Preparation Prevents Fraud in Digital Acquisition Channels
June 8, 2018
The world of credit originations is constantly changing, mostly due to advancements in technology. It is not unusual for a borrower to apply for a new loan, and for the lender to process their application and provide a response, entirely digitally within a matter of seconds. Paperwork and human interaction (face-to-face or by phone) simply slows the process for all involved.
While benefits of digital originations are vast, there exists an increased risk with the acquisitions channel: fraudster interference. Banks and lenders face a steep challenge to book more loans/accounts while also countering fraud. It is far easier for a fraudster to impersonate a victim or open credit with a false/non-existent identity (i.e. synthetic) through a non face-to-face channel where speed and ease of application is the priority.
This paradigm shift in originations calls for an increase of knowledge, awareness and preparation.
Common Types of Application Fraud and Defense Mechanisms
|Fraud Type||Primary Defense Mechanism|
|Third-Party Fraud (Identity Theft)
Traditional fraud application where a perpetrator uses a true consumer profile to open credit accounts.
|Decisioning Rules Utilizing Bureau Data / Alerts, Scoring / Modelling, Device Scoring / Risk Assessment, One-Time Password to a Verified Phone Number, ID Document Validation, Knowledge Based Authentication (although effectiveness varies)|
Involves the creation of a fake identity using information from multiple true individuals or fabricated information. Frauds establish a credit profile and apply for accounts with intent to defraud.
|Decisioning Rules Utilizing Bureau Data / Alerts, Scoring / Modelling, Device Scoring / Risk Assessment, ID Document Validation, Negative Files / Consortium Data, Velocity Rules|
From initial application intake to processing and onboarding, it is important to ensure that you have the defense mechanisms in place for your business. While the elements in the table above are not needed for all clients, careful consideration should be given to ensure that sufficient application fraud prevention controls are in place to mitigate losses.