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Fraud Prevention
Learn about credit fraud detection and discover the top techniques financial organizations use to prevent it.
Learn about credit fraud detection and discover the top techniques financial organizations use to prevent it.
Financial fraud is the scourge of modern credit organizations. According to Alloy, 37% of fintech companies and 31% of banks estimate their annual losses due to fraud to be between $1-10 million.
As a result of this trend, more and more lenders are using fraud prevention solutions based on innovative digital technologies in their workflows.
Credit fraud prevention is a set of measures implemented by financial organizations aimed at detecting and mitigating fraudulent activities related to obtaining credit.
Recently, lenders have raised a lot of concerns about synthetic identities. This is a common type of fraud that involves using a combination of real and false data about a person for criminal purposes.
For example, criminals may use someone else's name, national insurance number, ID card details, etc.
According to statistics, fraudsters most often – in 69% of cases – misappropriate someone else's SSN. Driver's license data and other state identifiers are in second place with 31%.
According to TransUnion's report, the number of loans in the U.S. issued to fraudsters using synthetic data is constantly growing. For example, for auto loans, their amount was $1.8 billion in the first half of 2023, compared to $1.3 billion a year earlier.
Here are the data on the main types of loans arranged fraudulently with the help of synthetic identities:
Turning to a digital scoring system for online lenders is a great opportunity for financial organizations to reduce fraud when issuing loans.
This is due to the fact that such platforms use innovative technologies and techniques to detect various types of fraud, including synthetic identities.
This is a technique that allows comparing multiple photos of a person and determine if they show the same person.
This technique is based on facial biometrics. The software measures the distance between multiple points on a photo and compares the data to assess the likelihood of a match. For example, the distance between the eyes, the shape of the cheekbones, the length of the nose and brow, etc.
This technology plays a crucial role in preventing credit fraud. After all, it allows you to determine whether potential borrowers are who they say they are.
According to Statista, 67% of the world's population are active Internet users, and more than 62% have social media accounts:
Most social platforms involve the use of an email address to register an account. This makes it a reliable source of alternative data about a potential borrower.
According to statistics, on average, there are 6.6 social media accounts for every person in the world. Therefore, the fact that there are no accounts connected to an email address can lead to suspicion of fraud.
In this case, there is a high probability that the email was created specifically for the purpose of applying for a loan.
Lookup by phone number is another way to improve credit scoring and reduce the likelihood of fraud. It involves looking up information about a borrower by their phone number.
With over 7 billion mobile phone users worldwide, this source of alternative data is extremely informative.
This method can give the lender access to the following data:
1. Information about the mobile network operator and the number itself.
2. Accounts on social networks and messengers registered to the phone number.
3. Presence of the number in various databases – for example, subscriber blacklists, spam lists, etc.
4. Subscriber registration data.
Phone number lookup allows you to combat cases of simjacking – theft of phone numbers that are later used to create synthetic identities.
This is another source of alternative data that is actively used by credit organizations. It allows obtaining information about the IP address of a potential borrower without disclosing his confidential data.
Thanks to the lookup IP address owner, the lender has access to such information:
The fact of using a VPN or proxy server. According to Nethone research, over 80% of successful fraud attempts are made by logging in via VPN or proxy. Therefore, revealing IP address encryption can significantly lower a borrower's credit score.
Consumer geolocation. This method allows the lender to obtain information about the device's physical location and compare it with the one specified in the loan application.
Presence on blacklists. IP analysis allows identifying IP addresses from which phishing attacks, spamming or data theft have been recorded.
Fraud prevention is a top priority for today's financial institutions that want to take their place in the competitive lending landscape. The use of alternative data and personal identification technologies based on this data allows companies to succeed in this.
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How to Use Reverse Email Lookup in Credit Risk Assessment
Three Advanced Checks for Better Identity Verification in Lending