New Account Fraud is on the Rise – Is There Any Defense?
According to a new study from Javelin, instances of new account fraud more than doubled from 2014 to 2015. This increase in fraud is attributed to a number of factors including the recent transition to EMV combined with a significant increase in data breaches from 2014 – 2015 which compromised the social security numbers for seven million consumers, including children.
Contributing Factors – Minors and Synthetics
Two trends noted in the study that may be complicating the detection of new account fraud are the use of personally identifiable information (PII) from minors and the use of synthetic identities. Of the seven million individuals notified in 2015 that their social security number had been breached, over one million were children. Fraud using the information of minors is particularly troublesome because in most instances the minor whose information was stolen had yet to establish a credit history, providing the fraudster with a clean record when seeking new credit accounts. Additionally, this fraud may go undetected for years until the victim attempts to apply for a credit account.
Similarly fraudsters using synthetic identities may operate without detection for a significant period of time. Synthetic or fabricated identities may contain some valid information or be completely new, making them difficult to identify as being counterfeit. Without a clear fraud victim the fraudster may be able to use their falsified credentials to establish numerous accounts.
Cost to Retailers
With retail merchants beginning to see their first wave of chargebacks2, there is a greater sense of urgency for retailers to make the switch to EMV, and Javelin predicts that by 2019 chip enabled cards will account for 84% of credit cards in circulation, compared to 36% in 2015. Fraudsters may find it more desirable to acquire new cards using fraudulent information than to find a new way to acquire goods with stolen cards, 1 as a result, the decline in acceptance of magnetic stripe cards could drive an increase in the rate of new account fraud for years to come.
While many traditional fraud detection tools can be effective in detecting account takeover Javelin points to the consortium model for FIs seeking to improve their fraud defenses. The visibility into identity elements afforded by consortium data is seen as particularly effective in detecting potential stolen or synthetic identities. Download the Mitigating Application Fraud from Synthetic Identities report to learn more.
Ken Meiser is the Vice President of Identity Solutions at ID Analytics.
 Pascual. Javelin (April 2016) Mitigating Application Fraud from Synthetic Identities http://hub.idanalytics.com/mitigating-application-fraud
 Deichler. Association for Financial Professionals (2016 March 03) Post-EMV Liability Shift, chargebacks are a Big Issue http://www.afponline.org/pub/res/news/Post-EMV_Liability_Shift,_Chargebacks_are_a_Big_Issue.html