New Account Creation Fraud and How to Combat It

Customer journey stages defined

• Account creation: Account signup, registration and loan origination
• Account login: Login and failed login events
• Financial transactions: Purchases, withdrawals and deposits

This significant percentage of suspected Digital Fraud was more than four times higher than account login, typically leading to ATO fraud, and more than five times higher than financial transactions where money was exchanged.

What’s the cost of new account creation fraud?

The cost of new account creation fraud varies by industry, but it’s a multibillion-dollar problem for businesses and consumers alike. According to Javelin’s 2024 Identity Fraud Study, “The number of victims of new-account fraud (NAF) dropped 10% to 3.2 million adults. Despite fewer affected consumers, the overall cost to NAF victims increased 35% to $5.3 billion in 2023. Javelin analysts believe this inverse relationship is representative of a shift in criminal tactics triggered by stronger identity verification and authentication standards. Cybercriminals aren’t simply searching for low-hanging fruit and opening as many accounts as possible. Instead, criminals who are able to bypass authentication measures strive for larger payouts with each successful attempt.”

Synthetic identity fraud exposure is a $3 billion problem in financial services — and the fastest growing digital fraud as measured by TransUnion. As mentioned, in this scheme, criminals combine stolen or harvested identity data with other fictitious data to create completely fabricated synthetic identities. They use credit account holders or financial institutions to establish legitimacy for a synthetic identity by building credit history — enabling a fake identity to look and act like a real person. With a legitimized synthetic identity and access to credit in-hand, criminals can attack any organization and walk away with money, merchandise or services at will.

In an industry like telecommunications and technology, criminals use synthetic identities to commit subscription fraud tied to installment plans for mobile handsets and devices. In 2021, the Communications Fraud Control Association (CFCA) estimated handset/device-related fraud to be $10.8 billion or 27% of all fraud losses. Of that total, CFCA estimated $2 billion was related to subscription application fraud.

New account creation fraud enables criminals to ultimately perform account takeovers and directly control accounts for a variety of reasons from accessing credit to opening mule accounts within financial institutions to opening many accounts to commit promotion abuse within gaming and retail.

What’s the risk of new account creation fraud to businesses?

New account creation fraud is challenging because unlike many types of fraud, there are degrees of acceptable risk when acquiring new customers — a primary objective for most organizations. A retailer may be willing to live with a certain level of promotion abuse if it means more sales. On the other hand, credit card fraud is completely unacceptable due to chargeback costs and the financial impact on the legitimate card holder. Online commerce platforms look for constant growth in users and a seamless customer experience that can lead to the creation of fake accounts. But, they also depend on trust to keep customers engaged and have little tolerance for third-party seller scams occurring on their platforms.

The Omnichannel Fraud Report outlined the percentage of digital account creation transactions in each industry that was suspected Digital Fraud in 2023. The industries with more than 30% of digital new account creation transactions suspected to be Digital Fraud share similar characteristics: high transaction volumes, highly promotional marketing to attract new customers, and minimal identity verification process for new account creation.

Reasons new account creation fraud is so high in some industries

Retail leads all industries in new account creation fraud risk. About 45% of new digital retail account creations were risky in 2023, meaning some part of the identity used to create an account was fake or falsified. But the issue isn’t unique to retail, travel and leisure and gaming also saw more than 30% of new account creation transactions as suspected Digital Fraud in 2023.

Despite 59% of consumers indicating additional security measures make them more likely to shop a particular brand, according to TransUnion’s 2023 Holiday Shopping Report, many organizations are willing to prioritize sales and convenience over fraud prevention through these common practices:

• Customers often create new accounts to take advantage of account opening offers or benefits
• New accounts often require only an email or phone number to open
• There is often lax or no identity verification during the new account creation process
• Many organizations operate globally, often making it more difficult to verify identities in different countries and jurisdictions

Look to financial services to reduce new account creation fraud

When considering how to bolster protection from new account creation fraud, the financial services industry offers a solid track record with the lowest number of suspicious new account creation transactions at 3.9% in 2023. That could serve as a benchmark other industries strive to match. Some of the best practices developed by financial services could be adopted broadly to protect organizations in other industries:

1.  Borrow components from regulatory best practices: Stringent identity verification regulations like know your customer (KYC) in the financial services industry provide more protection for consumers and help prevent fraud. Even if an industry is not required to adhere to a regulation, it can be beneficial for organizations to seek solutions that support identity verification, KYC, document verification or device-proofing to improve confidence in new accounts.

2.  Use more sophisticated fraud tools: Advanced security measures, such as biometric authentication, multi-factor authentication (MFA) and synthetic fraud detection, provide additional layers of identity verification. Incorporate advanced features like MFA or synthetic fraud models into new account opening protocols.

3.  Implement sophisticated risk mitigation strategies: Multilayered risk assessment tools and models help detect potentially fraudulent activities, as well as suspicious patterns and behaviors to protect consumers and their organizations. Add more sophisticated fraud detection signals like device-to-identity linkages, email and phone verification, and device-proofing to drive smarter step-up challenges during new account opening.

4.  Establish reputation and trust as key brand values: Consumers value more protection against fraud, and financial institutes must act accordingly. Prioritize account security and fraud prevention to establish and maintain customer trust and credibility in your brand.

Now is the time to protect from new account creation fraud

Many industries have higher levels of suspected fraud than financial services at new account creation due to conflicting business goals, customer experience realities, and limited ability or requirement to invest in more sophisticated fraud prevention strategies.

However, to detect, identify and mitigate costly impacts of new account opening fraud, organizations across all industries need to access more relevant risk signals that can help them better assess fraud at this earlier stage in the customer lifecycle.

Learn how TransUnion can help mitigate new account creation fraud risk TruValidate™ identity and fraud solutions.