How Lenders Can Use IP Analysis to Obtain Risk Insights

Approving applications that ultimately lead to non-payment, damaging your savings and reputation, is exhausting. 

What would you do if you had the opportunity to look into the “window” of the borrower, getting a clear picture of their financial behavior and potential risks?

This is where IP address analysis comes in handy. Based on its results, it is possible to obtain a more accurate assessment of the borrower's creditworthiness.

In this article, we will explore how the IP address analysis tool works, its advantages and capabilities for fintech providers.

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IP analysis as a key to better credit risk management

What is IP analysis? It is a tool that provides information about an IP address without having access to the IP owner's confidential data.

With an IP address analysis tool, the assessment of borrowers' creditworthiness reaches a new level, since there is a chance to add new, previously unavailable data to the scoring card, making it more detailed and informative. 

IP lookup helps credit organizations achieve the following three important goals.

1. Identifying suspicious applicants who provide false information about their address or place of residence.

For example, if an applicant claims to live in one city, but their IP address reveals they actually reside elsewhere, it may indicate an attempt to conceal their true identity or financial history.

2. Identifying prime customers who are more likely to repay loans.  

For instance, focusing on applicants living in wealthy areas or with stable employment.

3. Tailoring product offerings for potential borrowers.

For instance, using IP address analysis, a credit organization can determine which type of loan might interest a borrower the most based on geo-IP data and other factors.

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Risk assessment through IP address owner lookup

Lenders, as people who handle money, do not like risk, so it's crucial for them to have a clear understanding of borrowers.

An IP lookup enables the analysis of network activity and offers a wide range of information.

Geolocation data

This information is used to determine the physical location of a device from various sources such as GPS, Wi-Fi, and cellular towers. 

With it, lenders can conduct IP address owner lookup, assess their creditworthiness, and debt recovery.

VPN or proxy use

VPNs and proxy servers are used to mask IP addresses by redirecting browser traffic. However, their impact on credit scoring may vary. VPN services are legal, so their use will most likely not affect a digital credit score. 

But the situation with the use of proxies is different. Due to the fact that it is often used by fraudsters, the detection of a connected proxy server raises suspicion among financial institutions and may impact scoring negatively.

Apple private relay

It’s a privacy feature built into Safari that challenges traditional methods of IP address lookup geolocation. 

By encrypting the user's IP address, Apple Private Relay makes their location invisible to credit organizations.

Connection through TOR

When TOR is activated, the user browses internet pages anonymously. Downloading and installing the TOR browser is easy, especially since the software is free.

Despite repeated attempts to encrypt traffic and mask real addresses, IP analysis tools detect connections to TOR entry and exit nodes.

Blacklist database checks

Blacklists contain IP addresses associated with phishing, spamming, and data theft. Detecting such IPs informs credit institutions that they may be dealing with a potential scammer. 

This knowledge helps protect against future financial losses and risks associated with partnerships.

According to Statista, the share of phishing attacks has decreased slightly since 2021.

Mobile and residential IP checks

IP address analysis helps credit organizations assess risks by verifying the borrower's address. 

This information is valuable because mobile addresses change more frequently, making it difficult to track the borrower and recover debts. 

Mobile IPs are also more commonly used in fraudulent schemes.

Datacenter IPs

Datacenter IPs are often used (48%) to host bots and other malicious activities. 

Credit companies using an IP lookup solution can determine whether a borrower is using a datacenter IP address and thus assess potential risks.

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Common methods of hiding IP addresses 

Today, online activity is commonplace, making internet privacy an increasingly pressing issue. 

Many users hide their IP addresses not for malicious purposes, but to maintain privacy and access restricted content. For example, some use VPN to access some content unavailable in their countries.

However, IP masking through proxies and TOR are well-known scam practices. 

Since fraudsters often conceal their identities behind loan applicants, IP analysis is indispensable. It can identify both the fact of hiding the IP and the way in which it is done, i.e., how the fraudulent software is connected.

Here is a list of the most common methods for hiding IP addresses.

IP analysis, along with other verification methods, helps credit organizations make informed lending decisions, reduce fraud risks, and protect investments.

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What information is hidden behind an IP address?

Advanced IP address owner lookup technologies allow lending organizations to obtain a wide range of alternative data about the loan applicant, helping them identify potential risks in a partnership. 

What specific data are we talking about?

Geographic information

Speaking of geo-indicators that an IP lookup can reveal, the main ones include: 

• Country
• Region or state
• City
• Zip code
• Approximate coordinates

It should be noted that the accuracy of the result is not 100% and may vary.

Organizational information

Organizational data includes your ISP – the internet service provider that gives you access to the internet. 

If IP analysis reveals that the address belongs to a business, it's entirely possible to find out the company's name.

IP address type

IP lookup helps identify the type of network connection being used, as address assignments vary:

• For home use
• For data center
• For mobile devices
• For business structure

As mentioned earlier, mobile IP addresses, for example, carry a higher default risk due to less financial stability, while data center IPs are often linked to fraudulent activities. 

Therefore, an IP analysis tool is valuable for lenders, reducing the risk of investment loss.

Anonymizer identification

IP lookup can identify the use of VPNs, proxy servers, TOR, or Apple Private Relay by the user. 

All of these methods mask the real IP address, which serves as a direct signal of potential risks and alerts representatives of credit organizations.

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The 3 key benefits of IP address reverse lookup for lenders

By integrating IP address checks into lending strategies, credit companies can navigate the financial landscape with greater confidence.

We've highlighted the top three advantages of IP analysis for credit organizations:

1. Prevention of fraudulent activity.  Detecting suspicious activities allows lenders to identify potential fraud attempts before they occur, safeguarding profits and ensuring trust in the lending process.

2. Provision of relevant credit products and services. By utilizing  local demographic and economic trend data, lenders can tailor products and offers to better meet customer needs, thereby enhancing competitiveness and customer loyalty.

3. Streamlined KYC compliance. IP address analysis simplifies KYC by automatically verifying the applicant's identity and location, saving time and resources for credit organizations.

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IP analysis with RiskSeal to enhance credit decisions

We aim for credit organizations to make more informed and less risky decisions. That's why RiskSeal, as an alternative credit data provider, offers IP address verification for your credit scoring strategy.

RiskSeal provides a comprehensive package of insights about potential borrowers: from geodata to digital credit scores.

Thanks to the information gathered by RiskSeal, fintech providers can utilize it in three main directions.

1. Risk management. Analyze IP address geolocation data to identify regions with unusually high default rates or fraudulent operations.

2. Fraud prevention. Determine the approximate location of the applicant through IP address location lookup and compare it with the information provided in the application.

3. Customer loyalty enhancement. Go beyond traditional creditworthiness data by using alternative data sources and borrower IP address information to better understand and serve customers.

With RiskSeal, you're guaranteed reliable IP, email, and phone number lookup. 

Get results in just 0.1 seconds, and gain valuable insights from background checks that help you achieve your desired metrics.