Account takeover fraud (ATO) is a growing, complex problem. It impacted 22% of Americans in 2022 and is also prevalent in the rest of Europe. ATO fraud is especially challenging for organizations to defend against because con artists target and impersonate the identities of trustworthy customers.

Fraud landscape in today’s digital era

The protection of our personal information is critical in today's digital era, as online transactions and digital services have become a vital part of our lives. However, cybercriminals are constantly looking for new methods to exploit deficiencies and capitalize on fraud. One such method is account takeover fraud (ATO). Sadly, this type of fraud is on the rise, with the number of victims increasing each year on both the consumer and commercial fronts.

What is account takeover fraud?

Account takeover fraud, often known as ATO fraud, occurs when cyber thieves obtain access to and misuse someone else's internet accounts for financial advantage. In the most common scenario, fraudsters obtain consumers' account credentials - usernames, passwords, and emails - and use this information to log into their accounts. Since specific accounts are often linked to a credit card, con artists can freely make purchases on behalf of deceived consumers, thereby reaping 'profits.' ATO fraud is not an entirely novel issue as it has been known for decades; however, it is a renewed sort of fraud that is on the increase and poses a high-level threat to customers and businesses alike.

How is ATO fraud done by con artists?

Now that we understand what ATO fraud is, it's crucial to comprehend how con artists acquire sensitive consumer information. Methods used to execute this type of fraud often include some form of social engineering or advanced hacking techniques, but these are some of the most common ways:

#1 Credential Stuffing

In such assaults, fraudsters leverage previously compromised usernames, passwords, emails, or other sensitive data. For example, a customer used Facebook, but there was a data breach in April 2021 that exposed all of the user passwords and usernames. Fraudsters buy such information and then use it to log in to other accounts, such as Amazon, where they are frequently successful and get access to the account. However, this only works if users use the same passwords across all platforms; otherwise, Facebook data would be useless for logging in to Amazon.

#2 Phishing Attacks

Phishing emails or texts impersonate real businesses or individuals in order to deceive users into providing sensitive account credentials. The majority of emails or messages contain harmful links or attachments that all lead to bogus websites aimed to steal sensitive consumer information. This strategy is becoming increasingly complex to notice, as artificial intelligence technologies, such as ChatGPT, assist fraudsters in creating convincing messages and other content, generally increasing the likelihood of fraudsters' success.

Learn more about this topic: How has ChatGPT revolutionized fraud methods?

#3 Social Engineering

These attacks involve psychologically manipulating individuals to trick them into revealing sensitive information, such as usernames and passwords. This includes criminals impersonating a customer service agent, bank, employer, and others in order to deceive users into revealing their account information remotely. Unwitting victims fall for fraud and finally expose their most sensitive information to scammers, who later use it to log in to certain websites.

#4 Others

In addition to the strategies already discussed, scammers may devise countless other methods that are equally effective in tricking individuals into revealing their information. For a deeper dive into the world of online fraud, read our comprehensive article The Online Fraud Survival Guide.

To what extent has ATO fraud progressed over the years?

It only takes a few statistics to understand the level and seriousness of this issue. As previously stated, ATO fraud is not a new sort of fraud, as it has been affecting consumers and companies for decades, even when the internet was still tens of years away from being developed. However, with the advent of the digital world, ATO fraud has become increasingly prevalent. In terms of recent numbers, between 2019 and 2021, this sort of fraud climbed by 307% globally. Following prior years' numbers, ATO fraud surged by 131% in the first half of 2022 alone, confirming that there is a definite trend and concern for enterprises and users. From a business perspective, 27% of online merchants globally reported that ATO fraud negatively impacted their operations in 2022, ranking this type of fraud among the top six internationally, as seen in the graph below.

Which sectors are impacted by ATO fraud the most?

ATO fraud is on the rise worldwide, but certain businesses are considered to be attacked more often than others. For example, in 2022, the financial technology industry saw a 71% rise in ATO assaults. Attacks on cryptocurrency exchanges increased by 79%. Marketplaces had a 39% increase, while the digital products and services business saw a 37% gain. As is evident the level of ATO fraud activity varies widely among sectors, with some seeing daily attacks while others only receiving them on a rare occasion.

Learn more about this topic: The gift card industry: a fraudsters' paradise?

What are the implications for businesses?

ATO fraud has a substantial impact on both consumers and companies, although organizations are held responsible more often. First, the company’s reputation suffers in the eyes of current and future consumers, since it is clear that the corporation cannot differentiate between real and fraudulent users. Second, the organization ultimately starts getting chargeback requests from actual customers who discover strange deductions in their bank accounts. As a result, the company loses both money and products or services. Furthermore, repercussions such as true customer loss, unhealthy cash flows, legal issues, and others continue to have an impact on the company's operations and long-term growth.

How can organizations safeguard against ATO fraud?

Detecting and stopping fraudulent payments and ATO fraud remains one of the most difficult tasks for online merchants in the twenty-first century, but it cannot be disregarded and specific measures must be carried out. Businesses can create an anti-fraud solution in-house, but this takes certain skills and understanding. Enterprises are increasingly choosing to outsource their anti-fraud activities to industry professionals in order to focus on their core business.

Anti-fraud technologies are now so advanced that they can detect and prevent various sorts of fraud, including ATO fraud. Anti-fraud services that have been enhanced by artificial intelligence and machine learning perform successfully and ensure that no fraudulent transactions are handled. Of course, in some circumstances, technology is unable to detect all fraudulent transactions, necessitating ongoing human intervention and surveillance, which some of the solutions have.

Protectmaxx

Understanding the complexities of fraud prevention, especially in the context of ATO fraud, can be challenging. While there are numerous strategies and technologies available, finding the right solution that fits your business needs is crucial. One such solution that has been effective for many businesses is Protectmaxx. This anti-fraud solution offers a comprehensive approach to fraud prevention, addressing a variety of fraud types, including ATO. We're always here to provide advice and share our expertise on fraud prevention, so feel free to contact us if you have any questions or need further information.