New Research: Application Fraud How to Protect Your Organization

Jeffrey Wixted

Jul 16, 2021

The Dreaded Trinity of Identity Theft, Application Fraud, and Account Takeover is a published white paper based on survey data. It was commissioned by Accertify and produced by the Aite Group. The paper reveals insights into how identity theft, application fraud, and account takeovers impact financial services providers and businesses. The findings in 2021 provide important data on application fraud.

Identity theft occurs when personally identifiable information (PII) is stolen. Application fraud happens when fraudsters use an established account to support malicious or criminal activity. New account fraud is one of the most common outcomes of identity theft. Digital account opening fraud undermines user trust in a platform and can result in financial and reputational damage. With the increase in online transactions during the COVID-19 pandemic, the incidence rate of fraud has gone up.

Read on to learn what the Aite Group survey found about trends in application fraud and available fraud management solutions.

37% of Respondents Experienced Application Fraud

Survey results indicate that application fraud and account takeover fraud are equally common. It further found that this fraudulently acquired identifying information is used by criminals regardless of the type of organization that manages the account.

Types of Accounts Created by Fraudsters

The study revealed these types of accounts are targeted more frequently:

  • Checking account: 27%
  • Credit card: 25%
  • Mobile phone account: 21%
  • Utilities: 14%
  • Life insurance policy or annuity: 14%
  • File federal or state taxes: 14%

Method of Attack

According to the survey, criminals defraud users after opening new accounts in a few ways, namely:

  • Wiring funds from bank accounts: 17%
  • Card-on-file accounts at merchants: 13%
  • Loyalty reward point accounts for making purchases: 13%
  • Medical or dental insurance accounts: 12%
  • Brokerage accounts: 12%

Bank account opening fraud continues to be a prevalent method of attack, but the Aite report and survey indicates that business owners are facing a continued rise in all types of application fraud.

Financial Institutions and the Distribution of Application Fraud Attacks

Aite Group noted that Financial institutions reported the following trend associated with application fraud, comparing attack rates today to attack rates before the COVID-19 pandemic:

  • 57% report that application fraud is up between 1% and 9.9%
  • 21% report that application fraud is up 10% or more
  • 18% report that application fraud rates are flat
  • 4% report that application fraud rates are down 1% to 9.9%
  • 0% report that application fraud is down 10% or more

Many fraud experts contend that the sharp increase of application fraud through 2020 resulted from fraud rings and increased demand for mule accounts, which are accounts that are used to capture and launder funds intercepted from federal and state unemployment as well as small business administration (SBA) loans.

Loss estimates for federal and state stimulus programs have still not been accurately counted. In response, many regulators and legislators are increasing scrutiny of whether financial institutions adhere to know your customer (KYC) requirements. More rigorous guidelines may be needed as there is, and will continue to be, a robust market for stolen identities.

Accertify Solutions for Application Fraud

Business leaders face a growing number of breaches. Accertify provides cutting-edge fraud management and digital identity solutions. These solutions measure trust for every online interaction by using five pillars of trust to recognize patterns of valid interactions.

  1. Device: Know what device or devices a user employs, how they typically use them, and their associated attributes.
  2. Connection: Know how a device is connected to the internet, using ISP metadata and the IP location.
  3. Location: GPS, HTML5 device-based location, and similar details can verify a user’s location.
  4. Behavior: Hundreds of behavioral traits are associated with online users, including session length, interactions with fields, time on page, and typing speed.
  5. Reputation: Accertify has a rich data network that can assess historical behaviors, measure consistency, and evaluate users’ reputations.

There are numerous benefits to implementing a comprehensive fraud management system, including the ability to directly address common identity theft issues such as new account opening and account takeover fraud.

In the instance of digital account opening fraud, assessing the five pillars helps a business enact digital identity verification that protects customers. Early identification of unusual account activity reduces account takeover fraud.

One unique benefit from Accertify’s solutions is a real-time trust and risk score, which provides on-demand insight into whether transactions are from trusted users or have suspicious elements. This empowers business leaders to act fast, further securing the platform and protecting genuine users.

Request a consultation to learn how implementing an application fraud prevention solution can help you protect your business.