Fighting Fraud: Two Real-World Scenarios And Solutions
Fraud can take many forms and can also vary in size and impact. Below are the two most common types of fraud we see and help our customers detect and prevent.
Fraud Problem #1
Synthetic identity fraud. This is the fastest growing type of fraud in the US accounting for nearly 20% of all fraud losses costing the U.S. an estimated $20B in 2023 alone. It is big business and requires sophisticated capabilities to prevent and block. Often, synthetic identity fraud is just the first step that creates the basis for additional fraud including loan stacking, bust-out, credit washing, etc.
How the Fraud Happens
Fraudsters will create identities by using a combination of both real and fictitious information to open accounts. These identities are carefully curated over an 18-24 month timeframe so they appear legitimate to lenders and all three U.S. credit bureaus.
Fraud Scenario
In an online ad for a credit card, a fraudster using the synthetic identity applies for the card being advertised. The application is approved and the fraudster is given a credit limit. The fraudster uses the account funds and has now defaulted on payments.
Fraud Problem #2
True name fraud. This type of fraud is likely to be the most familiar with consumers. True name fraud or identity theft happens when a real person’s information is stolen/taken and a fraudster uses that information to open accounts, apply for loans, etc. In this instance, the information is real and established, but it isn’t the person truly associated with the information conducting the transactions. In other words, the fraudster is impersonating the real owner of the information.
How the Fraud Happens
The key to true name fraud is getting the necessary application details in the first place. True name fraud can be as simple as someone stealing mail from your mailbox, doing an online search of social media accounts, sending a phishing email soliciting information, and many more methods. More complex methods include purchasing from the dark web or ill-gotten through a cyber security attack such as a data breach. For example, when Ticketmaster had 560 million consumer records exposed through a data breach is a prime method of getting personal information.
Fraud Scenario
Relying on the anonymity of a lender’s online services, a fraudster uses stolen personal information to apply for a personal loan in the victim’s name. The loan amount is granted and the fraudster walks away with the funds leaving the true owner of the identity to pay for the loan.
Fraud Solution
Here are recommendations to help combat synthetic identity and true name fraud:
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The first course of action is having a strong identity verification process of the information provided. Ensure that you are using multiple layers of verification answering key questions such as does this information exist, is it associated with the identity, are there any additional pieces of information to help determine legitimacy.
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Incorporate step-up authentication into your workflow for added protection. Using step-up actions such as multi-factor authentication (MFA), document verification, or knowledge-based questions help prevent fraudsters from passing through the process.
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Use velocity indicators to assess frequency of applications using the same information in a specified amount of time.
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Leverage predictive modeling using fact and behavioral indicators to help pinpoint fraud. Multiple identities using the same SSN, large volume of credit inquiries, 5 or more authorized users on an account, fraud alerts on the credit report, etc. are all indicators of potential fraud.
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Incorporate account and portfolio management by appending existing portfolios that are likely to have been opened by a fraudster. Once identified, you can use existing strategies for further verification and authentication.
Want to know more? Discover how data-driven solutions can help you detect and mitigate fraud, all without disrupting the customer’s experience, at every stage of the customer journey.