Fraudsters work around the clock. Your fraud prevention measures should too. Fraud prevention is a primary concern for any business in the lending industry. The growth of digital and mobile technologies makes it increasingly difficult to determine who is on the other end of a transaction.
A lender’s risk is naturally higher with a subprime borrower than with a traditional prime consumer. As fraud in its various forms continues to increase in scope and complexity, lenders are especially challenged to differentiate between a typical subprime borrower and a fraudster.
How Data Helps Fraud Prevention
The traditional credit reports that are widely used to underwrite loans do not capture alternative financial transactions. In this era of increasing fraud, it is imperative that lenders collect as much information as possible on their applicants – from both traditional and alternative financial sources. Many fraudsters hone their skills in the alternative finance market before moving on to larger mainstream banking targets. As they do, their methods become more refined.
An expansive database is key to staying ahead of the fraudsters. Historical data provides a baseline upon which to build normal behavior profiles and tools to help identify outliers and recognize fraud patterns.
Timing is Everything When it Comes to Fighting Fraud
Stopping a fraudster or fraud ring in its early stages is essential. Unfortunately, keeping up with fraud techniques is half the battle. When fraudsters become successful, they will repeat the same process as long as it works. When a weakness is discovered and corrected by a provider, fraudsters will immediately seek new avenues or strategies to continue their work. Identities are changed, bank accounts are closed and lenders are left holding the bag.
The most successful fraud rings work closely together with calculated, well-planned scams. While fraud activity used to be clustered geographically, now it can appear in different cities at the same time or mere hours apart.
Working together seems to pay off. Studies found that collusion is now involved in 70 percent of frauds, up from 61 percent in 2011, and only 32 percent in 20071. Link analysis can help identify collusions.
Motor City Fraud Group
Recently, Clarity’s fraud team identified a large fraud ring operating out of Michigan, called the “Motor City Fraud Group.” Some of the identifying characteristics included:
- Two bank routing numbers used excessively on applications.
- Local employer names were used, including a local casino, auto dealership, and education facilities.
- Only two major domains – Gmail and Yahoo – were used on all applications.
- Most email addresses were recently created.
- Phone numbers provided did not match applicants’ names.
A centralized database, velocity controls, and link analytics made it possible to recognize patterns and other elements that simply did not go together. Thanks to these tools, the ring was identified (and thwarted) early.
A Powerful Fraud Prevention Partner
All the data in the world does no good if you don’t know how to use it or interpret it properly. That is where Clarity comes in… to help narrow down the attributes that matter most to your business needs. For online lenders, Clarity recently introduced Clear Fraud™ for Online Installment, a newly developed, highly predictive fraud solution specifically designed for consumer-not-present transactions.
Lenders need a partner who knows how to interpret the data and understands the risk levels associated with different data attributes. More importantly, they understand the difference between normal changes and indicators of fraud. Clarity’s fraud team recently earned their Certified Fraud Examiner (CFE) certifications, demonstrating their knowledge and expertise in the four primary areas of fraud examination: Financial Transactions & Fraud Schemes, Law, Investigation, and Fraud Prevention & Deterrence.
Fraud is so prevalent and so variable that lenders need full-time fraud prevention. Working with an alternative credit bureau like Clarity can allow you to create custom reports that are specifically designed to identify and stop fraud before it affects your bottom line.