Imagine discovering that a loan was approved in your name without your knowledge. That’s how identity crimes begin. Fraud doesn’t start with stolen money, it starts with stolen or forged identities. Businesses often focus their fraud prevention efforts on financial losses, but by then, the damage is already done and personal information has already been compromised. To effectively combat fraud, organizations must address threats earlier in the lifecycle, when identity crimes such as phishing, credential and identity theft, and synthetic identity creation take place​​. By recognizing identity crimes as the foundation of fraud, businesses can proactively disrupt these attacks before they lead to financial or reputational harm​.

The Myth That Fraud Happens at the Moment of Loss

For many, fraud seems to begin when money or goods are stolen. It's easy to see why - the most visible impact of fraud is financial loss. This focus often leads organizations to invest heavily in transactional fraud detection systems, believing that stopping unauthorized transactions is the key to stopping fraudulent activities​​.

The truth is, financial loss is merely the final chapter in a longer story of identity crimes. Fraudsters rely on stolen identities, synthetic profiles, and breached credentials to set the stage for their schemes. By the time money changes hands, the groundwork has already been laid through compromised identity or unauthorized access. Addressing fraud earlier, like during account creation or login, is far more effective than reacting to suspicious transactions later​.

Fraud doesn’t appear out of thin air; it starts with identity crimes that lay the foundation. If these early signals go unnoticed, fraudsters gain the foothold they need to exploit accounts, systems, and financial resources. Let’s explore how this unfolds in two common scenarios:

New Account Fraud (NAF):

Creating fake accounts is a favorite tactic for fraudsters. Here’s how they do it:

• Stolen Identity Information: Using personally identifiable information (PII) such as Social Security numbers and addresses, fraudsters open accounts in a victim's name. Often, this PII has been sitting on the dark web for months, waiting for its moment​.

• Synthetic Identities: By combining real and fabricated data, fraudsters create entirely new identities that pass basic verification checks but don’t correspond to a real person. These synthetic accounts are then used for loans, credit, or other financial gains​​.

• Automated Account Creation with Bots: Bots enable fraudsters to quickly generate dozens, even hundreds, of accounts using disposable emails and spoofed devices, often exploiting promotions or referral bonuses​.

• Manipulated “Aging” Accounts: Fraudsters sometimes create accounts and let them sit dormant. These "aged" accounts gain credibility over time, making them less likely to trigger red flags when activated for fraud​.

Account Takeover (ATO):

Rather than creating new accounts, fraudsters can also hijack existing ones. They employ methods such as:

• Credential Stuffing: With credentials stolen from previous breaches, fraudsters test username-password pairs across multiple sites, banking on password reuse by users​​.

• Phishing and Social Engineering: Fraudsters craft convincing messages, often aided by AI, to trick victims into revealing login details. Some even use deepfakes to impersonate trusted individuals​​.

• Session Hijacking: By stealing session tokens, fraudsters bypass re-authentication processes to take control of active user sessions​​.

• AI-Driven Attacks: Sophisticated fraudsters use deepfake and artificial intelligence (AI) technology to impersonate account holders in video or voice interactions, deceiving even advanced security systems​​.

Think of fraud as a chain reaction. Once an identity is compromised, fraudsters move to the exploitation phase, gaining unauthorized access to accounts or establishing trust with account owners. Finally, they reach monetization, leveraging stolen identities for financial gain through fraudulent transactions, loans, or account draining​​.

For example, a fraudster might use a stolen Social Security number to open a credit account, then max out the credit limit, leaving the person attached to the stolen information on the hook. Stopping fraud at the identity stage disrupts this pattern early, minimizing both financial losses and reputational harm​.

Why Traditional Approaches Fall Short

Reactive Methods:

Many organizations rely on transactional anomaly detection, which catches fraud at the point of payment. While valuable, this approach often comes too late to prevent financial and reputational damage. It’s a bandaid, not a cure​​.

Missed Opportunities:

Without robust identity verification or risk-based authentication, fraudsters can slip through the cracks during account creation or login. This reactive mindset leaves businesses vulnerable to identity crimes that fuel larger fraud schemes​.

How can businesses get ahead of fraud? By adopting proactive, identity-driven strategies:

Identity Verification

Tools like liveness detection and document verification ensure synthetic identities are caught during registration.

Multi-Factor Authentication (MFA)

Multi-factor authentication can help protect individual customer accounts from being taken over by requiring another security step. However, not all MFA methods are equally secure and some are still vulnerable to fraudulent tactics, like phishing.

Phishing-resistant MFA can be achieved through the integration of FIDO2 passwordless authentication, which provides a secure, hardware-based authentication method that cannot be easily tricked by phishing attempts; effectively preventing unauthorized access even if a user is tricked into sharing their credentials. However, it can be tricky to get customers to adopt phishing-resistant MFA except in scenarios where they expect or demand high security, so it’s not a silver bullet solution across your customer base.

Risk-Based Authentication (RBA)

RBA evaluates real-time risk signals—such as geolocation, device reputation, and user behavior. This dynamic approach ensures only high-risk sessions face additional challenges, improving the experience for legitimate users​​.

Defending Against AI-Driven Threats

Sophisticated fraud requires sophisticated defenses. Technologies like video injection detection and voice clone detection can thwart AI-driven attacks, ensuring fraudsters using deepfakes don’t succeed​​.

Identity Orchestration

Orchestrating fraud technologies across the user journey ensures seamless communication between tools. This approach not only catches fraud early but also maintains a smooth user experience, reducing abandonment rates​​.

The Challenge

A leading financial institution faced escalating fraud losses due to synthetic identity fraud. Over 50% of all loan applications were identified as fraudulent, driven by sophisticated identity crimes such as stolen and fabricated personal information. Traditional fraud detection methods focused on transactional anomalies but failed to address the root cause: identity verification during the account creation process.

The Solution

The institution partnered with us to integrate advanced fraud prevention tools into its customer registration workflows. Key solutions included:

1. Identity Verification: Implemented real-time government ID verification and liveness detection, preventing fraudsters from using synthetic identities to bypass initial account checks.

2. Risk-Based Scoring: Evaluated user behavior and device attributes to dynamically assess risk.

3. Seamless Orchestration: Streamlined the verification process, reducing manual reviews and enabling faster decision-making.

The Results

• Fraudulent Loan Applications Reduced: Over 50% of fraudulent applications were blocked in the first six months.

• Substantial Cost Savings: The institution saved $600,000 in direct fraud losses within six months, with annual projections exceeding $1.2 million.

• Enhanced Customer Experience: Legitimate users benefited from a smoother registration process, increasing completion rates by 20%.

• Operational Efficiency: Fraud team workloads decreased by 40%, allowing focus on high-risk cases.

Takeaway

By addressing fraud during account creation, the institution not only minimized financial losses, but also enhanced customer trust and operational efficiency. This proactive approach underscores the value of shifting fraud prevention upstream, ensuring identity crimes are stopped before they escalate.

Proactively addressing fraud at the identity stage isn’t just a best practice—it’s a transformative strategy. As highlighted in our webinar, "Conquer Identity Fraud: A Better Model to Safeguard Your Revenue & Reputation," shifting fraud prevention earlier in the user journey builds stronger defenses and saves costs over time​​.

Key advantages include:

• Protect Customer Trust: Preventing identity crimes builds confidence in your brand by addressing fraud before it impacts customers​.

• Minimize Financial Losses: Stopping fraud early reduces costly resolution efforts, such as reclaiming stolen funds or repairing damaged reputations​.

• Enhance User Experience: By identifying and addressing risks proactively, you can reduce false positives and apply targeted measures that create a frictionless journey for legitimate users​​.

Organizations that adopt this proactive approach see a significant improvement in both operational efficiency and customer satisfaction, ensuring long-term success in combating fraud.

Fraud doesn’t start with stolen money. It starts with stolen identities, and organizations that secure their digital identities can safeguard their customers, revenue, and reputation before it’s too late​​.