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How to Detect New Account Fraud

Detecting new account fraud is vitally important to organizations that process customer accounts, especially during the first 30 days of opening. This period is when fraud most often occurs, and it is crucial to be able to identify suspicious behavior that could indicate fraudulent activity before it becomes too late.

The most effective way to detect new account fraud is to be able to look at multiple data sources and analyze that information for patterns of suspicious behavior that can lead to future identity fraud. This requires sophisticated technologies like artificial intelligence and machine learning that can analyze data on multiple levels and spot the most common signs of new account fraud.

This can be done through risk-based new account fraud detection that assigns a score to certain behaviors that could suggest a fraudulent user. This also helps banks to understand and monitor their users’ behavior better.

Fraudsters will typically open new accounts using a stolen or synthetic identity and use them to shop online. The crooks then spend the money they made with these fraudulent accounts, often without the victim’s knowledge.

These crimes are extremely damaging to consumers and can leave them with poor credit profiles that result in unrepaid loans and higher interest rates. They also leave organizations vulnerable to chargebacks, which can be devastating for financial institutions that depend on these customers.

In 2020 alone, identity fraud scams generated around $43bn in losses. In addition, they are a major risk to the financial industry because they can cause financial institutions to suffer large fines and significant reputation damage.

One of the most common ways that fraudsters commit new account fraud is by submitting false ID documents to the bank or credit union during the application process. These can include documents that are not government-issued and a person’s photo that is not their actual face. The fraudster will usually also submit a nonlocal address.

Another way that new account fraud is committed is by using a forged or stolen check to deposit funds into the account. This can be avoided by implementing TrueChecks(r) and updated check cashing procedures. This prevents the FI from making checks available before they are vetted, which makes it harder for thieves to withdraw the funds before they are returned unpaid.

New account fraud can also occur when a fictitious name is used to apply for credit cards or a mortgage. These are also known as synthetic identities and can be created with bits of information taken from multiple people’s identity files.

During the onboarding process, legitimate banking customers will generally provide the same information and addresses that are on their government-issued IDs. However, scam artists will sometimes get a fake ID with a different address. This is a red flag that they are committing new account fraud.

This can be detected by comparing the information on the applicant’s government-issued ID to that on their new account application. This will reveal if they are using a stolen or synthetic identity or someone else’s name and address.

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