Account takeover fraud (ATO) is a growing concern for financial institutions (FIs) around the world. ATO occurs when a fraudster gains unauthorized access to a user’s account and conducts unauthorized transactions. This not only leads to financial losses for the institutions but also causes significant stress and inconvenience for the affected customers. In this blog, we will discuss the top signs of ATO and explore strategies in FIs can adopt to detect and prevent it.
What is Account Takeover Fraud?
Account takeover fraud is a type of fraud in which a fraudster gains unauthorized access to a customer’s financial account and carries out fraudulent activities. These activities can include making unauthorized transactions, changing account details, or even stealing funds.
Fraudsters can gain access to a customer’s account by using various tactics such as phishing scams, social engineering, or by exploiting vulnerabilities in the security system of the FI where the customer’s account is held. Once they have gained access to the account, they can carry out fraudulent activities that can cause significant financial losses for both the FI and the customer.
Account takeover fraud is a serious threat to the security of banking systems, and it is important for banks to implement robust security measures to prevent such incidents from occurring. These measures can include multi-factor authentication, transaction monitoring, and fraud detection tools, among others. Banks also need to educate their customers on how to protect their accounts and report any suspicious activities immediately.
What Are the Risks of Account Takeover Fraud?
Account takeover fraud poses several risks for both banks and their customers. These risks include:
- Financial losses: Fraudsters can use unauthorized access to a customer’s account to carry out activities such as making unauthorized transactions or stealing funds. As a result, both the FI and the affected customer can suffer significant financial losses.
- Reputation damage: ATO incidents can damage the reputation of FIs and make customers lose confidence in their ability to protect their accounts. This can lead to a loss of business and revenue for the FI.
- Legal and regulatory penalties: FIs can face legal and regulatory penalties for failing to protect their customers’ accounts from fraud. This can result in fines, lawsuits, and damage to the FI’s reputation.
- Identity theft: ATO fraudsters can also steal a customer’s personal information, which can be used for traditional identity theft and/or synthetic identity fraud. This can lead to further financial losses and damage to the customer’s credit score.
- Operational disruptions: ATO incidents can cause operational disruptions for FIs, affecting their ability to serve customers and carry out their daily activities.
Overall, the risks associated with account fraud takeover are significant, and it is essential for FIs to take all necessary measures to prevent such incidents from occurring.
Methods Used By Fraudsters
With an estimated 22% of U.S. adults falling victim to ATO, it is vital to understand the methods used by fraudsters to help with detection and to avoid falling victim yourself.1 There are several methods that fraudsters use to take over accounts.
Fraudsters send fake emails or messages to customers, pretending to be from the bank or FI. These emails or messages contain links that lead customers to fake websites that look like the real ones. Customers are then tricked into giving away their login credentials, which fraudsters can use to take over their accounts.
This is a technique where fraudsters use psychological manipulation to trick customers into giving away their login credentials. They might pose as bank employees and call customers, asking for their login credentials to resolve an issue.
Fraudsters use malware to infect customers’ devices, which then steal their login credentials when they enter them on a banking or financial website. This malware can be spread through email attachments, downloads, or even through ads on websites.
Fraudsters use this technique to take over a customer’s mobile number, which is often linked to their financial accounts. They convince the telecom operator to transfer the customer’s phone number to a new SIM card that they control, and then use that to gain access to the customer’s accounts.
Fraudsters use automated tools to try different combinations of usernames and passwords to gain access to customers’ accounts. They might use information that they have obtained through phishing or social engineering to make educated guesses about passwords.
Top Signs of Account Takeover Fraud
Since fraudsters tend to use a variety of similar methods and tactics to gain access to accounts, there are common red flags that point both FIs and account holders to instances of ATO.
- Unusual login patterns: One of the first signs of ATO is unusual login patterns, such as logging in from different locations, devices, or at odd hours. This may indicate that the account is being accessed by an unauthorized user.
- Sudden changes in account information: If an account suddenly undergoes changes in personal information, such as email address, mailing address, or phone number, it could be a sign that a fraudster is attempting to take control of the account.
- Unfamiliar transactions: A sudden spike in unfamiliar transactions, especially those involving large amounts or international transfers, may indicate that an account has been taken over by a fraudster.
- Multiple failed login attempts: An unusually high number of failed login attempts could be a sign that someone is trying to break into an account using stolen credentials or brute force attacks.
- Unusual account activity: If an account that typically has a history of regular, predictable activity suddenly shows unusual or erratic behavior, it could be a sign that a fraudster has gained access to the account.
How FIs Can Prevent ATO
Due to the potential reputational, financial and legal issues that can arise from an FI experiencing ATO attacks on its clients, FIs should have measures in place to detect and prevent fraudsters. Tactics for ATO prevention include:
Implement Robust Security Measures
FIs should have strong security measures in place, such as multi-factor authentication, to help prevent unauthorized access to user accounts. This can include the use of one-time passwords (OTPs), biometrics, or hardware tokens.
FIs, especially Banks, MSBs, and payment companies, should regularly educate their customers on the risks of ATO, and provide guidance on steps they can take to protect their accounts. This can include creating strong, unique passwords and being cautious about sharing personal information online.
Monitor Accounts for Suspicious Activity
FIs should proactively monitor accounts for signs of ATO, such as unusual login patterns or transactions. If suspicious activity is detected, they should immediately notify the account holder and take appropriate action to secure the account.
Employ Advanced Fraud Detection Tools
Artificial intelligence (AI) and machine learning can be used to analyze large amounts of data and identify patterns that may indicate ATO. Advanced tools such as continuous controls monitoring and procurement monitoring can help FIs detect and prevent ATO more effectively. Additionally, implementing dedicated account takeover fraud prevention solutions can greatly reduce risk in your organization.
Collaborate With Other Institutions
Banks, MSBs, and payment companies should work together to share information about known ATO threats and best practices for prevention. This collaboration can help improve the overall security of the financial industry.
ATO and Anti-Money Laundering Compliance
In addition to implementing robust anti-fraud programs and fraud detection and prevention solutions, FIs can utilize data and tactics from their anti-money laundering (AML) compliance program.
Data collected and analyzed for AML compliance requirements, such as transaction monitoring, regulatory reporting, and identity verification and know your customer (KYC) processes can provide useful information for combatting types of fraud, including ATO, chargeback fraud and payment fraud. This tactic of combining anti-fraud programs and solutions with AML compliance programs is known as FRAML.
Account Takeover Fraud (ATO) poses a significant threat to financial institutions and their customers. By being vigilant for the top signs of ATO, implementing robust security measures, and proactively working to prevent unauthorized access, banks, MSBs, payment companies and other FIs can help protect their customers and minimize the potential impact of ATO.
To learn more about how Alessa’s fraud detection and prevention solutions, dedicated account takeover fraud prevention solutions and AML compliance platform can prevent ATO and other fraudulent activities, contact us today.