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Proxy Server
Discover how IP address analysis aids credit risk management by providing insights into borrower location.
Discover how IP address analysis aids credit risk management by providing insights into borrower location.
All online businesses, especially those in the financial sector, face the daily risk of fraud.
Help Net Security research has shown that 25% of new online accounts are fake. Another shocking fact is that 21% of all traffic is generated by fraudsters.
As for lending organizations, they are losing millions to criminally originated loans. Fake accounts, data spoofing, synthetic identities – this is not a complete list of tricks that fraudsters resort to.
The problem is that they have learned to hide their true identity through the use of proxy servers. This makes it difficult for risk managers to detect fraud at the time of making a decision on a loan application.
A proxy server is a kind of intermediary between internet users and the web.
The essence of its work is as follows.
When a user visits a site through a proxy server, all traffic is initially redirected to this intermediate server and then to the requested site. This allows you to perform all actions on the web anonymously without revealing an IP address.
How is this possible?
An IP address is a unique identifier of the device in the network.
Knowing it, it is possible to determine the internet provider and user's geolocation and collect data about online activity.
Proxy servers have their own IP addresses. Accordingly, all user requests will be made from the proxy address. The user's IP address is not disclosed.
A proxy server can be considered as an additional shield to ensure network security. It can be used both by individuals for personal purposes and by businesses in the interests of the company.
Here are a few reasons why internet users turn to proxies:
1. Protecting their devices from cyber threats. A proxy provides reliable protection against various network attacks, including malware.
2. Preventing espionage. Companies can use proxy servers to protect their employees’ online activities from competitors.
3. Improving hardware performance and fault tolerance. Proxies allow for traffic balancing. This reduces the number of possible failures.
4. Traffic filter. An intermediate server enables control over both the volume and type of traffic. This allows administrators to manage or restrict user access to specific websites.
The use of a proxy server is not illegal. On the contrary, it helps to protect sensitive data from hackers. A proxy performs the role of a filter, guaranteeing safety when working online.
However, the possibility of hiding the real IP address attracts not only honest users but also criminals, including those who want to apply for a loan fraudulently.
After all, this digital identifier can provide the lender with a lot of data about the potential borrower.
Modern alternative data providers widely use IP analysis for credit risk management. Such verification opens up various opportunities for the lender:
Tracking the geolocation of the user. An IP address provides data on the location of a potential borrower. The lender can find out borrower country, region, location, and postcode.
Establishing the exact location from where the loan application was sent. Fraudsters can apply to financial organizations while in prison. Such a fact is a direct confirmation of the bad intentions of the applicant.
Analyzing the region in which the potential borrower resides. Numerous studies prove that the borrower’s region of residence affects the probability of default on loans.
For example, in India's megacities, the default rate on consumer loans is 0.8 percent lower than in rural areas.
In Mexico, the difference is even more tangible. In the south-east of the country, more than 60 percent of borrowers default. In the rest of the cities, this figure does not exceed 13%.
The use of a proxy server does not allow the lender to conduct an effective location analysis.
In addition, the desire to hide IP address is perceived by credit organizations as a potential sign of fraud. This directly impacts the loan decision.
If an IP lookup solution determines that a potential applicant's IP address has been encrypted, it will definitely impact the lender's decision to grant a loan.
Two options are possible:
1. The loan application will be denied. As a result of the verification, the applicant will be assigned a high-risk level and a low numerical credit rating. This will be the reason for the denial of the loan.
2. The loan will be granted on less favorable terms. The lender may offer such an applicant higher interest rates and a short loan term. The creditor may also require collateral or the involvement of a guarantor in the transaction.
So, let's summarize the results. What is internet proxy?
This is one of the ways of anonymization on the internet. It allows hiding the subscriber's IP address. This feature can be used for legitimate purposes – for example, to protect against cyberattacks.
However, proxy connection is often used by fraudsters when trying to apply for a loan.
The fact that the real IP address is hidden is one of the reasons for refusing to execute the transaction.
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