The COVID-19 pandemic has had an impact on businesses across the country, with many businesses having to adapt quickly to a new normal. They need to keep their businesses afloat, while helping employees work remotely and continuing to serve customers.
Unfortunately, the country has also seen an increase in fraud. Fraudsters take advantage of this period to target vulnerable populations and businesses.
From January to mid-July 2020, depending on FTC, consumers said they lost a total of more than $ 90 million to COVID-19 fraud. Even before the pandemic, Experian Global Identity and Fraud Report 2020 – launched earlier this year – found that while business confidence in their ability to stop fraud was high, 57% of businesses had experienced an increase in fraud losses year over year, often the result of ‘an inability to authenticate customers. Unfortunately, the increase in fraudulent activity is likely to continue and even potentially increase as the pandemic subsides.
There are many types of frauds and scams that lenders face every day, and one of the most difficult is synthetic identity fraud. According to McKinsey, synthetic identity fraud accounts for 10-15% of lender losses each year, making it the fastest growing type of financial crime in the United States. A key step in any loan process is for lenders to verify the identity of the person applying for a credit card or loan.
Scammers use combinations of real and false information – sometimes including a minor’s Social Security number – to create “Frankenstein IDs” and then use them to obtain credit. They also often add them to an existing legitimate account as an authorized user. It is then up to the lender to determine whether a consumer is a real person or not, whether it is a real identity or a synthetic identity. Scammers go to great lengths to make it difficult to tell the difference.
Confirming whether or not a consumer applying for credit is real is a vital step for lenders to protect their portfolios and manage risk, and the earlier in the process the better. But how? Many companies are leveraging analytics and artificial intelligence to make identification easier. The use of advanced data, machine learning, and physical and behavioral biometrics are all essential to verify that a person is who they say they are. Likewise, innovative technology and advanced analytics are essential to detect synthetic identity fraud in a loan scenario.
By leveraging a newly launched offering that is integrated with the credit profile, lenders can receive assurance of an applicant’s validity against the synthetic identity as soon as the credit profile is pulled. Providing this assurance at the time of the credit investigation can help detect risk, mitigate future losses, and protect consumers.
But the solution does not end there. Historically, there has been no consistent definition of what constitutes synthetic identity fraud. The losses associated with this type of fraud are often classified as “bad debts” or a credit default, which means that the true impact of the fraud can be difficult to assess. This can be a challenge in today’s environment, as some lenders are already concerned about cash and reserves. In order to alleviate some of these concerns, we propose a standard definition of identity loss through synthetic fraud. This definition can help both lenders and regulators to classify losses appropriately. Not only will this help manage fraud, but it will also give lenders the confidence to approve more people looking for credit faster while mitigating risk – which is especially important at this time as we navigate the pandemic.
We believe in our solution so much that we will share loan losses on insured profiles with our clients if we are wrong, which is a first for the industry. For those who are uninsured, a risk indicator is provided to allow effective separation of people who may be new to credit and fraudsters. Taken together, Insurance and Fraud Indicator demonstrate a new approach to helping our customers and the industry as a whole stop synthetic identity fraud.
Finally, it is important that lenders have a risk management system to continuously monitor all types of fraudulent activity across multiple use cases and channels. This includes identity and fraud management platforms that focus on account openings, takeovers, new account transitions, e-commerce fraud, and child impersonation fraud. , among others. A robust platform that supports a layered approach can help businesses and lenders stay ahead of scammers and reduce the risk of fraud in their portfolios.
Amid the current market volatility, now is the time for lenders to review their fraud prevention strategies, especially synthetic identity fraud. It is essential that businesses take steps to stay one step ahead of scammers so that they can protect their wallets, avoid the escalation of future fraudulent opportunities, and also reassure consumers about the safety of their finances and their lives. identity.
Greg wright is the Product Manager for Experian Consumer Information Services