Proactive measures against account takeover fraud and chargebacks - Ekata, a Mastercard company
Ekata is part of the Mastercard family. Ekata's solutions provide the most predictive and frictionless identity verification.

Ekata is part of the Mastercard family. Ekata's solutions provide the most predictive and frictionless identity verification.

Understanding the complexities of account takeover fraud and the vexation of chargebacks

Account takeover fraud is a universal problem for online businesses across industries and severely impacts a company’s bottom line and reputation.

Article at a glance

  • The financial loss includes chargeback costs and the corresponding higher chargeback rates.
  • The reputational damage includes loss of customer trust and loyalty, especially when it comes to a breach of personal data.
  • Account takeover prevention is not an option – it is paramount.

Described by Forbes as an “epidemic,” account takeovers have been surging since the pandemic, with reports revealing a 307% increase in attacks between April 2020 and June 2021.

Specifically, financial firms saw a year-over-year increase in account takeover fraud of 282% from 2020 to 2021.  In the same year, it was reported that a third of all login attempts on e-commerce sites were account takeover fraud attempts. Indeed, as more commerce, retail and financial services move online, this crime grows more profitable, with predictions estimating that account takeover fraud losses will reach $17 billion globally by 2025.

Account takeover fraud and identity verification

What is account takeover fraud?

Account takeover fraud (ATO) happens when a bad actor hijacks a genuine customer’s account and makes fraudulent purchases. The fraudster takes over the account using a variety of methods, including phishing attacks, purchasing stolen personal identity information on the dark web, password cracking and more. The victim of account takeover (the customer who owns the account) is often unaware anything is amiss until they notice unrecognizable charges or disappearing funds.

Why is account takeover prevention so important?

Account takeover fraud can impact more than just the customer whose account is compromised. Indeed, once credentials are taken over, they can be used to access multiple other accounts, causing serious damage – both financial and reputational.

Small business protecting against account takeover and chargebacks

How do account takeovers result in chargebacks?

Account takeover fraud can often result in chargebacks when the customer becomes aware that their account has been taken over and requests a refund for the illegal transactions that have taken place. As we have discussed in previous blog posts about chargebacks, this costs the business significantly; think lost sales, inventory costs, time lost to disputes and processing, penalties with issuers and processors, risk of non-compliance with data privacy regulations, as well as overall reputational damage. 

How can businesses protect themselves?

As news of hacked databases and leaked customer details continue to populate the front pages of newspapers around the world, knowing the latest, best-in-class account takeover protection technologies available is imperative. Of most importance is dynamic fraud prevention and the utilization of third-party data to make informed decisions quickly, without impacting the customer onboarding or transaction experience.

Of course, not all data is created equal. The key benefits of global, model-ready identity data and insights include, but are not limited to:

  • Reduced chargebacks
    Businesses can decline more fraudulent transactions, protect their revenue stream and make more accurate risk decisions pre, post and during authorization.
  • Improved approval rates
    Businesses can verify more legitimate interactions to grow and retain customers, prevent fake accounts and account takeovers and mitigate loyalty program misuse.
  • Optimized manual review processes
    Businesses can reduce risk while approving more good transactions by cross-verifying customer information with credible data.
  • Avoid lost revenue
    Businesses can combat transaction fraud and mitigate account takeover fraud and chargeback fraud by making smarter, more confident declines, while simultaneously reducing friction for legitimate customers at the point of transaction.

behavioral biometrics and identity verification

Smarter identity verification for account takeover protection

For smarter identity verification, think global identity data and insights designed to reduce friction, improve legitimate customer conversions and combat account takeover fraud. Think behavioral analytics and passive biometrics to identify legitimate account holders in real-time with confidence. Think of an identity product suite powered by an Identity Engine that enables a better understanding of how a digital identity element is being used in online interactions using machine learning models, predictions and behavioral patterns. For example, imagine at the time of onboarding being able to answer when an email was first seen or know how often an email has been used in transactions. Even see how many phone numbers are associated with an email in recent transactions. All of these predictive risk signals enable the detection of behavioral anomalies in real time!

As the account takeover threat landscape expands and evolves, resulting in costly chargebacks to businesses across sectors, account takeover protection needs to be front of mind. And, ultimately, account takeover prevention is better than a cure. By employing identity verification technology and layering it with best-in-class biometric authentication technology, businesses can authenticate and onboard more legitimate customers faster – and safer.

To learn more about how the Identity Engine can help secure your customer accounts today, contact us now.

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