How Do Account Takeovers Work and How Can You Prevent Them?

In today’s digital-first economy, account takeover (ATO) fraud stands out as a formidable threat. This all-too-common form of financial crime has seen an alarming surge in recent years, with losses skyrocketing to nearly $13 billion in 2023 – a dramatic $2 billion increase compared to the previous year.

Cybercriminals are now leveraging artificial intelligence and cutting-edge techniques to outmaneuver traditional identity verification and authentication systems. This creates an urgent need for businesses to implement robust, multi-faceted account takeover prevention controls.

Read on to find out how to defend yourself against this growing threat.

What Is Account Takeover Fraud?

Account takeover fraud is a form of identity theft where a bad actor gains unauthorized access to a victim’s online account.The account takeover process typically unfolds in three critical stages:

1. Account Compromise: The fraudster breaches the victim’s account security.
2. Access Lockout: They alter account details, preventing the rightful owner from regaining control.
3. Fraudulent Activity: The stolen account is then used for unauthorized transactions or other malicious purposes.

Nearly every digital account is vulnerable to this type of attack, including

• Banking and financial accounts
• Ecommerce accounts
• Social media profiles
• Loyalty program accounts
• Government benefit accounts

The Mechanics of Account Takeover Fraud

Understanding how account takeover fraud works is an essential first step to protecting your organization.

Let’s break down the three main stages of an ATO fraud attack:

Step 1: Gaining Access

The first step is for the fraudsters to gain access to the account. With rapid advances in technology and influx of data breaches over the past decade, cybercriminals have a wealth of data and tools at their disposal. Here are some of the most common methods fraudsters use:

• Credential Stuffing: Credential stuffing involves hackers using botnets (networks of automated computers) to rapidly test thousands of username and password combinations. This method’s success largely stems from customers’ widespread reuse of passwords across various accounts.
• Phishing and Social Engineering: Phishing and other social engineering attacks have grown more frequent and complex as cybercriminals improve their capabilities with advanced technology. Phishing most commonly comes in the form of emails designed to trick the reader into clicking a link, downloading malware, or otherwise providing sensitive information. However, phishing can also occur via SMS texts and over the phone, where social engineering and psychological manipulation are also used. Spear phishing is a subset of these attacks in which an individual with important permissions or high-level account access is targeted with multiple attacks in order to gain access to their account. 
• Malware and Keyloggers: Malicious software, often downloaded through phishing links, can infect systems. Keyloggers, a type of malware, record every keystroke, capturing login credentials.
• Brute Force Attacks: Another method of gaining access to accounts is simply to use brute force attacks in which passwords are guessed rapidly and repeatedly using automated scripts and artificial intelligence. 

Step 2: Account Manipulation

Once they’ve gained access, fraudsters will typically start by making changes to the account details. Then, to secure the takeover, cybercriminals will change the password, preventing the victim from gaining access. They may also alter other security settings, including notifications and alerts, to reduce the likelihood of the victim discovering the attack. Then, they’ll likely change contact details and other personally identifiable information (PII) to match that of a stolen or synthetic identity. They might also request new cards or add unauthorized users to the account. 

Step 3: Fraudulent Activities

With the account firmly under their control, fraudsters have relative freedom of action. For instance, they can conduct unauthorized financial transactions, spend loyalty points, or sell the account on the dark web. 

Some cybercriminals will also exploit consumer protection regulations like Regulation E, which requires financial institutions to investigate any claims of unauthorized transactions. Once made, these claims often must be reimbursed. By conducting illegitimate transactions using a legitimate account and then claiming fraud, cybercriminals can repeatedly use this regulation and the stolen account details to extract money from accounts.

The Rising Threat of ATO Fraud

ATO fraud is becoming increasingly prevalent in today’s digital-first economy. A number of factors have created this perfect storm:

• Digital Shift: The widespread shift to online services and digital transactions has inadvertently created new vulnerabilities. As more aspects of our lives move online, cybercriminals find a broader attack surface and more opportunities to compromise accounts.
• Stolen Credentials for Sale: Over time, numerous older websites have fallen victim to data breaches. This has led to a flood of high-quality stolen credentials becoming available on the dark web. The sheer volume and authenticity of these stolen data sets make it easier for fraudsters to launch successful attacks.
• Advanced Attack Tools: The emergence of sophisticated means of attack such as deepfakes and AI-powered software has given rise to a new breed of attacks. These cutting-edge techniques are incredibly challenging to detect and defend against, often bypassing traditional security measures.
• ATO Kits For Sale on Telegram: Complete ATO kits are now readily available on platforms like Telegram. These kits, known as “Fullz,” include comprehensive sets of personally identifiable information (PII), encompassing:
  • Device cookies
  • Login credentials
  • Driver’s license numbers

More concerning still, hackers are selling tutorials that guide aspiring fraudsters on evading detection. This has led to the emergence of established fraud organizations in the criminal underworld, providing turnkey solutions for anyone with internet access to become a potential attacker.

Signs of Account Takeover

As the threat of account takeover fraud continues to escalate, early detection becomes crucial. Cybercriminals work quickly to cover their tracks and alter login credentials, making timely detection essential.

To help you stay one step ahead, here are the key warning signs that may indicate an account is under attack:

• Unusual Login Patterns

• • • Logins from unfamiliar devices
    • Access from unexpected geographical locations
    • Activity at atypical times of day

• Authentication Anomalies

• • • Multiple failed login attempts in quick succession
    • Sudden spikes in login frequency

• Account Modifications

• • • Unexpected changes to personal information
    • Updates to security settings without user initiation

• Suspicious Account Activity

• • • Uncharacteristic transactions
    • Unusual patterns in account usage or navigation

• Communication Disruptions

• • Unexpected changes to contact information
  • Disabled notifications or alerts

It’s important to note that while these indicators can suggest a potential ATO attack, they may also have innocent explanations. For instance, a user traveling abroad might trigger location-based alerts. Therefore, context is key when evaluating these signs.

To effectively monitor and respond to these warning signals, organizations need to implement sophisticated, hyper-accurate fraud detection and prevention solutions. 

The Impact of Account Takeover Fraud

Many organizations underestimate the gravity of account takeover fraud attacks, and the impact they can have on their bottom line revenue and brand reputation.. Let’s explore the three primary ways ATO fraud impacts businesses:

• Financial Losses

The financial toll of ATO fraud is staggering. The average loss per incident amounts to approximately $12,000. When multiplied by millions of incidents, the real cost becomes apparent. ATO fraud attacks surged by an alarming 354% year-over-year in 2023, with 24 million households falling victim to this type of fraud.

Beyond direct losses, businesses face increased chargebacks and refund requests, creating a massive operational burden for fraud and risk teams. In extreme cases, too many chargebacks can eventually lead to a business losing its right to process credit cards and becoming blacklisted from receiving card processing services from other providers.

For U.S. banks, the ripple effect is even more pronounced. Every $1 lost to fraud now incurs $4.36 in associated costs, including legal fees and recovery efforts. This financial drain diverts crucial resources from other business areas, amplifying the negative impact of ATO fraud.

• Reputational Damage

ATO fraud inflicts severe damage on brand reputation by significantly eroding consumer trust and loyalty. When customers fall victim to an ATO fraud attack, they often feel betrayed by the business responsible for managing their data. In fact, 87% of consumers hold brands accountable for ATO fraud protection. This breach of trust can cause a loss of confidence in your brand and lead to negative publicity.

The long-term consequences of reputational damage can far outweigh immediate financial losses, potentially impacting future customer acquisition and retention.

• Operational Disruption

ATO fraud creates significant operational challenges across multiple departments. The strain on IT, customer service, and fraud teams can be immense. IT departments must work tirelessly to patch vulnerabilities, while customer service teams face increased volumes of calls and complaints from affected customers.

Fraud teams are tasked with investigating each incident, a process that can be both time-consuming and resource-intensive. Investigating fraud claims involves a meticulous examination of account activity and user behavior. Recovering and restoring accounts often requires additional work, such as resetting passwords, updating security settings, and preventing further unauthorized access.

This operational strain can lead to reduced efficiency in other critical business areas, creating a domino effect of disruption throughout the organization.

Understanding these wide-ranging impacts underscores the critical need for proactive ATO fraud prevention strategies. By implementing robust security measures, businesses can protect their bottom line, safeguard their reputation, and maintain operational efficiency.

Advanced Account Takeover Prevention Strategies

 There are multiple strategies and tools that organizations can deploy to counter ATO fraud attempts. Although every organization has different needs and risk tolerances, here are a few examples of strategies that can be used for a variety of companies::

• Multi-Factor Authentication (MFA)

MFA can often serve as the first line of defense against account takeover fraud. By requiring multiple forms of verification — such as SMS or email codes, authenticator apps, or biometric verification — MFA significantly reduces the likelihood of successful ATO attacks. Although highly effective, some forms of MFA can still be manipulated, such as SMS-based MFA which can be vulnerable to SIM-swapping attacks, while harder-to-spoof biometric verification can provide additional levels of security. 

• Risk-Based Authentication

This approach employs risk scoring at any point throughout the customer journey to determine when to trigger additional security measures. It assesses factors like address risk, phone risk, and email risk to calculate the likelihood of fraudulent activity. Real-time risk assessment is crucial for swiftly identifying and responding to potential threats, ensuring high-risk logins undergo more stringent verification processes.

• Device Intelligence and Fingerprinting

These techniques involve analyzing data from user devices to detect suspicious activity. By scrutinizing IP addresses and geolocation, organizations can identify risky logins, such as those from unfamiliar locations or devices.

• Behavioral Biometrics

Behavioral biometrics leverages user behavior patterns to identify fraud. It analyzes how users interact with their devices, including typing speed, mouse movements, and navigation habits. Using behavioral analytics and machine learning, it can detect deviations from normal behavior, helping recognize fraudulent activity even when correct login credentials are used.

• Selfie Reverification

Selfie reverification can provide enhanced security without adding layers of unnecessary friction when it comes to higher risk activities like account recovery or wiring a large sum of money. By matching a live selfie to a previously verified ID document, selfie reverification checks that the current user is still a live person and matches the identity originally verified through the ID document process.  

• Credential Monitoring and Dark Web Intelligence

Credential monitoring is another advanced technique to thwart ATO fraud. By monitoring for compromised credentials, organizations can detect threats faster. Dark web intelligence provides early warnings when stolen credentials are being traded or sold. Proactive monitoring of these signs allows companies to take swift action to secure accounts before they’re compromised, mitigating the risk of account takeover fraud.

Socure’s Comprehensive ATO Prevention Solution

Socure distinguishes itself with a unique, holistic approach to ATO prevention. Here are just a few of the solutions — all part of Socure’s end-to-end identity verification platform — that organizations can leverage throughout the customer journey to block bad actors from breaking through: 

• Sigma Fraud Suite

The Sigma Fraud Suite  fuses personal identifiable information (PII) validated by several hundred data sources, with digital and behavioral risk signals for an instant identity risk decision. It provides actionable risk intelligence across fraud types through a single API, replacing complex rules and inconsistent performance from disjointed point solutions — offering up to 99% fraud capture in the top 5% of riskiest users.

• Digital Intelligence

Socure’s Digital Intelligence provides a comprehensive solution to verify user identities, detect fraud, and ensure a secure online environment. By combining advanced device intelligence, behavioral analytics, and robust entity profiling, Digital Intelligence delivers unparalleled visibility into digital interactions, empowering financial institutions to make informed decisions and mitigate risks effectively.

• Email, Phone, and Address RiskScore

Socure’s Email, Phone, and Address RiskScores  are designed to validate, and assess risks associated with residential addresses, phone numbers, and email addresses. They also go one step further than typical risk score tools by returning a correlation score — so that organizations can better understand how likely it is that the presented PII is correlated with the presented identity.  These tools use scoring mechanisms to trigger additional security measures when necessary, subjecting high-risk logins to more stringent verification processes. This layered approach bolsters security while maintaining a seamless experience for low-risk users.

• Decision Module

The Decision Module automates and optimizes fraud prevention decisions, significantly reducing the burden on manual review processes. With Socure, organizations can reduce false positives and achieve up to 98% frictionless auto-approvals. By leveraging real-time data and advanced algorithms, the Decision Module enables faster decision-making, enhancing both security and user experience.

• Predictive DocV 

Socure Predictive DocV delivers more than the industry’s standard, binary check for document and identity authentication. It natively predicts the risk tied to the identity on the ID, so you can identify more good customers and eliminate fraudsters in real-time.

Predictive Document Verification (DocV) instantly verifies a customer’s government-issued ID (such as passports and national IDs) comparing it to the user’s selfie using biometric verification and liveness detection. This AI-powered identity verification stops even the most elaborate spoofing attempts without sacrificing the consumer experience, with industry-leading  first time success rates of 95%, a lightning fast response time under 2 seconds, and the industry’s highest true accept rates at 98.22%

To illustrate the effectiveness of Socure’s platform, consider the case of Dwellsy, a leading rental marketplace. By implementing Socure’s end-to-end identity verification and fraud solutions platform, Dwellsy achieved remarkable results:

• Increased auto-approvals by 90%
• Drastically reduced false positive rates
• Increased fraud capture by 464% 

By partnering with Socure, Dwellsy is able to maintain an ecosystem of trust  for millions of renters and landlords.

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Socure Helps You Stay Ahead in the Battle Against Account Takeover Fraud

In this complex and high-stakes environment, partnering with the market-leader in identity verification and fraud prevention solutions can make all the difference. Socure offers a powerful, AI-driven platform with everything you need  to combat account takeover fraud.

Contact Socure today for a personalized consultation and discover how we can help you stay ahead in the ever-changing tactics of ATO fraud.