New Account Fraud: What It Is, How It Works, How To Identify It 

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New account Fraud (NAF), also known as account creation fraud, is a criminal act where fraudsters successfully open accounts on online services using stolen or fake identities. 

These accounts appear legitimate to businesses, allowing the fraudster to gain their trust and then commit offences often related to finance, such as money laundering, theft, and credit card fraud. The victims are not only businesses, but also customers whose identities are stolen and framed in these crimes. 

This type of fraud is on the rise, and it’s important to know how it works, how to identify it so you can prevent this in your business. 

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How Do Fraudsters Obtain Information?

The identity information fraudsters use in new account fraud varies. In some cases, the account details are entirely stolen by a third party, using the real personal information of an unsuspecting person, or they may use fake information. This is referred to as third-party fraud, and the information is generally attained through data breaches, phishing scams, or the Dark Web. 

In other cases, fraudsters create synthetic personal identities, blending real information and fake details, which may be complete lies or an exaggerated version of the truth. When the real information used is the person’s own, it is referred to as first-party fraud; however, when it’s not, it is generally referred to as synthetic identity fraud.

How Does New Account Fraud Work? 

Once fraudsters collect the information for their new identity and create the new account, they go through a few more steps to legitimize and abuse the account. 

First, if the online service they are on requires it, they must verify their identity. This may be done through using websites that allow people to create fake email addresses or phone numbers, or if the fraudster has stolen someone’s identity, they may have access to their accounts and passwords to verify their details. 

Secondly, they may use the account in lawful ways to build a good profile. For example, if the fraudster intends to use the account for credit card fraud, then they may spend some time building up a good credit score for a while, to then take out a large loan without repaying and disappear. 

Lastly, some fraudsters will immediately use the new account for fraud, for example, they may sell the account on the Dark Web or commit crimes such as theft, money muling, and promotional abuse, where the fraudster can exploit discount services or bonuses offered by different services. Some fraudsters use bots to automatically complete this process at a faster rate. 

Many of the crimes committed by new account fraudsters tend to be financial, thus banks and financial institutions tend to be the most vulnerable. Other industries also affected include:

• Online gaming services and casino businesses 
• Mobile phone companies 
• E-Commerce and online retail
• Healthcare 
• Crypotocurrency 
• Subscription services 
• Social media and dating platforms 

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New Account Fraud’s Impact On Businesses

New Account Fraud can have detrimental impacts on businesses; for example, it may produce economic losses or cause damage to operations, reputations, and customer relations. Those sectors are affected as such:

Economic and Operational Damage

• Direct loss through accounts being created and exploited to take out loans without repaying, commit theft, and abuse promotional sites.

• Chargeback fees will be incurred in cases where fraudulent purchases were made under a victim’s name or credit card, which may increase processing fees if the chargebacks are frequent. 

• Indirect operational costs required to combat new account fraud increase, which means investing more time and money away from the business’s base operations. This can become a heavy financial burden to invest in fraud prevention, which can decrease profits.

Reputation and Customer Relationship Damage

• Damage to reputation can arise from public knowledge of fraud incidents in a company, leading to customers being less trusting and less likely to open accounts, especially if they believe they may have their accounts hacked into and abused. 

• Customers may choose not to make accounts under businesses affected by this fraud, thus leading to less spending, which can directly impact company revenue.

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How To Identify New Account Fraud 

New Account Fraud leaves patterns and evidence of suspicious activity that can be tracked, as long as you know what to look for. Here are some key patterns to watch out for:

• Suspicious activity during the application process, for example, inconsistent information across the same application, unclear documents that verify identity, or multiple accounts using the same IP address or device.

• Strange transactions that occur when the account is created, such as quick withdrawals after small deposits of money or changes in spending patterns.

• Changes to account information after the account is created may be suspicious if the details changed are critical, such as email address or phone number. 

• Unusual activities on weekends or national holidays may be a sign of a fraudster taking advantage of the fact that there may be fewer staff working.

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How To Prevent New Account Fraud 

Preventing new account fraud starts with strengthening your front-end controls and improving ongoing monitoring. Here are the most effective measures merchants can implement:

Strengthen Identity Verification

Verifying identities is one of the most effective ways to confirm whether an account is legitimate. Use layered verification, such as:

• Government ID checks
• Biometric or facial recognition
• Multi-factor authentication (MFA)
• Cross-checking account details against trusted public records
  
  

A multi-layered approach makes it significantly harder for fraudsters to create fake or synthetic accounts.

Monitor Customer Behavior in Real Time

Fraudulent accounts often reveal themselves through unusual behavior. Track and flag patterns like:

• Rapid-fire sign-ups from the same device or IP
• Mismatched user details
• Suspicious login attempts
• Abnormal activity immediately after account creation
  
  

Teach your team what risky patterns look like so they can intervene early.

Use Advanced Fraud Detection Tools

Machine learning and behavioral analytics tools can identify high-risk patterns far faster than manual review. These tools analyze thousands of data points—including device fingerprints, login velocity, and transaction habits—to determine whether a new account is trustworthy.

Implement Bot Detection Systems

Simple measures such as CAPTCHA or invisible bot-detection scripts can stop automated account-creation attacks before they begin. These tools help distinguish real users from automated scripts designed to generate fake accounts at scale.

Educate Your Customers

Customers play a critical role in preventing account takeover and synthetic identity misuse. Provide clear guidance on:

• Creating strong, unique passwords
• Recognizing phishing attempts
• Protecting personal information
• Enabling MFA whenever available
  
  

An informed customer base is far harder for fraudsters to exploit.

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How ChargebackStop Can Help You Combat New Account Fraud 

With many cases of new account fraud where a person’s identity or their credit card details have been stolen and used to make fraudulent transactions, the person may file a chargeback to retrieve their money. 

Here’s where ChargebackStop comes in: we aim to detect suspicious behaviour before it happens using real-time monitoring to prevent disputes from turning into chargebacks by alerting you immediately and refunding the customer. We keep your Chargeback ratio low so you can focus on your business and we can handle the fraud. 

Book a demo with ChargebackStop and prevent new account fraud from disrupting your business.