New account applications mean new opportunities for fraud

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Application fraud in all channels is growing at alarming rates, prompting a multifaceted security approach by financial institutions

There are many reasons why fraudsters open a new account. Perhaps they are planning to commit check fraud, deposit fraud, or check kiting. In other cases, they may plan to use the account as a repository for funds stolen from other financial institutions. Or fraudsters may just use the account as an entry point to apply for credit cards and loans.

Whatever the reason for opening nefarious accounts, account application fraud is lucrative and does not discriminate, targeting the branch, online, mobile and call centers as entry points. According to Aite Group, financial institutions will lose $781 million to DDA (Demand Deposit Account) application fraud in 2022 and credit card application fraud will cost financial institutions $781 million, making application fraud second only to account takeover fraud.1

Adding to the urgency, financial institutions plan to spend an estimated $1.4 billion in 2022 combating new deposit and credit card account fraud.2

Why New Account Fraud is on the Rise

New account fraud is nothing new. Numerous data breaches exposing personally identifiable information and the rollout of EMV have contributed to the exponential growth of new account fraud in all delivery channels.

Consumer demand for digital channels for all types of transactions—including account opening—is also driving up fraud rates. When customers could only open accounts in the branch, face-to-face, physical identification was a financial institution’s best defense against new account fraud.

However, by 2020, fewer than half (47%) of DDA applications will be submitted in the branch. Conversely, more applications will be submitted through faceless online and mobile channels (45%) and contact centers (8%), compelling financial institutions to invest more heavily in securing digital account opening to attract and retain customers.

Despite these shifts in customer preference, fraud is not just a digital issue. While financial institutions need to shore up digital channel security, they can’t afford to leave the branch vulnerable. Fraud is rising in all channels. While more than half of financial institutions say that online application fraud increased in the past two years, one-third say that branch-originated new account fraud has also increased.

Financial institutions are engaged in a continuous chess match with fraudsters. To fight fraud no matter where it originates, financial institutions need to create or revise an omni-channel security strategy as they complete their 2020 planning. Financial institutions can get a step ahead by taking a holistic approach that leverages data and technology.

Combating New Account Fraud: Why Financial Institutions Need a Holistic Approach

Imagine a prospective customer visits your website and applies for a new account. They submit their application and your institution follows its standard identity and decisioning process. Based on the information provided by the applicant, you open the account. The legitimate customer is pleased by how fast you processed the application—until two days later. Your institution still leverages a delayed batch process rather than a real-time, predictive solution, so you rescind the offer pending additional identity verification. Now the customer is angry, frustrated—and vows never to do business with your bank again.

Let’s look at a different scenario.

A better solution is to use shared bank intelligence to confidently identify the customer and proactively use risk models to evaluate behavior to predict misuse or fraud on the front end—in real time. With this modernized solution, institutions can make informed decisions about account privileges to improve the user experience for applicants and detect potential risks and fraud quickly, before losses are realized.

Additionally, this solution can alert financial institutions to potential account mismanagement and fraud within the first nine months of account opening to help institutions tailor account privileges based on risk thresholds, rather than denying an account based on antiquated binary (yes/no) decisioning. All this adds up to less customer friction and less regulatory compliance risk.

Using Collaborative Data and Predictive Analytics to Fight Fraud

To make a confident account opening decision on the front end requires that financial institutions gather data from a variety of sources, including bank-contributed intelligence, credit bureaus, the Social Security Administration, DMV driver’s license records, credit header data, public records, and other third parties such as utilities and mobile network operators.

Now, financial institutions also have the ability to work together and share intelligence about previous customer behaviors related to their accounts – including both positive and negative attributes. Collaborative intelligence combined with predictive models enables financial institutions to more accurately assess customer risk and tailor specific account privileges accordingly.

But having to compile this data can be time-consuming and costly. Customers want an answer to their account application today—not three days from now. Early Warning provides a platform of identity solutions that address compliance, risk, and confidence in an identity in real time.

For example, Early Warning’s new account onboarding solutions leverage data from millions of transactions and identities to determine the likelihood of a valid identity as well as predict potential behavioral risks including account fraud or default in the near future. This intelligence enables financial institutions to optimize new account openings while reducing fraud and minimizing customer friction.

Additionally, Early Warning’s digital authentication solutions leverage data from telecoms, mobile network operators, and other trusted third parties to help ensure devices are associated with the true customer and not a fraudster committing account takeover fraud.

And, in a recent partnership with the Social Security Administration, Early Warning is one of a select few providers to offer electronic Consent Based SSN Verification (eCBSV) for real-time verification of Social Security numbers, a big step forward in curbing the industry’s synthetic identity fraud problem.

Layered Solution Strategy for Omni-channel Protection

New account fraud, whether perpetrated digitally, in the call center or in the branch is a major pain point for financial institutions of all sizes. Omni-channel fraud requires omni-channel fraud solutions that include identity proofing, device authentication, and risk detection solutions. The challenge for financial institutions is to balance fighting fraud against increasing customer friction. First impressions count and no customer wants to have to jump through hoops to open a new account—or to have the account application denied due to false positives.

Only by taking a holistic approach to new application fraud can financial institutions be confident that they are letting the good customers in, while keeping the fraudsters out—all while helping maintain an outstanding user experience.

About Early Warning Services, LLC

Early Warning Services, LLC, is a fintech company owned by seven of the country’s largest banks. For almost three decades, our identity, authentication and payment solutions have been empowering financial institutions to make confident decisions, enable payments and mitigate fraud. Today, Early Warning is best known as the owner and operator of the Zelle Network®, a financial services network focused on transforming payment experiences. The combination of Early Warning’s risk and payment solutions enable the financial services industry to move money fast, safe and easy, so people can live their best financial lives.

To learn more about Early Warning’s new account fraud solutions click here to visit their site.


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