PreventLoan Application Fraud

HOW TO:

I. The Challenges & Opportunties in KYC for Online Lenders

II. 8 Identity Verification Tests to Prevent Loan Application Fraud

III. 4 Strategies to Prevent Lending Fraud with Account Origination Protection

In this presentation, we’ll explain:

Challenges

Know YourCustomer(KYC)

OpportunitiesThe methodology for assessing an identity online is less secure than most in-person interactions, and documents can be easily forged online.

Increasing scrutiny increases drop-off rates of applications, which can then negatively impact the performance of your business model.

However, when performed correctly, activities during the KYC process can also help you flag serious issues like identity theft, and help you protect your business from fraud.

The key is to strike a balance between mitigating risk, and adding friction that causes customer abandonment.

8 Identity Verification Teststo Prevent Loan Application Fraud

1. Identity Document Verification

The following Know Your Customer (KYC) security checks are the most commonly applied tests used on the IdentityMind platform to better verify a potential borrower’s identity during the onboarding process:

This is accomplished by analyzing a picture of the image of the document, and verifying its authenticity. Taking the picture can be included as part of the onboarding process with the device camera, on either a PC or Mobile device. This is more reliable than requesting an already uploaded picture, because a fraudster may have already stolen such photos from the victim.

This slideshare is a summary of an in-depth guide on our blog. To see the full post, click here.

8 Identity Verification Teststo Prevent Loan Application Fraud2. Identity Data ValidationThis is the verification of a match between the submitted information such as name, address, phone, Social Security Number (SSN), tax ID and date of birth against public and private databases. It is possible to extract this data from an authorized document, and compare that extracted data against the provided information, as well as public and private databases.

8 Identity Verification Teststo Prevent Loan Application Fraud3. Bank Account OwnershipThe goal of this test is to verify a client actually has access to the bank account presented during the onboarding process. This validation can be done by having the client provide the bank’s credential details, or via micro-deposits to the account.

8 Identity Verification Teststo Prevent Loan Application Fraud4. “Out of Wallet” QuestionsIn “Out of Wallet” Questions- which can also be referred to as, “Knowledge Based Authentication” - the system matches an identity based on submitted information, and provides questions that should only be answered correctly by that person. These questions are presented in a multiple choice format, and the user must choose the right answer. Common examples of these questions include previous address, names of relatives, place of birth, vehicle information etc.

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5. Identity Risk Scoring

8 Identity Verification Teststo Prevent Loan Application Fraud

This test compares submitted information with databases of stolen attributes and heuristics, providing you with a risk score based on the likelihood of the given identity being forged using compromised information.

8 Identity Verification Teststo Prevent Loan Application Fraud6. Out of Band Phone VerificationOut of Band verification allows you to assess in real-time whether the presented phone number is indeed in the possession of the identity being evaluated. In some geographies, you can even verify whether the phone number and subscriber data match.

7. Social Media Analysis (feature in-roadmap)

Social Media analysis examines social network information to identify risk conditions that may indicate the identity in question is fake, or presents enough risk indicators to require further vetting. This is especially useful if the onboarding process is tied to social network accounts.

8 Identity Verification Teststo Prevent Loan Application Fraud

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8. Video Conversation (feature in-roadmap)

In some countries, you are required to have a personal conversation with the potential client. This can be accomplished by embedding a video chat plugin to perform a video conference with the potential client.

8 Identity Verification Teststo Prevent Loan Application Fraud

Beyond Identity Verification -4 Strategies to Prevent Lending FraudThe last section showed how KYC tests can play a role in fraud prevention in addition to fulfilling AML compliance requirements. This next secion explains the other pieces to an effective fraud prevention program.

The following strategies- gathered from real use cases with our clients- describe some of the ways you can prevent loan application fraud during the onboarding process using our platform:

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4 Strategies to PreventLending Fraud1. Leverage Industry DataFraudsters tend to reuse stolen identity data across businesses in the same industry. If a fraudster is able to acquire a loan from one lender, they will attempt to acquire a loan using the same information at a different online lender.

The IdentityMind platform shares fraudulent data in real-time, alerting you when fraudsters recognized by other online lenders are applying for a loan at your institution. The relevance of industry data has been demonstrated repeatedly as fraudsters focus on a particular industry.

4 Strategies to PreventLending Fraud2. Leverage Your Own DataWe enable clients to seed the IDM system with historical data, including your watch lists, black lists and rejected users.

Our system automatically adds the attributes of rejected applications to a watch list, and alerts you when they appear as part of a new application. This allows you to easily identify recurrent users trying to hide their previous attempts.

The system highlights these “watched” attributes even when hidden under several layers of transactions (what we call “degrees of separation”). Similarly, and perhaps more important, is when this reveals new applications connected to entities on your black list.

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4 Strategies to PreventLending Fraud3. Common Attributes Outside Identity DataOne of our clients configured a rule that flagged new loan applications attached to bank accounts already associated with another identity.

This rule detected fraudsters who had passed all identity verification security tests, and had even verified “ownership” of the bank account.

These fraudsters had used different devices, but the same bank account. The loan applications were then rejected, and the fraudsters attempted another application using a different bank account. However those attributes were already tainted from the previous process, and they were repeatedly denied for new loans.

4 Strategies to PreventLending Fraud4. Geolocation Risk AnalysisOur clients benefit from our expertise in eCommerce fraud prevention, specifically with risk analysis based on geography, distance between the location of the potential customer and their billing information, and more.

Location is assessed for all users regardless whether they are accessing your website from a computer or mobile phone. Our platform can connect to Mobile Network Operators and assess the location of the subscriber, take latitude and longitude from the device itself, or rely on the true IP address of the computer, removing proxies in between.

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Final ThoughtsThe combination of KYC and fraud frevention techniques during account origination are a much better solution than just one or the other. The more diverse your protection is, the better the overall results.

Click below to learn about how our new ONBOARD program is helping online lenders reduce fraud losses AND streamlining their

onboarding process.