Credit Strategy – Lending market analysis

Fraud prevention is an evolving challenge. As criminals deploy increasingly sophisticated ways to scam consumers into handing over their personal information and abuse it for financial gain, the need for lenders to have robust fraud prevention systems in place has never been more critical.

Fraud solutions is a foundational building block to a successful digital experience. Businesses and organisations must walk the line between a frictionless customers journey and security, minimising the checks genuine customers must go through and delivering a verdict in real-time, while also ensuring that checks are robust enough to flag any questionable applications.

The vast majority of applications to lenders – around 99% – are genuine. Fraud prevention can be akin to finding a needle in a haystack, albeit one which can cause substantial reputational and financial damage to both lender and the consumer. Fortunately, new technologies – based on untraditional data sources – are making a real impact in the battle against the fraudsters.

How fraud is evolving

Lenders, businesses, and consumers need to be vigilant of the mutating ways in which fraudsters act, with new trends emerging over 2022, and no anticipated reduction in levels of activity in 2023. Experian insights revealed that identify fraud cases rose by more than a fifth (21%) last year, indicating the scale of the challenge.

For example, the easy availability of rich Personally Identifiable Information (PII) on the Dark Web is now enabling fraudsters to mount multi-dimensional attacks – ‘cluster fraud’ – which sees a victim targeted with several different scams all at once.

During this kind of scheme, a fraudster may pose as a professional, personal or romantic contact and use the same set of data to present a victim with a ‘too good to be true’ crypto investment. At the same time, the victim can be targeted with a dating scam, a utility scam or fake communications from a bank or other financial institution.

Meanwhile, the wider economic environment is also leading to an uptick in both scams related to the cost-of-living and first party fraud. Fraudsters targeting consumers with fake messages about how they can save money on bills, encouraging them to make payments and give up their PII, which can then be used to take out credit in their name, is increasing as they look to exploit peoples’ concerns about rising costs.

Consumers may also be tempted to give a misleading or incomplete view of their financial situation, whether they need to re-mortgage their home, wish to consolidate credit card debts with a personal loan, or to fulfil their ambitions to move into a larger property. 

To protect their businesses and customers, lenders need solutions that support real-time, granular analysis of customers’ income and outgoings to identify material inaccuracies in consumer and business credit applications. 

The ability to understand changing fraud risks across the portfolio is a critical requirement for businesses so that first-party fraud, mule accounts and other types of fraud can be identified and addressed on an ongoing basis to minimise risk and losses.

‘All PII data is breached’

How can businesses rise to meet this evolving threat and keep pace? Well, how about this for a starting point – by assuming that all PII data has been breached. Using that assumption, alternative data sources and authentication methods – which aren’t reliant on traditional PII – becomes the next, crucial step in taking the fight to the fraudsters.

Like the fraudsters’ scams, the technology designed to identify them is evolving and becoming increasingly sophisticated. Email, phone and device intelligence can all help identify if the address or device being used is trusted and hasn’t been involved in a fraudulent transaction previously.

Physical biometrics, including fingerprint, facial and voice recognition technology is increasingly used in a variety of ways to unlock individual accounts. Think about how you access your iPhone, or how gaming and gambling providers deploy the technology to secure customer accounts.

With behavioural biometrics, it becomes possible to identify and authenticate consumers based on how they interact with their devices and apps. Some solutions enable banks and other organisations to analyse customers’ speech or understand how fast they type; others look at how they sign their name, or even the pressure they normally apply to the touch screens of their mobile devices. 

Datasets can add an additional layer of protection to an organisation too. Experian propriety datasets including CAIS and National Hunter Fraud Prevention Service offer supplementary rich insights.

Our recently launched Experian Fraud Score solution harnesses the insights from billions of credit applications and application data points, machine learning and confirmed fraud application data, to inform a probability scoring system for each and every application.

Naturally, there will be challenges and barriers along the way. Bringing online new data sources to further bolster defences will pose difficulties, as will building consumer trust about these new methods of authentication.

But that is the way of travel. Only by deploying increasingly sophisticated solutions can lenders ensure they are protecting both their business and their genuine customers and are as best placed as possible to mitigate yet unidentified and new threats.