With each passing year, there is a significant rise in identity fraud. Identity fraud makes up a major part of online crime that involves different levels of impersonation or fake portrayal. As the number of frauds increases, so do the victims. And if there are victims, that means there are fraudsters as well. These fraudsters broadly commit three types of fraud: First Party Fraud, Second Party Fraud, and Third Party Fraud.
Irrespective of the fraud these perpetrators commit, their ulterior motive is to steal resources, data, money, etc.
Hiding their true intentions
All fraudsters work to hide their true intentions from their targets. The process involves creating a trustworthy and believable front. To successfully steal something from someone, they must convince others that they are genuine people with real intentions. They start by creating a digital footprint that does not raise any flags like minimal defaults, positive credit history, steady incomes, etc.
To impersonate someone and steal their information, fraudsters need to gain the target’s personal data illegally. They need as much truthful information about a person as possible to create a robust digital footprint. It allows them to commit the crime and disappear without a trace. Merely knowing your name is not enough; they search for your house and email address, contact number, date of birth, social security number, etc., to have a higher chance of succeeding.
PII data Theft
All the above information about a person falls under the category of PII or Personally Identifiable Information. The criminal minds obtain PII using illegal methods like phishing, data breaches, and web scraping. PII data theft is a significant fraud network where criminals use stolen data to execute different cyber crimes.
Depending on what identity fraud they execute, the frauds belong to three categories:
- First Party Fraud
- Second Party Fraud
- Third-Party Fraud
The motive behind these frauds is common, but their way of execution varies:
First Party Fraud
First Party Fraud is a common and widespread problem. It involves a person or a group falsely identifying themselves or providing incorrect information. The person mostly does this while applying for a loan or credit, and they do so to get better rates. There are even instances of people committing first-party fraud for false insurance claims to get a payment.
For example, A person may commit first-party fraud so that they are eligible for a mortgage. They lie about their current employment status. Sometimes people alter personal details to get an insurance policy. Some people also lie about a big purchase on their credit card when the bank calls them to check if it were them. They deny making any such purchase to get a refund while the retailer pays the chargeback.
Second Party Fraud
Second Party Fraud is much more complicated than first-party frauds. The fraud involves an individual agreeing to give their personal information to their family member or a close friend to commit the fraud. Their friend will use the information to order products or services through a new device not linked to the account. It makes the whole fraud look legitimate and makes it difficult for banks to show if the customer willingly participated. Second-party fraud is sometimes called friendly fraud.
Cunning fraudsters have even found a way to participate in second party fraud. They entice innocent customers with quick money-making schemes. When the customer participates to gain the amount, they consent to accept and transfer funds to and from their bank account in the second party’s interest. The whole process is precisely money laundering, and the customers who transfer the amount are called money mules. Since the people who transfer the amount are real with truthful information, it is challenging to detect such frauds.
For example, Supermarkets sometimes have signs that say, “Want to make easy money?” Anyone with a monetary problem could easily fall into this trap. Once they agree to participate, fraudsters use their information to commit fraud.
Third Party Fraud
Third-Party Fraud is the most popular among all the three fraud types. It involves fraudsters use an innocent person’s identity and information to take over their bank account without their consent. Third-party frauds also include a fraudster creating a new identity from stolen and faulty information. These frauds are often linked to organised criminal rackets. Nearly 50% of third-party fraud is part of some fraud ring with fraud related to numerous identities. The fraudsters acquire Personally Identifiable Information or PII and use it to hijack accounts to buy products, services, or credits. Currently, third party frauds are on a significant rise as mobile banking unlocks the door for different vulnerabilities.
For example, Account takeover or ATO is the most common example of third party fraud. The fraudsters take over a victim’s account through their PII, which they have either hacked or obtained through some method like phishing.
Another example of third-party fraud is Loan Stacking. A fraudster applies for several loans at once using someone’s identity and never pays back.
When it comes to curbing these frauds, the challenge is immense as the perpetrators are not just criminal organisations but also loyal customers. It makes it challenging to develop a single solution that is effectively applicable to all three fraud types. With technological advancements, fraudsters have better tactics and tools to impersonate someone, commit a crime, and then cover their tracks. In a virtual world, it is near impossible to authenticate an account without context.
But banks and organisations have one way to avoid such frauds. Some pioneer companies are developing id check tools using artificial intelligence that checks if a customer’s documents are genuine. One fine example of this technology is iDenfy, a Lithuanian company that has developed an id check tool. Its identity check system can successfully verify whether the customer’s documents are forged and meet security protocols. Several companies have even started using iDenfy to filter their customer onboarding to prevent identity fraud.