fraud-digital-verification

Lenders have long faced daily attacks in the form of fraudulent applications, doctored statements, and fake identities. Due to the lack of in-person interactions, online financial institutions and digital lenders have an added threat to contend with while doing business in cyberspace.

Without face-to-face interactions, fraudsters and thieves attempt to use stolen identities and fictional financial data to commit online financial crimes — believing it to be an easier or more successful prospect.

All financial services companies are subject to Anti-Money Laundering (AML) regulations that usually require an intensive Customer Identification Program (CIP). These policies play an important role in fraud prevention, but are only a basic element of a broader range of risk-analysis and management practices.

 

An Expensive Cost of Business

When fraud happens, it comes with a cost to lenders. Traditional lenders incur a cost of $2.83 per each dollar of fraud. For large digital lenders, that cost rises to over $3.00 per dollar of fraud. Digital and online lenders also face a five percent higher incidence of fraud attempts opposed to those lenders with little to no digital presence. In either instance, fraud mitigation must be an integral part of any lending risk management plan.

The emergence of consumer-permissioned access to financial data for digital verification services is providing yet another tool to reduce fraud, and has the added benefit of a better experience for the borrower.

 

Reduce Successful Fraud Attempts with Reliable Digital Verification

Almost half of large institution risk management executives see identity verification as the biggest challenge facing their institutions. Fraudsters exploit vulnerabilities in detection by compiling fake applications, or synthetic identities, that are a composite of several different identities.

In addition, digital copies of bank statements and other financial documents can be readily manipulated for the benefit of a fraudulent application.

Digital verification procedures that are part of a well-developed CIP and Know Your Customer (KYC) practices reduce the chance of synthetic identity fraud, while virtually eliminating doctored documents. Through consumer-permissioned access to financial data, verifications can be based on or validated by information direct from a financial institution. This is dramatically better than relying on documents that have changed hands at least twice in the loan application process.

Access to transaction data provides the opportunity to verify or validate assets, income, and employment.  As needed, this data can be compared with other source data, providing an added layer of security for lenders. For example, income streams can be identified by looking at transaction data within a checking account, and verified against employer provided data.

The incidence of fraud is not a variable that lenders can control, but the success of those attempts can be reduced with best practices and strong digital verification standards.

 

Digital Verification Encompasses a Wide Range of Applications

Using consumer-permissioning provides an additional layer of protection as it requires the applicant to know unique personal identifying information (PII) for each financial account they intend to use. As they go through the digital verification process, several aspects of an applicant’s identity are challenged.

A fraudster would require access to PII to successfully launch a digital verification, and even in that case it’s unlikely all the other information they’re attempting to provide would match with the data pulled directly from the financial institutions.

This helps reduce successful fraud attempts.

Other verification procedures may include a combination of:

  • Identity and identity document verification
  • Bank account ownership
  • Knowledge-based authentication
  • Identity risk scoring

Online lenders are exposed to a broader range of vulnerabilities and thus require more intensive verification and mitigation procedures.

Finicity works with DataVerify as part of its DRIVE platform for identity verification, fraud detection, risk management and property analysis.

Regardless of whether an institution provides in-person services or digital lending, preventing fraud is a key to reducing the cost of doing business. Applying digital verification in conjunction with regulatory practices will ensure the best defenses against successful fraud.