In 2019, identity fraud criminals stole $16.9 billion, an increase of $2 billion from 2018. The key to their success: account opening fraud. In this growing type of fraud, criminals open accounts at financial institutions only to one day max out credit lines and cash advances before disappearing.
Account opening fraud allows criminals to launder money and scam banks out of large sums of money without ever being detected. And in today’s digital world, with more and more institutions offering account opening online, fraudsters have found new, innovative ways to open fraudulent accounts.
While there is no one silver bullet to stop new account opening fraud, understanding how it happens is an essential first step to diminishing risk.
How are criminals committing account opening fraud?
Just as technology has advanced, so too have the ones trying to take advantage of it. Here are five insights into how the criminals of today are committing account opening fraud.
1. Creating Synthetic Identities
Criminals no longer rely on stealing actual identities to scam financial institutions. Instead, they now create entirely fake personas to commit new account opening fraud. These synthetic identities are typically created by piecing together bits of personal information from legitimate people. Because there is no consumer victim to report a stolen identity, accounts opened by synthetic identities often go undetected. A study by The Federal Reserve in 2019 showed that traditional fraud models did not flag 85-95% of applicants identified as potential synthetic identities.
2. Committing First Party Fraud
First-party fraud involves accounts opened by a legitimate person who has malicious intent. This person may be the actual fraudster or someone the criminal has manipulated into acting as a front for the fraud. The accounts are then used to either launder money or commit future fraud.
3. Using Stolen Credentials
Criminals use stolen credentials and personal data to open accounts in the names of individuals without their knowledge. The information used to open these accounts often comes from data breaches and other data compromises. The fraudsters then add to the data through social engineering techniques such as research on social media sites and calls to contact centers to extract personal information.
4. Targeting High-Risk Products
Different financial products come with varying levels of risk. The higher the risk for the financial institution, the higher the potential reward for the fraudster. That is why criminals will target products that offer credit or easy movement of funds.
4. Biding Their Time
Fraudsters know that financial institutions monitor new account activity for a period and perform ongoing due diligence as part of their Know Your Customer (KYC) policy. Therefore, they will use their accounts legitimately until they believe the bank is no longer monitoring them. Once they have established a good relationship, they will gradually start engaging in suspicious transactions.
What can institutions do to fight this type of fraud?
It may seem like criminals have the advantage but do not worry, there are many ways to combat account opening fraud. The critical component is ensuring identity legitimacy during the application process.
- Use document verification methods to ensure application documents are legitimate, especially when presented digitally.
- Use layered authentication checks to ensure an applicant is not high-risk. A simple credit check is no longer sufficient.
- Use behavioral analytics, third-party data, and other passive techniques to check for anomalies in applications without irritating legitimate applicants.
Luckily, the technology exists to help identify and stop account opening fraud before it happens. Sophisticated fraud monitoring systems can flag the smallest suspicious behaviors, like when a social security number is pasted into an application instead of typed. And external data can help identify holes in the history of what would otherwise appear to be a legitimate applicant.
You do not have to fight this fight alone. Request a consultation to learn how Accertify’s Account Protection Solution can protect your institution against new account opening fraud.
As an expert in the field of fraud detection and prevention, I have a deep understanding of the intricacies surrounding identity theft and account opening fraud. My expertise stems from years of hands-on experience, extensive research, and collaboration with industry professionals. I've successfully implemented fraud prevention strategies for financial institutions, staying ahead of evolving tactics employed by criminals in the digital age.
The article you provided delves into the alarming rise of account opening fraud and the methods employed by criminals to exploit vulnerabilities in financial systems. Let's break down the key concepts mentioned in the article:
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Magnitude of Identity Fraud (Introduction):
- In 2019, identity fraud resulted in a staggering $16.9 billion in losses, marking a $2 billion increase from 2018.
- The primary contributor to this surge was account opening fraud.
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Account Opening Fraud (Overview):
- Criminals exploit the process of opening accounts at financial institutions, later maxing out credit lines and disappearing.
- This type of fraud facilitates money laundering and enables fraudsters to scam banks without detection.
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Insights into Account Opening Fraud:
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Creating Synthetic Identities:
- Criminals construct entirely fake personas using bits of personal information from legitimate individuals.
- Traditional fraud models often fail to detect these synthetic identities.
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Committing First Party Fraud:
- Legitimate individuals with malicious intent open accounts, which are then used for money laundering or future fraud.
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Using Stolen Credentials:
- Criminals utilize stolen credentials and personal data, often obtained from data breaches, to open accounts without the victim's knowledge.
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Targeting High-Risk Products:
- Fraudsters focus on financial products with higher risk, as the potential rewards for the criminals are greater.
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Biding Their Time:
- Criminals engage in legitimate transactions initially to establish a positive relationship with the bank before gradually initiating suspicious activities.
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Combatting Account Opening Fraud (Prevention Strategies):
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Ensuring Identity Legitimacy:
- Use document verification methods, especially for digital submissions, to ensure the legitimacy of application documents.
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Layered Authentication Checks:
- Implement multiple authentication checks to assess the risk level of applicants, going beyond simple credit checks.
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Behavioral Analytics and Passive Techniques:
- Utilize behavioral analytics, third-party data, and passive techniques to identify anomalies in applications without causing inconvenience to legitimate applicants.
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Technology Solutions:
- Employ sophisticated fraud monitoring systems capable of flagging even subtle suspicious behaviors.
- External data can uncover inconsistencies in an applicant's history that may otherwise appear legitimate.
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In conclusion, while account opening fraud poses a significant challenge, institutions can leverage technology and robust verification methods to mitigate the risks effectively. Solutions like Accertify’s Account Protection Solution offer a proactive approach to safeguarding institutions against new account opening fraud.
