[REPORT] Battling the New Breed of Account Takeover Fraud

The global disruption caused by the pandemic gave fraudsters ample opportunities to attack—fluctuating online transaction volumes to hide behind, more data to steal, and a growing number of dormant accounts to take over and exploit led to staggering jumps in online abuse. And the data from the past two years shows just that. Account takeover fraud boomed by a staggering 307% between 2019 and 2021.

Every quarter, Sift investigates fraud trends and publishes a report derived from our global data network, representing over 34,000 sites and apps using Sift, as well as responses from over 1,000+ consumers surveyed. The data in our newest Q3 2023 Digital Trust & Safety Report highlights the rapid, evolving state of account takeover abuse and its webbing impact throughout digital commerce.

ATO attacks damage consumer trust

One of the most consequential costs of ATO for businesses is its impact on customers. Account takeover fraud costs a business the customers’ lifetime value (LTV), significantly raising customer acquisition costs, and leading to additional time, money, and resources spent on brand damage control. And ATO has a significant correlation to brand abandonment—of customers surveyed by Sift, 74% would stop engaging if their account was hacked on a specific site or app.

Account takeovers don’t just impact the site the customer’s information was stolen from, but create a ripple effect across other sites that defrauded customers use. This issue is exacerbated by the fact that 65% of people globally use the same password for every account they own, according to research from LastPass. It’s alarmingly easy for fraudsters to patch together a complete user profile and pinpoint where they may have associated accounts, making data breaches exponentially more damaging in scale.

“Hacked accounts that go unflagged until a clear signal of fraud is surfaced could prove the most dangerous to consumers and businesses alike,” says Jane Lee, Trust and Safety Architect at Sift. “That’s because hacked accounts with no obvious fraudulent activity—like multiple password changes or unauthorized purchases—are unlikely to be caught by rules and reviewers right away, and even less likely to be flagged by customers.”

Uncovering the Proxy Phantom fraud ring

Sift’s Data Science team uncovered and blocked a global fraud ring—dubbed Proxy Phantom by Sift—that used automation to execute international, rapid-fire ATO attacks against e-commerce merchants. The sophisticated ring of fraudsters utilized bots, proxy servers, and millions of compromised credentials to cycle through millions of usernames and passwords, all while rapidly rotating IP addresses in order to skate by undetected. The largest group, or cluster, of blocked IP addresses grew by 50x between Q1-Q2 2021.

For merchants, the potential of this automated fraud ring poses a huge risk for those who have outdated rules-based fraud prevention systems. As fraudsters become savvier with the technology they deploy, merchants will be faced with the omnipresent threat of large-scale attacks—leaving them in an endless game of whack-a-mole trying to catch up to bots that can rotate data at inhuman speed. This new breed of attack illustrates the need for an adaptable machine learning solution that has the power to accurately surface and stop account takeover fraud before it happens.

Fraudsters are banking of fintech

Although many industries have experienced a surge of account takeover fraud since the pandemic began, fintech has seen the most dramatic leap. Between Q2 2020 and Q2 2021, fintech companies have seen an astronomical 850% increase in attempted ATO, primarily concentrated in crypto and digital wallets. According to Sift Data Scientists, this rise can be at least partially attributed to consumers trading physical bank branches for digital-first financial services, giving fraudsters an opportunity to exploit the lack of consumer education and protections associated with these digital accounts. 

With the fintech industry now valued at $5.5 trillion, fraudsters are searching for any way to ride this wave. With 49% of consumers feeling most at risk of ATO on financial services sites, it’s crucial for fintech companies to re-evaluate their fraud prevention strategies to safeguard their customers and brand trustworthiness. 

Discover more insights on the rapid evolution of account takeover fraud and its impact on digital businesses by downloading our Q3 2023 Digital Trust & Safety Index report. 

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