Online lenders offer convenience, speed, and ease of use, which attracts consumers in need of a quick loan during a moment of necessity. To make consumers happy, online lenders streamline their processes. Unfortunately, the seamless process of securing a loan also attracts online fraud.
Typically, a cybercriminal is sophisticated. Personally identifiable information (PII) is cheaper than ever before and easy to extort from an unsuspecting victim or buy on the Dark Web.
As recently as 10 years ago, a much larger investment was required to cash a VersaCheck or purchase merchandise with a stolen check and a fake identification card. Today, it is much easier to buy a two-dollar identity and with a click of a button, shop online for merchandise or a loan. Anyone who is handy with photo editing and manipulation software can forge documents and meet any basic requirements.
Knowledge-based authentication (KBA) is information easily accessible online, which leads to a high percentage of account takeover fraud (ATO). Authentication through biometrics can be expensive and can create friction that may affect consumer experience. In addition, it’s important to note that it is possible to compromise biometrics, and once compromised, they remain compromised forever.
So how do you combat online fraud in the fast-paced space?
In most cases, online fraud patterns are not evident when looking at each customer’s data separately. Because sharing data with other lenders is out of the question for proprietary and competitive reasons, most lenders typically turn to a centralized database with a comprehensive decision engine.
When attempting to pinpoint risky activity in a vast sea of data available at a credit reporting agency, various techniques can be used. Through trial and error, fraudsters identify which pieces of information are critical to being approved for a loan. Paying attention to some less predictive elements is a key when it comes to fraud prevention. A cross-reference of all identity elements on the application can reveal additional links to previously identified fraud and help expose synthetic identities. Stability ratios can also help identify any data manipulations cybercriminals use to get more favorable terms on their loans.
These tools can provide detection and prevention methods as effective, vigilant and fast as some of the fraudsters who operate in collusion with each other. These methods also match the speed and the expectations of the modern day online lender, so it provides a frictionless experience.
The CFPB’s recent evaluations of alternative data and its effectiveness is a result of discovering that a large portion of the U.S. population is invisible or unscorable at a traditional bureau. A credit bureau that specializes in using nontraditional data to make underwriting decisions can save lenders time, money and additional expenditures.
The bottom line is that solutions exist specifically to serve the alternative financial space. Clarity is the largest subprime credit bureau in the industry and we specialize in alternative credit data and design reports based on the patterns that exist in that data.