Credit fraud losses have hit record levels, topping $10 billion for the first time in the U.S. and more than $33 billion globally. Besides direct losses, you also risk cash flow, regulatory fines, and the time it takes to investigate and manage the fallout.
You simply cannot afford to be reactive in your approach to fraud. You need a proactive strategy that incorporates credit checks, more robust screening during onboarding, and ongoing account monitoring to prevent financial losses and stay one step ahead of fraudsters.
So, let’s explore the different types of fraud that can lead to account takeover, strategies for how to prevent account takeover fraud, and why account monitoring should be part of your layered approach to fraud prevention.
The Different Types of Fraud
There are different types of fraud, and you must be on guard against all of them.
Account Takeover (ATO) Fraud
Account takeovers occur when cybercriminals gain access to legitimate user login credentials. This type of fraud can lead to identity theft, unauthorized access to sensitive information, or unauthorized transactions.
Today, bots and automated attacks are occurring at a staggering scale. ATO fraud is among the top two most common types of fraud.
Synthetic Fraud
This sophisticated form of fraud involves creating fake identities using a mix of real and fabricated information. Synthetic fraud is particularly challenging to detect because the fraudulent accounts may contain some valid data.
Cybercriminals are leveraging AI to expand the scope and scale of synthetic fraud, which is increasingly challenging to unravel.
First-Party Fraud (Friendly Fraud)
In this scenario, customers receive goods or services with no intention of paying. First-party fraud is difficult to identify initially because the transaction appears legitimate at first glance.
Third-Party Fraud (Identity Theft)
This classic form of fraud involves using someone else's identity without their permission. It can include manufactured identities created using a combination of stolen and false information.
How to Prevent Account Takeover Fraud
A strong account monitoring system begins with a thorough onboarding process. This includes:
- Identity verification: Validate the identity of new users or accounts using multiple data points.
- Data validation: Verify the accuracy of submitted information, such as addresses and contact details.
- Credit reporting: Check credit risk to avoid making poor decisions about extending credit or approving loans.
Transaction Monitoring
Keeping a close eye on transactions is crucial for detecting fraud:
- Real-time analysis: Monitor transactions as they occur to identify suspicious activity.
- Behavioral analysis: Track user behavior patterns to spot anomalies that may indicate fraudulent activity.
Credit Report Monitoring
Regularly monitoring credit reports can provide early warning signs of potential fraud, such as unauthorized credit applications or sudden changes in credit scores.
Account Activity Monitoring
Pay close attention to how users interact with their accounts:
- Unusual login attempts: Flag suspicious login activity, such as multiple failed attempts or logins from unexpected locations or devices.
- Changes to account information: Monitor and verify changes to key account details like addresses, email addresses, or linked bank accounts.
- Unusual transactions: Scan for unusual or suspicious activity and flag unusual transactions for further review.
Implementing Your Account Monitoring System
Selecting appropriate software and fraud prevention services is crucial. You need to partner with a provider that can automate fraud detection and prevention, analyzing your accounts to identify patterns and anomalies that may indicate fraud.
Your system must be able to adapt to your industry and requirements. For example, you need the ability to define rules and set risk tolerance and alert thresholds. You must be able to configure alerts that notify you immediately when suspicious activity is detected.
Effective account monitoring should be ongoing. Things can change quickly, and preventing account takeover must be persistent. You need to always be on guard for fraudulent activity.
The Benefits of a Strong Account Monitoring System
A comprehensive account monitoring system provides several key benefits that can help mitigate risk, including:
- Reduce losses: By catching fraudulent activity early, you can significantly minimize financial loss.
- Improve trust: Demonstrating a commitment to account security builds trust with your customers and helps protect your reputation.
- Enhance security: A robust account monitoring system strengthens your overall security posture.
- Protect business and customer data: Safeguards sensitive information from unauthorized access and use.
Preventing Account Takeover and Credit Fraud
The fight against fraud is ongoing. Cybercriminals are constantly evolving their tactics and leveraging AI tools to increase the sophistication and scale of their fraud attempts. Setting up an effective account monitoring system is key to being proactive and protecting your interests and those of your customers.
See how Command Credit can help improve your fraud detection and prevention. Contact Command Credit today.