Application Fraud Prevention

Recognize the Red Flags: Trends, Challenges, and Best Practices in Application Fraud Prevention

Application fraud prevention is getting a lot of attention from banks and credit unions. For good reason.

Account opening processes are speeding up, much to the delight of consumers. But faster application processes are also driving a notable rise in application fraud.1


Because savvy financial criminals seek out the most lucrative avenues for theft, requiring the least amount of effort. And in the current banking landscape, application fraud fits the bill.

Fraudsters see application fraud as a low-risk, high-reward endeavor:

  • Relatively easy to achieve: Criminals are innovating new tactics that exploit the speed of new account openings—and allow them to slip through gaps in traditional application fraud controls.
  • Exceptional payoff potential: When a bad actor succeeds at opening a deposit account based on a synthetic or otherwise fraudulent identity, they can continue to nurture the identity—and use it to commit highly profitable financial crimes down the road.

Unless financial institutions (FIs) take action to improve their application fraud controls, criminals will continue to grab at this “low-hanging fruit”—and fraud losses will continue to grow.

Use this post to better understand why application fraud has become a priority concern—and the best practices for preventing it.

The dangers associated with application fraud are clear.

Fraud risk professionals at banks and credit unions are well-aware of the risks associated with application fraud.

A graphic displays statistics from a recent study showing that FIs rank check deposit fraud resulting from application fraud and synthetic identities resulting from application fraud as 2 out of the 3 most concerning types of fraud for 2023.   


FIs are investing to improve application fraud prevention.

Know Your Customer (KYC) regulations, which aim to reduce fraud across the financial system, focus primarily on account opening processes. And identity verification is a key component of KYC.

But verifying an applicant’s identity is easier said than done.

Sophisticated synthetic and manipulated identities—created from stolen and/or fabricated personal data—have become incredibly hard to detect.

To stay compliant and reduce fraud losses, many banks and credit unions are working to transform their application fraud prevention capabilities. Indeed, “identity verification controls/application fraud controls” hold the #1 spot in terms of transformation priorities—with 42 percent of FIs reporting it as the area getting the most funding from their institution.2

The wrong application fraud controls can slow bank growth.

The binary decisioning tools many banks have in place make it difficult to accurately assess an individual’s risk. By relying on rigid “yes” or “no” approval responses, institutions run the risk of blocking potentially legitimate consumers from opening new accounts.

But rejecting potentially good customers is just one side of the coin.

In the quest to bolster their fraud controls, FIs must also be careful not to slow down the onboarding experience—and send frustrated consumers running to the competition.

 A graphic and an icon of a bar chart going up display a statistic that says “the potential for application abandonment increases as much as 60% if the process takes more than just 5 minutes to complete”.  


Best practices for application fraud prevention

A modern application fraud prevention strategy should enable three key objectives:

  • Confident identity verification: Detect synthetic, manipulated and misrepresented identities—to confidently determine whether an applicant is who they claim to be.
  • Well-informed risk assessment: Look deeper into each applicant’s deposit account history and behavior—to more accurately determine fraud risk.
  • Real-time decision making: Prevent fraudsters from opening new accounts—without slowing down the onboarding process for legitimate consumers.

Achieving these objectives is easy if you have the right tools in place. Application fraud prevention strategies that leverage big data and predictive analytics are proving very effective.


A graphic  displays a quote from Aite-Novarica that says, “applied analytics and risk modeling are extremely powerful fraud management capabilities.” 


When you have access to vast and timely deposit account data, you can accurately assess an applicant’s fraud risk—based on valuable intelligence like:

  • Number of fraud records contributed for the applicant
  • Average number of days accounts have been open
  • Number of accounts in a high-risk status
  • Number of returns within the last 180 days

What’s more, by adopting a nuanced approach to application fraud prevention, you can tailor your risk scoring to align with your institution’s KYC initiatives, risk threshold and growth objectives.

How Early Warning Can Help

As the Trusted Custodian® of the National Shared DatabaseSM resource, Early Warning has real-time access to data from thousands of financial institutions on a recurring basis, including participant and scored account data on nearly 656 million deposit accounts.4

Predict New Account Risk is a modern application fraud prevention solution that combines timely data with advanced analytics to detect synthetic, fraudulent and misrepresented identities. New account scores predict the likelihood that an applicant will default due to first-party fraud within the first nine months of account opening.

Explore the benefits of smart, real-time application screening: A Tale of Two Banks: Using Predictive Intelligence to Minimize Loss and Maximize Growth


1. Market Trends in Fraud for 2022 and Beyond, Aite-Novarica, Feb. 2022
2. Trends in Fraud for 2023 and Beyond, Aite-Novarica, Feb. 2023
3. Digital Banking Report Research, The Financial Brand, Aug. 2020
4. National Shared DatabaseSM Report, June 2022


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