Understanding the Criminals Behind Account Opening Fraud

Eoin Horgan

Apr 2, 2021

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 Digital Identity Solution can protect your institution against new account opening fraud.