cybersecurity threats.

Safeguarding personal information:

Limit sharing of personal information: Be cautious about the amount of personal information you share online, especially on social media. Fraudsters often gather information from social media profiles to create more convincing scams.
Use secure connections: When accessing sensitive information or conducting financial transactions, ensure you are using a secure and private internet connection.

New account fraud protection for businesses

Businesses must adopt comprehensive measures, such as the following, to protect against new account fraud:

Robust authentication measures:

Multi-Factor Authentication (MFA): Implement MFA for all customer accounts to ensure multiple layers of verification. This can include SMS-based codes, email verification, and app-based authentication methods.
Biometric verification: Incorporate biometric checks, such as facial recognition or fingerprint biometric authentication, into the authentication process. This reduces the risk of fraud by making it harder for unauthorized users to gain access.
Knowledge-Based Authentication (KBA): Use detailed security questions to verify user identities. These should be designed in a way that the answers are not easily guessable or obtainable through social media.

Advanced fraud prevention systems:

Early account monitoring: Closely monitor new accounts during the first 30 days for any unusual activity. This period is critical as fraudsters often exploit new accounts before patterns are established.
Device analysis: Check if the mobile device used for account registration has been involved in previous fraud schemes or is associated with multiple accounts. This helps identify suspicious patterns early on.
Behavioural analytics: Use advanced analytics to examine user behaviour patterns. Compare these patterns against known behaviours to detect anomalies. For example, monitor the sequence of actions taken during account setup and initial usage.
Risk-based monitoring: Implement a risk-based approach to track both monetary and non-monetary actions. Monitor changes to account profiles, additions of beneficiaries, and unusual login times or locations.

Enhanced data security:

Encryption: Ensure that all sensitive customer data is encrypted both in transit and at rest. Use strong encryption standards to protect data from unauthorized access.
Secure access management: Implement strict access controls and regularly update security protocols to prevent unauthorized access to sensitive information.
Regular security audits: Conduct frequent audits to identify and address vulnerabilities in your systems. Regularly update security measures to adapt to new threats.

Employee training and awareness:

Recognizing fraud indicators: Train employees to spot red flags, such as inconsistencies in application details or pressure for quick approvals. Employees should be able to recognize and respond to suspicious activities.
Ongoing education: Provide continuous training on the latest fraud tactics and prevention techniques. Keep employees updated on new security protocols and best practices.

Collaboration and information sharing:

Industry forums: Participate in industry forums to share and receive information on fraud trends and tactics. Collaboration can help develop more effective strategies against fraud.
Collaborative strategies: Work with other organizations to develop and implement effective anti-fraud strategies. Sharing insights and data can help identify and mitigate common threats.

Comprehensive identity verification:

Document verification: Require multiple forms of identification and verify their authenticity using reliable methods of identity verification.
Cross-referencing information: Cross-check applicant information with trusted databases and sources to ensure its validity. This helps detect inconsistencies that may indicate fraud.

Continuous risk assessment:

Behaviour comparison: Compare new account holder’s behaviour against a representative pool of existing customers to identify deviations. This includes analyzing spending patterns, payee profiles, and sequence of actions.
Monitoring high-risk transactions: Flag and review high-risk transactions, especially from inactive accounts or accounts showing unusual activity.
Detecting mule accounts: Use risk-based fraud detection systems to analyze each payee and detect mule accounts. Monitor for unusual changes in account holder’s personal information and flag suspicious activities for further review.

By implementing these comprehensive detection and prevention strategies, both individuals and businesses can create robust defenses against new account fraud, significantly reducing the risk of unauthorized account creation and protecting financial and personal information from this ever-evolving threat.

New account fraud prevention with fraud.com

Understanding and preventing new account fraud is essential for both individuals and businesses. As fraudsters continually evolve their methods, leveraging advanced technology becomes crucial. fraud.com offers powerful solutions like aiReflex and Udentify that significantly bolster defenses against new account fraud.

aiReflex: AI-powered fraud detection

aiReflex is designed to identify and mitigate new account fraud effectively:

Behavioural analytics: Analyzes user behaviour to detect anomalies, flagging suspicious activities early.
Real-time monitoring: Continuously monitors accounts, allowing immediate detection and response to fraud.
Advanced fraud detection: Adopts sophisticated AI algorithms to detect fraudulent patterns and behaviours that traditional methods might miss.

Udentify: Comprehensive identity verification

Udentify enhances the security of the account creation process:

Document verification: Verifies the authenticity of identification documents.
Biometric verification: Uses facial recognition and other biometrics to confirm identities.
Liveness detection: Ensures the person being verified is alive physically present, preventing the use of photos or videos in identity spoofing.

New account fraud poses significant risks, making advanced detection and prevention measures crucial. Fraud.com’s aiReflex and Udentify provide robust tools to secure account creation and prevent unauthorized activities. By adopting these technologies and remaining vigilant, individuals and businesses can protect their financial and personal information from this ever-evolving threat.