An increase in new account creation can be exciting, indicating a positive trend. However, the risk of fraudulent or duplicate accounts from existing users is also increasing. New account fraud is a common type of fraud and responsible for billions of yearly losses.

New account fraud includes creating fake accounts to exploit limited-time promotions. This article will explore new account fraud, how it differs from account takeover fraud, common types of new account fraud, and prevention methods.

What is new account fraud?

New account fraud generally involves identity theft, where an imposter uses another person's information to open a new account (Examples include a bank account, credit card, loan account, etc.) without their consent or knowledge.

Then they use a combination of the victim's authentic data, such as social security number, date of birth, and name. This fraud can result in significant financial loss for victims, from unpaid bills to damaged credit history.

Additionally, new account fraud can occur when a person creates multiple accounts either with fake information or multiple identities such as a second phone number or email address to take advantage of a promotion or gain an unfair advantage.

How does new account fraud and account takeover fraud differ?

While new account fraud involves opening a new account with someone else’s information or with fake information, account takeover fraud involves taking control of someone else’s existing account. The fraudster accesses the account by obtaining the victim’s login credentials or by manipulating security questions to reset passwords. 

Once they control the account, they can execute unauthorized transactions, transfer funds, or alter beneficiary information. Compared to new account fraud, account takeover fraud is more challenging to detect as it's difficult to distinguish between legitimate and fraudulent login attempts.

How does new account fraud work?

Let’s dive into how new account fraud works, common forms of this type of fraud, and some commonly asked questions around how it works. 

Common types of new account fraud

Multi-accounting

Multi-accounting occurs when one user creates and uses multiple accounts within a platform or system. It often gains an unfair advantage, manipulates data or metrics, or casts multiple votes. For example, a user might create multiple accounts to cast more than one vote, skewing the results in their favor. Also, in an online game, a player might use multi-accounting to gain extra resources or advantages, distorting the game's balance and fairness.

Free trial fraud

Creating multiple accounts to exploit discounts or promotions can also be fraudulent. Free trial fraud is a typical example. To mitigate financial losses associated with offering free trials, companies can use services like Fingerprint to identify suspicious users who attempt to abuse free trials by creating multiple accounts or exploiting trial periods.

Coupon and promo abuse

Another common type of new account fraud is abusing coupon codes and promotions. This happens when someone creates multiple accounts to exploit a coupon or promotion limited to one-time redemption or once per individual account.

Is creating multiple accounts considered fraud?

Usually, creating multiple accounts isn't considered fraud unless done with fraudulent intent. For example, creating multiple accounts to obtain more than one trial period on a streaming service or exploiting a promotion can be considered fraudulent. However, a single person can have multiple email accounts with the same email service, and that's not considered fraud.

Creating multiple accounts to impersonate or attack someone is generally criminal, especially involving identity theft and financial transactions.

Is it okay to make new accounts for discounts?

Whether it's okay to create new accounts for discounts is a gray area. Some companies might have terms and conditions stating that only one account per person is permitted, and if someone is found to have multiple accounts, they might be banned from using their services. 

However, creating multiple accounts for discounts is okay as long as it's within the website's rules and regulations.

Is new account fraud the same as identity theft?

Identity theft is a criminal offense where someone impersonates someone else and commits fraud using their identity. Creating multiple accounts is not considered identity theft unless someone is impersonating another person. However, if creating multiple accounts involves using someone else's personal information, this would be considered identity theft.

How can businesses prevent new account fraud?

Businesses must protect themselves and their customers from fraudulent new account creation, maintain trust and safety, and safeguard financial losses.

Here are some suggestions for identifying fraudulent account creation and preventing it in the future:

• Use multi-factor or two-factor authentication (MFA/2FA) during account creation: Implement MFA or 2FA at the account creation stage rather than just at login. Require users to confirm their identity during account creation through challenge questions, SMS 2FA, or SSO authentication through Apple or Google.
• Implement a device intelligence solution to better identify returning users: A device intelligence solution helps you better identify your users without added friction. For example, Fingerprint can identify users during account creation workflows, helping you distinguish between the same user or new users– even if they're trying to conceal their identity.
• Regularly audit suspicious sign-ups for any trends: Educate your teams and establish processes for regularly auditing sign-ups for questionable trends, such as a sudden increase in new accounts or a surge in one specific region or location. Also, consider implementing procedures that require one account per phone number, email, or other identifying information.

Conclusion

This article covered the basics of new account fraud and how it differs from account takeover fraud. Both are severe and complex types of online fraud. New account fraud can range from widespread, coordinated attacks to more isolated instances exploiting a limited-type coupon. However, what constitutes fraudulent account creation is usually detailed in a business's terms of service.

Businesses can better identify and prevent new account fraud using MFA and device intelligence. Fingerprint is one of those device intelligence solutions that can identify returning users with 99.5% accuracy, even if they attempt to conceal their identity.

• Learn more about how we solve new account fraud.
• Prevent coupon and promo abuse with our how-to tutorial.