New Account Fraud—How to Protect Your Business

Fraud has been on the rise for the last several years. In 2022 alone, the US Federal Trade Commission reported losses of over $8.8 billion due to scams. We’ve already explained in our previous articles how transaction fraud and promo abuse work. Today we’re diving into new account fraud. 

We’ll explain how as simple as opening a new account can result in huge losses for companies as well as reputational damage. Additionally, we’ll provide examples of the most common schemes related to new account fraud and some tips on confronting them. 

What is new account fraud? 

New account fraud is when fake accounts are created for the purpose of criminal activity, such as social engineering (e.g., sending phishing emails) or taking out loans on other people’s behalf. Accounts can be created using stolen data or entirely fake personas. Sometimes fraudsters might even combine authentic and fake information to make it even more difficult to trace. 

To protect themselves from new account fraud and the resulting financial and reputational damage, companies should employ solutions such as phone and email risk assessment. Here are some industries most affected by new account fraud:

• Gaming 
• Dating websites
• E-commerce
• Financial institutions (e.g., online banks)

Types of new account fraud 

First-party fraud

Criminals can create new accounts using their own personal information that appear normal, but in fact are used for illicit purposes. This could be a dating profile used to commit romance fraud—where unsuspecting victims are lured into giving money to their online “partners.” Or, it could be a banking account that’s used to build up a seemingly reliable credit history, only to be used to eventually take out a bigger loan and disappear. 

Suggested read: Detecting Romance Scams: A Guide for Dating Platforms and Their Users

Stealing an account 

Fraudsters can steal a person’s information to create new accounts for illicit purposes. They can steal information by accessing public databases or the darkweb. Fraudsters can also hack into a person’s existing account and abuse it while the account holder is unaware.

Creating a fake identity

Fraudsters can create fake personas by combining real and fake information (synthetic fraud). Nowadays, this threat is compounded by the rise of deepfakes, which can be created using artificial intelligence. Deepfakes can be used to create entirely convincing personas (or clones of existing people) which can then be used to commit fraud. 

AI-generated fake identities give fraudsters a chance to build a seemingly legitimate reputation over time. Such “customers” can take out loans and pay them off over time, convincing businesses that they are normal, law-abiding citizens. Yet, once this fake identity is used in a crime, the fraudster can simply disappear without a trace. That’s why it’s so important for businesses to be able to spot deepfakes early on—preferably at the onboarding stage. 

How to protect against new account fraud 

There is no universal formula that can prevent criminals from creating new accounts. However, there are certainly some preventative best practices:

• Advanced identity verification solutions
• Transaction monitoring 
• Behavioral pattern checks
• Device fingerprinting
• Background checks
• Password protection

Companies should develop a proper Know Your Customer (KYC) process. If done right, it can easily spot fraudsters that have, for instance, stolen data from a legitimate person. 

It’s also essential to check users’ behavioral patterns and monitor their transactions. So, if a customer places unusually large transactions or comes from a high-risk region, suspicion should arise. 

Still, some fraudsters can slip through the cracks anyway. That’s when background check comes into play. And this doesn’t just include criminal history. Companies can analyze IP addresses to check whether it’s ever been involved in other cases of fraud. The same goes for other types of digital footprints, such as emails and phone numbers. If a business sees that several accounts have been created using the same email address, it could be a sign of crime. 

Finally, it’s important to implement password protection technologies. This can be done in the form of multi-factor authentication or other additional verification steps during logins. On top of this, companies could minimize account takeovers by asking customers to update their passwords regularly. 

It should be noted that while the onboarding process should be strict, companies need to ensure that customers won’t be overwhelmed by checks. Otherwise, there’s a high chance of clients dropping off.

Solutions

If you want to spot as many new account fraudsters as possible, chances are you’ll need an automated solution. In particular:

• Know Your Customer (KYC)
• Know Your Business
• Transaction Monitoring 
• Geolocation Tracking
• Deepfake Detection
• Device Fingerprinting 
• Fraud Scoring

It will be even more beneficial to work with a vendor that can combine all of these solutions into one platform, allowing companies to adjust such checks to different types of customers. These same solutions also allow companies to check customers for other types of criminal activity, including money laundering and terrorism financing.

FAQ

• What is an example of new account fraud?

  A person can open a bank account by using personal, stolen, or synthesized data. After doing so and establishing some form of trust, the fraudster would take out a huge loan and disappear.

• How does account fraud happen?

  New account fraud can take many forms. Usually, it occurs when a person with bad intentions manages to get registered on a platform. For example, a dating app can be used to get in touch with people and ask them for money after establishing some sort of trust.

• How to detect account fraud

  Some tools that can allow a company to detect account fraud include:

  • Advanced identity verification solution
  • Transaction monitoring
  • Behavioral pattern checks
  • Background checks