New Account Fraud | Facts And AI Prevention

It’s becoming increasingly necessary for financial institutions to implement artificial intelligence fraud detection and prevention systems to help detect new account fraud. Though some institutions may still be skeptical about it, and still rely on legacy fraud prevention systems, the proven results of real-time AI are undeniable.

Cutting edge AI systems, like those custom developed by ToolCASE, have allowed financial institutions to mitigate the effects of hundreds of millions of dollars in losses.

Through effective AI programming, fraud detection can help banks and credit unions avoid new account fraud, card fraud, and many other forms of unethical behavior before criminals have a chance to abscond with institutional or customer funds.

What is New Account Fraud?

New account fraud occurs when criminals create new bank, loan, or credit accounts using stolen or synthetic identities. New account fraud leads both financial institutions and consumers down a road of long-lasting and severe financial consequences.

In 2021 alone, there were over 84,000 reports of new bank account frauds, with over 367,000 reports of new credit account frauds. The numbers for 2022 are still being compiled, but early estimates show the trend is not going away.

How Does New Account Fraud Occur?

Usually, new account fraud requires a fraudster to steal a person’s identity and open new accounts under their name. For example, many new account fraud cases involve identity theft, or synthetic identity creation, when someone’s social security number, credit card, or driver’s license number is fraudulently used or created by someone else to further the fraud. Fraudsters then open accounts, take out loans or credit, write fraudulent checks, or launder money through these accounts.

Sadly, new account fraud is rampant with the shift to electronic marketplaces and mobile banking. Pressing the wrong link in your web browser can install an unseen virus that slowly feeds your personal information to a fraudster where he either uses the data himself, or sells it on the dark web.

Alternatively, public databases can be hacked, and personal information stolen. It doesn’t matter whether your institution is being targeted or if it’s one of your institutional clients, the results can be financially devastating.

What Damages Can New Account Fraud Cause?

New account fraud is dangerous for all parties involved. Financial institutions are often the ones to suffer the largest monetary losses, and are usually forced to compensate the affected consumer, customer, or member. While the long-lasting effects may harm the individual victim, the FI is on the hook for losses if the new account has indeed been deemed fraudulent.

Conversely, new account frauds put a dark stain on the institutions ability to protect its customers or members, causing great friction and a lack of trust between depositors and bankers. Its why new account fraud must be addressed by all institutions.

Which Institutions Are Affected Most by New Account Fraud?

Credit issuers and other financial institutions are often the most prominent targets for new account fraud. Using someone else’s information, criminals solicit money, lines of credit, and other services through financial institutions without ever paying back the accrued debt.

Some of the most common financial institutions used for new account fraud include:

Credit card issuersAs stated earlier, In 2021 alone, there were over 367,000 reports of new credit account frauds. Deviously, after criminals have set up a new account, they may actually pay the card off to be “in good standing” with the issuer. Then, after increasing credit limits or obtaining new credit cards, they’ll max out the accounts and disappear.

Loan and Mortgage Companies: Loan companies are often very eager to accept new clients who come through their doors. Loan companies usually do background checks and loan approvals through checking social security numbers, personally identifiable information, and other documentation proving someone claims to be who they are, and can afford the financing. However, many loan companies experience new account fraud regularly as loans are taken out, never repaid, and are considered a financial loss.

For the consumer, new account fraud results in them being contacted by debt collectors to pay back loans they themselves never actually applied for, all while their credit rating sinks.

Banks: Banks, like loan companies, are usually happy to oblige a new customer’s request for a credit card, debit card, or new account opening. And this is often done online. When charges or loans on the new, fraudulent account are discovered and disputed by the person whose PII was stolen (victim #1), the bank is left on the hook for losses (victim #2).

Credit Unions: Credit unions are similar to banks. As such, they are significant targets of new account fraud. When new, fraudulent accounts are opened at credit unions, loans, lines of credit and other illicit transactions occur under victim’s names, leaving the CU on the hook for losses.

However, unlike banks, credit unions may face member and capital outflows should these frauds be prevalent, which unfortunately, they are. Once again, new account fraud causes friction between the CU and its members.

How Do You Avoid New Account Fraud?

In the past, new account fraud has been difficult to avoid. Many institutions strive to bring in as many new accounts as possible to increase the institutions capital. As such, certain safety precautions can be lost as the first new information of a new client is consumed, cataloged, and used to further the account process, even if proper KYC standards are met.

Of course, KYC doesn’t stop fraudsters, and the dangerous ramifications that new account fraud has on an institution’s finances, reputation, and trust cannot be understated.

Use Modern Fraud Detection Systems

Many institutions have begun to invest in modern, real-time fraud detection software, although all solutions are not created equal. Today, fraud detection systems can be installed on premises for the institution’s risk and fraud teams to monitor and provide information about potential frauds that may be occurring, live.

However, many fraud detection programs still use “batch” data analysis to detect crimes, which is designed to discover potential frauds, after the fact.

Batch data analysis is a weak fraud detection tool as it does not provide immediate, real-time information that can save an institution from incurring losses as they’re happening.  Simply put, batch data analysis can show you if a fraud already happened. But once discovered, it’s already too late.

This is why more institutions are moving towards real-time AI fraud detection software, as it can analyze millions of data points live, from a near unlimited number of sources, can be automated, manually executed, and can respond in real-time at all hours of the day, every day of the year.

Real-time fraud detection using AI has helped hundreds of institutions protect themselves and their clients/members from fraudulent activities and financial losses.

Fighting Fraud with AI-Powered Fraud Detection and Prevention

Real-time AI fraud detection and prevention systems are becoming the gold standard for banks and credit unions to help fight new account fraud.

Fraud detection using AI is much more precise than the human eye alone, operates in real-time, and can be automated to function when risk and fraud teams are unavailable to investigate potential threats. This makes it a beneficial option for institutions that allow transactions all hours of the day, every day of the year.

The world’s most advanced real-time Ai fraud detection and prevention system

ToolCASE is the world’s most advanced transactional AI firm. We are a leading provider of custom developed, real-time AI fraud detection and prevention systems for the bank and credit union industries.

To help reduce or potentially eliminate new account fraud at your institution, and to receive a full demonstration of our remarkable capabilities, visit us HERE

Or go to