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This article was updated on November 9, 2023. Fraud – it’s a word that comes up in conversations across every industry. While there’s a general awareness that fraud is on the rise and is constantly evolving, for many the full impact of fraud is misunderstood and underestimated. At the heart of this challenge is the tendency to lump different types of fraud together into one big problem, and then look for a single solution that addresses it. It’s as if we’re trying to figure out how to un-bake a terrible cake instead of thinking about the ingredients and the process needed to put them together in the first place. This is the first of a series of articles in which we’ll look at some of the key ingredients that create different types of fraud, including first party, third party, synthetic identity, and account takeover. We’ll talk about why they’re unique and why we need to approach each one differently. At the end of the series, we’ll get a result that’s easier to digest. I had second thoughts about the cake metaphor, but in truth it really works. Creating a good fraud risk management process is a lot like baking. We need to know the ingredients and some tried-and-true methods to get the best result. With that foundation in place, we can look for ways to improve the outcome every time. Let’s start with a look at the best known type of fraud, third party. What is third-party fraud? Third-party fraud – generally known as identity theft – occurs when a malicious actor uses another person’s identifying information to open new accounts without the knowledge of the individual whose information is being used. When you consider first-party vs third-party fraud, or synthetic identity fraud, third-party stands out because it involves an identifiable victim that’s willing to collaborate in the investigation and resolution, for the simple reason that they don’t want to be responsible for the obligation made under their name. Third-party fraud is often the only type of activity that’s classified as fraud by financial institutions. The presence of an identifiable victim creates a high level of certainty that fraud has indeed occurred. That certainty enables financial institutions to properly categorize the losses. Since there is a victim associated with it, third party fraud tends to have a shorter lifespan than other types. When victims become aware of what’s happening, they generally take steps to protect themselves and intervene where they know their identity has been potentially misused. As a result, the timeline for third-party fraud is shorter, with fraudsters acting quickly to maximize the funds they’re able to amass before busting out. How does third-party fraud impact me? As the digital transformation continues, more and more personally identifiable information (PII) is available on the dark web due to data breaches and phishing scams. Given that consumer spending is expected to increase1, we anticipate that the amount of PII readily available to criminals will only continue to grow. All of this will lead to identity theft and increase the risk of third-party fraud. More than $43 billion in total losses was reported due to identity theft and fraud in the U.S. in 2022.2 Solving the third-party fraud problem We’ve examined one part of the fraud problem, and it is a complex one. With Experian as your partner, solving for it isn’t. Continuing my cake metaphor, by following the right steps and including the right ingredients, businesses can detect and prevent fraud. Third-party fraud detection and prevention involves two distinct steps. Analytics: Driven by extensive data that captures the ways in which people present their identity—plus artificial intelligence and machine learning—good analytics can detect inconsistencies, and patterns of usage that are out of character for the person, or similar to past instances of known fraud. Verification: The advantage of dealing with third-party fraud is the availability of a victim that will confirm when fraud is happening. The verification step refers to the process of making contact with the identity owner to obtain that confirmation and may involve identity resolution. It does require some thought and discipline to make sure that the contact information used leads to the identity owner—and not to the fraudster. In a series of articles, we’ll be exploring first-party fraud, synthetic identity fraud, and account takeover fraud and how a layered fraud management solution can help keep your business and customers safe and manage third-party fraud detection, first-party fraud, synthetic identity fraud, and account takeover fraud prevention. Let us know if you’d like to learn more about how Experian is using our identity expertise, data, and analytics to create robust fraud prevention solutions. Contact us 1 Experian Ascend Sandbox 2 2023 U.S. Identity and Fraud Report, Experian.

This article was updated on November 9, 2023. Account takeover fraud is a huge, illicit business in the United States with real costs for consumers and the organizations that serve them. In fact, experts predict that by the end of 2023, account takeover losses will be over $635 billion. With consumers' data, your reputation, and your organization's financial picture on the line, now's the time to learn about account takeover fraud and how to prevent it.  What is account takeover fraud?  Account takeover fraud is a form of identity theft where bad actors gain unlawful access to a user's online accounts in order to commit financial crimes. This often involves the use of bots.  information that enables account access can be compromised in a variety of ways. It might be purchased and sold on the dark web, captured through spyware or malware or even given “voluntarily" by those falling for a phishing scam.  Account takeover fraud can do far more potential damage than previous forms of fraud because once criminals gain access to a user's online account, they can use those credentials to breach others of that user's accounts.  Common activities and tools associated with account takeover fraud include: Phishing: Phishing fraud relies on human error by impersonating legitimate businesses, usually in an email. For example, a scammer might send a phishing email disguising themselves as a user's bank and asking them to click on a link that will take them to a fraudulent site. If the user is fooled and clicks the link, it can give the hackers access to the account.  Credential stuffing/cracking: Fraudsters buy compromised data on the dark web and use bots to run automated scripts to try and access accounts. This strategy, called credential stuffing, can be very effective because many people reuse insecure passwords on multiple accounts, so numerous accounts might be breached when a bot has a hit. Credential cracking takes a less nuanced approach by simply trying different passwords on an account until one works.  Malware: Most people are aware of computer viruses and malware but they may not know that certain types of malware can track your keystrokes. If a user inadvertently downloads a “key logger", everything they type, including their passwords, is visible to hackers.  Trojans: As the name suggests, a trojan works by hiding inside a legitimate application. Often used with mobile banking apps, a trojan can overlay the app and capture credentials, intercept funds and redirect financial assets.  Cross-account takeover: One evolving type of fraud concern is cross-account takeover. This is where hackers take over a user's financial account alongside another account such as their mobile phone or email. With this kind of access, fraudsters can steal funds more easily and anti-fraud solutions are less able to identify them.  Intermediary new-account fraud: This type of fraud involves using a user's credentials to open new accounts in their name with the aim of draining their bank accounts.  This is only an overview of some of the most prevalent types of account takeover fraud. The rise of digital technologies, smartphones, and e-commerce has opened the door to thieves who can exploit the weaknesses in digital security for their own aims. The situation has only worsened with the rapid influx of new and inexperienced online users driven by the COVID-19 pandemic.  Why should you be concerned, now?  Now that digital commerce and smartphone use are the norm, information used to access accounts  is a security risk. If a hacker can get access to this information, they may be able to log in to multiple accounts.. The risk is no longer centralized; with every new technology, there's a new avenue to exploit.   To exacerbate the situation, the significant shift to online, particularly online banking, spurred by the COVID-19 pandemic, appears to have amplified account takeover fraud attempts. In 2019, prior to the pandemic, 1.5 billion records — or approximately five records per American — were exposed in data breaches. This can potentially increase as the number of digital banking users in the United States is expected to reach almost 217 million by 2025. Aite research reported that 64 percent of financial institutions were seeing higher rates of account takeover fraud than before COVID. Unfortunately, this trend shows no sign of slowing down. The increase in first-time online users propelled by COVID has amplified the critical security issues caused by a shift from transaction fraud to identity-centric account access. Organizations, especially those in the financial and big technology sectors, have every reason to be alarmed.  The impact of account takeover fraud on organizations  Account takeover can be costly, damage your reputation and require significant investments to identify and correct.  Protection of assets  When we think of the risks to organizations of account takeover fraud, the financial impact is usually the first hazard to come to mind. It's a significant worry: According to Experian's 2023 U.S. Identity and Fraud report, account takeover fraud was among the top most encountered fraud events reported by U.S. businesses. And even worse, the average net fraud loss per case for debit accounts has been steadily increasing since early 2021. The costs to businesses of these fraudulent activities aren't just from stolen funds. Those who offer credit products might have to cover the costs of disputing chargebacks, card processing fees or providing refunds. Plus, in the case of a data breach, there may be hefty fines levied against your organization for not properly safeguarding consumer information. Add to these the costs associated with the time of your PR department, sales and marketing teams, finance department and customer service units.  In short, the financial impact of account takeover fraud can permeate your entire organization and take significant time to recoup and repair.  Protection of information  Consumers rightfully expect organizations to have a solid cybersecurity plan and to protect their information but they also want ease and convenience. In many cases, it's the consumers themselves who engage in risky online behavior — reusing the same password on multiple sites or even using the same password on all sites. These lax security practices open users up to the possibility of multiple account takeovers. Making things worse for organizations, security strategies can annoy or frustrate consumers. If security measures are too strict, they risk alienating consumers or even generating false positives, where the security measure flags a legitimate user.  Organizations are in the difficult position of having to balance effective security measures with a comfortable user experience. Reputation  When there's a data breach, it does significant damage to your organization's reputation by demonstrating weaknesses in your security. Fraudulent account take-overs can affect the consumers who rely on you significantly and if you lose their trust, they're likely to sever their relationship with you. Large-scale data breaches can sully your organization's reputation with the general public, making consumers less likely to consider your services. How to build an account takeover fraud prevention strategy  There are numerous ways to build an account takeover fraud prevention strategy, but to work for your and individual consumers, it must pair robust risk management with a low friction user experience.  Here are some of the key elements to an account takeover fraud prevention strategy that hits the right notes.  Monitor interactions The risk of account takeover is constant so your monitoring should be as well. A layered, proactive and passive fraud prevention program can monitor your interactions, reduce false positives and keep track of consumers' digital identities. Use the right tools When it comes to fraud prevention, you've got plenty of choices but you'll want to make sure you use the tools that protect you, as well as consumer data, while always providing a positive experience. We use risk-based identity and device authentication and targeted step-up authentication to keep things running smoothly and only pull in staff for deeper investigations where necessary. Automate to reduce manual processes  Your organization's fraud prevention strategy likely includes manual processes, tasks that are completed by employees—but humans make mistakes that can be costly. Taking the wrong action, or even no action at all, can result in a security breach. Automated tasks like threat filtering and software and hardware updates can reduce the risk to your organization while improving response time and freeing up your team.  Choose a nimble platform  Technology changes quickly and so does fraud. You'll need access to a layered platform that lets you move as quickly as the bad actors do.  The bottom line  You can effectively mitigate against the risk of account takeover fraud and offer consumers a seamless experience. Learn more about account takeover fraud prevention and fraud management solutions.  Fraud management solutions

For companies that regularly engage in financial transactions, having a customer identification program (CIP) is mandatory to comply with the regulations around identity verification requirements across the customer lifecycle. In this blog post, we will delve into the essentials of a customer identification program, what it entails, and why it is important for businesses to implement one. What is a Customer Identification Program (CIP)? A CIP is a set of procedures implemented by financial institutions to verify the identity of their customers. The purpose of a CIP is to be a part of a financial institution’s fraud management solutions, with similar goals as to detect and prevent fraud like money laundering, identity theft, and other fraudulent activities. The program enables financial institutions to assess the risk level associated with a particular customer and determine whether their business dealings are legitimate. An effective CIP program should check the following boxes: Confidently verify customer identities Seamless authentication Understand and anticipate customer activities Where does Know Your Customer (KYC) fit in? KYC policies must include a robust CIP across the customer lifecycle from initial onboarding through portfolio management. KYC solutions encompass the financial institution’s customer identification program, customer due diligence and ongoing monitoring. What are the requirements for a CIP? Customer identification program requirements vary depending on the type of financial institution, the type of account opened, and other factors. However, the essential components of a CIP include verifying the customer's identity using government-issued identification, obtaining and verifying the customer's address, and checking the customer against a list of known criminals, terrorists, or suspicious individuals. These measures  help detect and prevent financial crimes. Why is a CIP important for businesses? CIP helps businesses mitigate risk by ensuring they have accurate and up-to-date information about their customers. This also helps financial institutions comply with laws and regulations that require them to monitor financial transactions for any suspicious activities. By having a robust CIP in place, businesses can establish trust and rapport with their customers. According to Experian’s 2023 U.S. Identity and Fraud Report, more than 85% of consumers expect businesses to respond to their identity and fraud concerns, and these expectations have risen over the past several years. Having an effective CIP in place is part of financial institutions showing their consumers that they have their best interests top of mind. Finding the right partner It’s important to find a partner you trust when working to establish processes and procedures for verifying customer identity, address, and other relevant information. Companies can also utilize specialized software that can help streamline the CIP process and ensure that it is being carried out accurately and consistently. Experian’s proprietary and partner data sources and flexible monitoring and segmentation tools allow you to resolve CIP discrepancies and fraud risk in a single step, all while keeping pace with emerging fraud threats with effective customer identification software. Putting consumers first is paramount. The security of their identity is priority one, but financial institutions must pay equal attention to their consumers’ preferences and experiences. It is not just enough to verify customer identities. Leading financial institutions will automate customer identification to reduce manual intervention and verify with a reasonable belief that the identity is valid and eligible to use the services you provide. Seamless experiences with the right amount of friction (I.e., step-up authentication) should also be pursued to preserve the quality of the customer experience. Putting it all together As cybersecurity threats are becoming more sophisticated, it is essential for financial institutions to protect their customerinformation and level up their fraud prevention solutions. Implementing a customer identification program is an essential component in achieving that objective. A robust CIP helps organizations detect, prevent, and deter fraudulent activities while ensuring compliance with regulatory requirements. While implementing a CIP can be complex, having a solid plan and establishing clear guidelines is the best way for companies to safeguard customer information and maintain their reputation. CIPs are an integral part of financial institutions security infrastructures and must be a business priority. By ensuring that they have accurate and up-to-date data on their customers, they can mitigate risk, establish trust, and comply with regulatory requirements. A sound CIP program can help financial institutions detect and prevent financial crimes and cyber threats while ensuring that legitimate business transactions are not disrupted, therefore safeguarding their customers' information and protecting their own reputation. Learn more