Reduce Risk at Online Bank Account Opening with These 5 Fraud Prevention Strategies

Reduce Risk at Online Bank Account Opening with These 5 Fraud Prevention Strategies

In the latest webinar co-hosted by Early Warning® and Nacha, we will discuss account validation beyond payment authorization. Our panel of experts will share five strategies organizations can use to deliver a frictionless multi-channel experience while still protecting against application fraud attempts.

This becomes more important than ever as digital account openings have soared since 2020 when the COVID-19 pandemic forced us to transition many of our in-person activities to online interactions. There’s no question digital banking is here to stay.

Consumers can now see a doctor, attend university classes, or open a bank account – all with a couple of clicks from the comfort of their home. The speed of commerce is increasing, and consumers have come to expect fast, easy, and secure digital transactions. Any friction in the process can cause would-be customers to abandon a product or service in favor of a more convenient option.

Offering online banking services is crucial for financial institutions to compete in today’s crowded market – but as technology has evolved, so have fraud tactics.

As financial institutions (FIs) have adapted by enabling consumers to make financial transactions online, new methods of exploiting these conveniences for fraud have emerged. Synthetic identity fraud is now the fastest growing financial crime in the U.S. and 72% of FIs say it’s a more challenging issue than identity theft according to research by Aite-Novarica.1

How does synthetic identity fraud occur?

Synthetic identity fraud occurs when bad actors use some legitimate personally identifiable information (PII), like a Social Security Number or birth date, in combination with falsified data, to fabricate a new “synthetic” identity. These identities are then used for a myriad of fraudulent activities, including opening new Demand Deposit Accounts (DDAs) to receive funds from scams or laundered money, taking out lines of credit with no intention of paying them off, insurance scams, and more.

Banks and credit unions say that application fraud has been increasing in the wake of the pandemic, with DDA application fraud losses expected to grow to $939 million by 2023 and an estimated $2.2 billion in credit card application fraud attributed to synthetic identity scams.2 And synthetic identity scams don’t just impact FI’s - organizations like government entities, insurance companies, and healthcare providers are all being impacted by synthetic identity fraud.

So how do you catch a fraudster who doesn’t exist?

The U.S. market is one of the hotbeds of synthetic identity fraud and given the historical lack of a centralized source of truth for consumers’ identities, it’s been an especially difficult issue to detect and solve.

It’s complicated by the fact that synthetic identity fraud often has no specific consumer victim, creating a gap in the system where the consumer would typically serve as a critical source for alerting to the fraud. Because of this gap, it can take months or even years before anyone is alerted to a synthetic identity, by which point it has built up a positive credit score and likely has access to an increased credit limit.

The most effective way to mitigate fraud

The most effective way to mitigate fraud is to prevent it from entering the system in the first place - at the point of account opening. Loss and fraud leaders at FIs, businesses and government entities must ensure the digital application processes they have in place can detect misrepresented and synthetic identities, as well as predict the likelihood of first-party account abuse or mismanagement.

Watch the webinar to learn five strategies to help ensure your digital application processes can effectively:

  • Detect misrepresented and synthetic identities during the digital account opening process
  • Predict the likelihood of first-party fraud, account abuse, and returned items at the point of new account opening
  • Answer the question “what account services and privileges can I offer?” in real-time

watch the webinar

1. Synthetic Identity Fraud: Diabolical Charge-Offs on the Rise, Aite Group, February 2021
2. Application Fraud: Trend Analysis and Mitigation Challenges. Aite-Novarica, Nov. 2020
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