التحقق من الهوية والوثيقة

New Account Fraud: Understanding the Warning Signs

أبريل 16, 2024
New Account Fraud: Understanding the Warning Signs

Imagine the shockwaves that spread throughout the banking world in 2020 when Wells Fargo, a titan in the industry, was implicated in a massive fraud scandal. This scandal cost the bank a staggering $3 billion in fines, not to mention the incalculable damage to its reputation. Yet, the ordeal was far from over. A subsequent scandal in 2022–2023 unearthed fake accounts linked to racketeering and a complex web of identity fraud, with charges still looming.

This isn’t just a tale of corporate malfeasance; it’s a spotlight on new account fraud that banks, financial institutions, and their customers are now struggling to navigate. Given the sensitivity and importance of the accounts involved, the stakes are monumentally high. In the following sections, we’ll unpack new account fraud mechanisms and offer insights on how to detect and prevent these sophisticated schemes.

What is new account fraud?

Sometimes called “account creation fraud” or “account origination attacks,” new account fraud uses fake accounts to defraud banks along with their customers.

Attackers open accounts using information stolen, guessed, or obtained through social engineering. Or, they may seize inactive accounts without their legitimate users (or the bank) noticing. Then, they directly steal or otherwise comprise funds.

There are several different kinds of new account fraud. Attacks can come from cyber criminals external to an organization and its employees. 

They can target existing accounts or create new ones altogether. The latter method, called “synthetic identity fraud,” is the focal point of the more recent Wells Fargo case above.

Increasingly, new account fraud is powered by bots. Attackers use machine learning (ML) and artificial intelligence (AI) to harvest credentials, identify targets, open up or take over accounts, and execute fraudulent transactions to monetize the schemes.

These attacks are also on the rise. Per TransUnion’s 2024 State of Omnichannel Fraud report, 13.5% of digital bank accounts opened in 2023 were suspected to be fraudulent.

Potential impacts of new account fraud

These account-opening fraud attacks cause immediate financial harm to targeted banks, as evidenced in the examples above. In addition, victimized banks must prove to existing and potential account holders that they take their safety seriously.

On the customer side, stolen identity and account takeover can also cause financial harm, both directly and indirectly. Funds directly stolen or otherwise compromised may be difficult to recover, complicating their broader financial circumstances. 

On another level entirely, fraudulent accounts can have a compliance impact. Per a Financial Industry Regulatory Authority (FINRA) directive in 2020, fraudulent options trading related to new account fraud can trigger regulatory enforcement. Banks have responsibilities concerning account holders’ privacy and vigilance.

This all points to the central importance of identity document verification.

Warning signs of new account fraud

Account fraud prevention starts with implementing online security measures to identify fake accounts. To that effect, financial institutions need to know what to look for.

Indicators of fraud across checking, savings, and credit card accounts include:

  • Unusual account activity: Behaviors out of the ordinary, such as opening up new accounts, changing documents or information, or erratic transactions.
  • Identity red flags: Adding, changing, or deleting critical documents or personal information; adding or removing access for supposed relatives.
  • Suspicious transactions: Debits, credits, and transfers that differ in size, kind, frequency, originating location, or other factors (compared to account history).
  • Behavioral anomalies: Changes to account usage, such as login locations, durations, verification preferences (i.e., text or email), or avoidance thereof.

Aside from these internal indicators, banks should be mindful of societal trends. 

In March of 2023, the Wall Street Journal (WSJ) reported on macroeconomic signs that record-high fraud numbers should be expected in the coming years. In particular, inflationary and recessionary conditions augur increases in accounting fraud.

Ultimately, new account fraud works by manipulating lax account monitoring systems; awareness and vigilance form the best defense against these attacks.

Recognizing and addressing new account fraud

In addition to general cybersecurity best practices and risk management strategies, banks, financial institutions, and other impacted organizations should also consider:

  • Implementing fraud detection technologies: Innovative solutions such as ID scanning software should aid identity theft prevention and fraud detection techniques. Fraudsters are leveraging AI and ML, and so should their targets.
  • Conducting regular reviews and audits: After an account is generated, it needs to be monitored for inconsistencies throughout its lifespan. Requiring user ID verification at regular intervals helps ensure non-fraudulent uses.
  • Educating customers and employees: Both personnel and clientele should be trained on best practices for identifying fraud and acting upon red flags.

Effective new account fraud prevention takes a comprehensive approach, including ongoing monitoring, access controls, account verification methods, and more.

Microblink is on a mission, one that feels even more critical in the wake of stories like the Wells Fargo scandal. We’re here to help banks and financial institutions stand strong against the risks of new account fraud.  Our document processing and digital document verification offerings complement other anti-fraud solutions to help banks know who their account holders are and ensure that accounts are being used legitimately.

To learn more about BlinkID Verify and our other solutions, contact us today!

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