New Account Fraud - Banking

Banking’s New Threat - New Account Fraud

Banking started out with the sole purpose of making it convenient for people to safely deposit and withdraw money. Over the years, banks have diversified and focused on specific clientele. The traditional model is currently referred to as retail banking. Financial institutions that venture into retail banking focus their services on individuals. However, in recent years, a new kind of threat has emerged in the retail banking sector.

What is New Account Fraud?

Retail banking new account fraud threatens the survival of many modern financial institutions. New account fraud is whereby a hacker uses another person’s personal information and good credit rating to open an account and borrow money using fake credentials.

The hacker then borrows as much as they can. After they have reached their credit limit, they move on to open another account with different credentials. In the end, banks end up losing lots of money to defaulters. The hackers borrow the money knowing that the burden of repayment doesn’t fall on them.

In most cases, the fraud must have occurred within the first 90 days of the account creation for the action to be categorized as retail banking new account fraud. Over the years, there has been an increase in new account fraud cases as hackers try to take advantage of the increase in the popularity of retail banks.

New Account Fraud Statistics

A research study shows how dangerous new account fraud can be and is highlighted below:

  • In 2017, data breaches in the US increased by 44.7%. This exceeded the previous years’ 1091 breaches.
  • In 2016, 15.4 million new accounts were noted to have fraudulent activity. The following year that number rose to 16.7 million.

According to the research, new account fraud is the biggest concern in retail banking. Several executives in retail banking admit having experienced the incident first-hand. Most of them fear that this type of fraud is likely to spread to other platforms across the banking industry.

What Role Does Technology Play in New Account Fraud?

Technological innovations have made it easier for retail banks to provide services to their customers. Nowadays, online retail banking services allow customers to check their account balances using an internet-enabled device.

However, online channels present a major risk for retail bankers. This is because cybercriminals can easily manipulate the system by using stolen credentials to open an account and transact. In most cases, the hackers go unnoticed because most systems only require a customer’s information to permit transactions.

New Account Fraud Rings

The following are the factors that contribute to new account fraud: fraudsters, poor management of institutions, and the external environment. Cybercriminals have made their work for much more automated and organized as compared to the past.

Nowadays, criminals operate as legitimate firms with a fully functional management structure. As a result, it becomes hard to follow up on a single individual suspected of committing new account fraud.

This means that banking institutions need to find a way to counter these wrongful activities by employing the use of accurate and automated fraud control systems.

The hackers have also created more sophisticated hacking programs. What used to be a high risk long tasked mission for fraudsters is now as simple as running a computer script as they sit back and wait for the money to be transferred to another account.

Retail banking institutions need to deal with this matter through the use of theft-proof systems and security protocols that will discourage fraudsters.

How to Prevent New Account Fraud

There’s still hope for the future of retail banking. Financial institutions and nonprofits are creating awareness on the matter. Here are a few other methods that can help prevent new account fraud and enable retail banks to authorize the opening of new legitimate accounts:

  • Carrying out a frequent assessment of new account activity patterns across all branches. If the bank realizes that there is something unusual about a new account, they can immediately flag that account and close it without losing any more money.
  • Using predictive models and user-defined business rules to reveal fraud related variations.
  • Using front-end screening systems. If the system notices any unusual changes in the account holder’s personal information, they can flag it as a fraudulent account.
  • Applying the use of end-to-end encryption to protect online transactions.

Final Thoughts

If retail banks want to minimize cases of new account fraud, they have to spread awareness and educate the customers on how to protect their personal information as they transact online. The banks should also update their firewalls and security systems so that they can be able to detect any fraudulent account activities early and close down the account before it’s too late.

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