MONTHLY DIGEST

Opinion on current trends or market issues

The growing risk of fraud…

Nick Mothershaw

Fraud in the UK is an industry estimated to be worth more than £70 billion a year. Its relentless rise continues to be driven by a turbulent global economy, increasing costs, a continuing squeeze on household finances and restricted access to funds. Amid the challenging economic climate and its impact on personal incomes, the vast majority of frauds continue to be attempted by individuals (or first-parties) willfully misrepresenting their circumstances.

Banking, financial services, insurance and the automotive finance sectors all continue to bear the brunt of significant first-party fraud, largely originating from financially-stressed segments of society. But fraudsters are also increasingly adaptable and quick to exploit perceived weaknesses in institutions’ financial infrastructures. It’s therefore more important than ever for all lenders and credit providers to accurately assess the likelihood of fraud, by verifying the identities of the people they interact with.

Motivations behind the crime

Tighter regulation and affordability monitoring, means that people are finding it even more difficult to secure credit. Analysis has shown that increasing numbers of first-party fraudsters have been targeting credit cards during the past 18 months, as they attempt to get their hands on all available forms of credit - the past 12 months have seen a sixth-successive annual rise in mortgage fraud, which is driving an overall increase in application fraud. However, times of desperation also lead to a higher incidence of third party fraud. Identity fraud continues to be a challenge with previous address fraud becoming more of a problem. Lenders need to be on the lookout for applicants with accounts at forward-linked addresses. Identity fraudsters continue to be responsible for the vast majority (85%) of fraudulent activity in the savings sector, using savings accounts as a Trojan horse, a sleeper product, or so-called savings mules; as a point of entry to other credit products.

It’s a trend that looks set to continue as some cash-strapped borrowers attempt to get their hands on funds – despite institutions making lending criteria stricter. It’s also a trend that reflects the determined steps some will take in order to get their hands on lucrative credit products. Historically, third-party fraudsters have been recognised as responsible for the majority of credit card fraud and they continue to pose a serious threat to card providers. The problem of fraud in general does show some demographic patterns, but lenders need to be aware and prepared for this problem on a countrywide scale, as there are occurrences everywhere.

A (fraud prevention system) based on detailed information derived from national databases is the best way to prevent fraudulent activity at the point of application. Sophisticated systems work alongside the automated application processing procedure, generating a fraud index and comparing information supplied on the current application form, with information held on a variety of databases. Any inconsistencies that are identified are reported, helping to spot fraud or a need for further analysis before processing an application.

The outlook for the future

Fraudsters will continue to be fast, adaptable, inventive and indiscriminate in their attempts to gain access to funds. This is reflected by the overwhelming scale of first-party fraud attempts, often involving the non-disclosure of debt and misrepresentation of affordability particularly within the mortgage market. The popularity of mobile and online channels and relative naivety of social media use, by customers, also heaps added pressures on fraud teams. This is typified by anecdotal evidence suggesting that smart-phone users are particularly exposed to greater fraud risks. But analysis of fraud networks and device recognition tools can combat this trend.

The fact that recorded attempted fraud figures are rising is a clear testament to the improved vigilance and scrutiny institutions are now employing - proving that fraud can be avoided if lenders recognise the severity of the risk it poses and act on it accordingly, to protect themselves. They must ensure they safeguard and continue to cement trusted relationships with legitimate customers.

Nick Mothershaw
Director of Identity & Fraud Solutions

Nick is responsible for Experian’s fraud and identity business for both the public and private sectors. The Identity Solutions portfolio includes our recently acquired 192 business, including remote document verification and Authentication services. Fraud solutions in the portfolio include Application Fraud (Detect and Hunter), and public sector-specific products such to assist in council tax fraud, benefit fraud and social housing fraud.

 

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