Starting with Email and Social Media

Fraudsters often initiate their schemes by setting up non-financial accounts, such as email or social media profiles. These accounts require minimal identity verification, making it easier for the scammer to obtain legitimacy without much effort.

Setting these initial accounts establishes a foundation of perceived authenticity, which can later be used to bolster legitimacy when attempting to open financial accounts. Many financial institutions rely on static identity verification methods that check whether an individual owns certain email addresses or uses specific names and dates of birth. However, synthetic identities created with AI tools can easily bypass such checks.

Dynamic Identity Verification Needed

To combat the growing threat of new-account fraud, financial institutions must move beyond static identity verification. Jennifer Pitt from Javelin Strategy & Research suggests that dynamic identity verification should be implemented alongside traditional methods.

Pitt recommends requiring customers to verify their identities by holding up a driver’s license next to their face and performing simple actions such as turning their head or saying something into the camera. This approach can significantly enhance security measures against synthetic identities.

Behavioral Analytics for Detection

Behavioral analytics play a crucial role in identifying genuine users from bots. Financial institutions should analyze typing patterns, which can reveal whether an application is being filled out by a human or a machine. For instance, completing lengthy applications rapidly could indicate automated activity.

Pitt explains that certain AI tools and bots can be used to submit multiple applications with the same personal information. Detecting such patterns before account creation is vital to prevent fraudsters from establishing fraudulent profiles.

Individuals at Risk of New-Account Fraud

While new-account fraud might not directly impact individual consumers, it can have significant consequences. Scammers use partial personal information to open accounts, and these accounts may later be linked back to the legitimate holder, causing issues such as difficulties in obtaining mortgages or government benefits.

Consumers should stay vigilant by regularly checking their credit reports and signing up for identity protection services that offer monitoring of sensitive information. Freezing one’s credit can also prevent unauthorized access to personal financial data.

Addressing Privacy and Friction Concerns

Despite the benefits of AI tools, many financial institutions are hesitant due to privacy concerns and customer friction. While some institutions use limited AI applications, comprehensive identity verification systems remain underutilized.

Pitt emphasizes that integrating existing technology stacks with new AI solutions can be more straightforward than starting from scratch. The cost may seem prohibitive at first, but the long-term benefits of preventing fraud outweigh potential initial expenses.

Ultimately, financial institutions must embrace modern technologies to stay ahead of evolving fraud tactics or face severe consequences such as fines and customer attrition.