Application Fraud Prevention
for Financial Services

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Application Fraud Prevention for Financial Services - What can it do for me?

Fraud prevention and strategy

Globally, fraud is a significant cause of revenue loss for financial services organisations. The financial services industry, with its dynamic and competitive environment, will always attract fraudsters. Funds can be obtained quickly and organisations are under pressure to process applications rapidly, accept applicants, and maximise market share. The first and best strategy is prevention, identifying and stopping fraudsters at the point of application.

How can we help you?

Experian’s proposition for application fraud prevention in financial services offers a comprehensive application fraud tool with automated screening to detect potentially fraudulent applications. Unlike risk, automatic rejection of an applicant is not sufficient for fraud, so the system also offers investigative tools for efficient manual review. Finally, continuous monitoring and evolution ensures the effectiveness of the fraud prevention measures and creates a continuous cycle of detection, investigation and improvement.

Operators can benefit from:

  • Reducing fraud losses by up to 90%
  • Minimising fraud prevention costs
  • Maintaining customer confidence and service levels
  • Making the most efficient use of expensive investigative resource
  • Staying ahead of the fraudsters
  • Continually improving business performance

The first and best strategy is prevention, identifying and stopping fraudsters at the point of application. The benefits of this are:

  • Reduce operational costs
  • Reduce the false-positive rate of fraud detection
  • Realise business benefits faster with a rapid solution deployment. Focus on value added activities
  • Reduce risk with proven systems and practices
  • Adopt effective practices from leading organisations worldwide
  • Ensure a rapid service for genuine customers
  • Minimise impact on decisioning times

The proposition offers a comprehensive application fraud tool with automated screening to detect potentially fraudulent applications. Unlike risk, automatic rejection of an applicant is not sufficient for fraud, so it also offers investigative tools for efficient manual review. Finally, continuous monitoring and evolution ensures the effectiveness of the fraud prevention measures and creates a continuous cycle of detection, investigation and improvement.

Fraud Detection

The fraud detection tool screens application data in real-time to highlight potentially fraudulent activity. It checks against all past applications to highlight potential data manipulation, links to past applications or other anomalies which could indicate fraud, including applications which are known, or suspected to be fraudulent. The system also applies logic checks to the current application data to highlight inconsistencies. The application data can also be screened and verified against external sources to highlight matches with known fraud information, inconsistencies and data not disclosed by the applicant.

Fraud investigation

Once applications have been highlighted as suspicious, they are referred to the fraud investigation team. Investigators review the application, interrogate the data, enrich it using powerful search tools and carry out a range of investigative and verification activities. Once these actions are complete the user decides on the validity of the application and passes the decision back to the application processing system. When the investigation is complete the outcome is recorded for use in the on-going detection process and for monitoring and analysis.

Evolution

Monitoring is a crucial part of the fraud prevention process. Criminals are continually changing their methods of attack and as a result fraud prevention measures can lose their effectiveness over time. Management information allows constant monitoring to control the quality, accuracy and efficiency of the detection process.

Types of fraud that can be identified:

  • Data manipulation
  • For example, inflating income or level of indebtedness.
  • Omitted information
  • For example hiding a previous address with adverse information or a previously declined application.
  • Identity theft and impersonation
  • For example, stealing personal details of a credit worthy individual and using them to gain access to funds.
  • False identity
  • For example a manufactured identity for the purpose of accessing credit with no intention of repaying.
  • Organised fraud rings
  • A network of individuals making multiple applications in order to gain access to significant sums of money.

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Consulting

Consulting is at the heart of every Decision Analytics delivery by Experian. Consultants, with vast experience in the fraud industry, analytics and product deployment, work with clients at every stage of the project, firstly to fully understand the business and strategic direction, and then to help design and implement systems and processes that deliver objectives. Experian consultants help analyse and identify the improvements in fraud avoidance, prevention or detection to be expected post implementation, enabling clients to invest with confidence, knowing the return on investment makes sound commercial sense.

Data matching with industry and national schemes

Fraud detection can be enriched by using external sources including credit bureaux, national fraud lists, mortality files, mail redirection services and home telephone number checks. Client experience has shown data sharing offers significant advantages in detecting higher volumes of fraud and identifying fraud trends and patterns. Through data sharing schemes it offers an answer to the shared problem of fraud, cross-matching data across organisations, corporate groups and industries. The systems operate on a principle of strict data reciprocity.

Application fraud detection with Hunter

Central to the proposition is the Hunter fraud detection technology that implements the set of proven fraud detection rules to screen the information. The rule set can be configured for different products and types of fraud and simply and rapidly amended as fraud profiles and products change, offering total coverage for the organisation.

Hunter offers fraud investigators a wide range of tools to assist in the investigation of a suspicious case. Cases are passed from Hunter and displayed to the team on configurable, interactive screens as a priority ranked summary of outstanding work. The investigator can carry out and record a number of activities including contacting the customer and ordering additional checks and details.

Visual mapping of links and data assists in the identification of organised fraud and fraud rings. Once the investigator has made a decision, the status of the case is passed back to the application processing system and the outcome recorded for use in the on-going detection process and for fraud monitoring and analysis, along with notes to assist future investigations and an audit log of all significant actions performed by the system and users. Integrated management information and reporting enables the system performance and fraud prevention team’s efficiency to be evaluated.

Analysis of fraud trends and patterns enables evaluation and fine-tuning of the detection rules as well as being able to quantify the value of the fraud prevented. In addition, if a fraud is detected for an existing customer this information can be fed back into the system to further enhance future checking and continually improve detection and accuracy rates.

Modular technology with flexible delivery options

Hunter is both robust and scalable, offering flexible deployment and operation options. The system can be configured to meet requirements and it is easy to accommodate additional data and rules. It easily integrates with the existing application processing system and offers different operational modes to ensure response times relevant to the product needs. Hunter offers timely and efficient work methods, being available as a real-time or batch process, and includes an online matching web service.

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Increasing the value of fraud prevented by over 100%

“The challenge for our business is to provide a risk based approach to fraud and, with Experian’s help, we can be confident our tools are optimising that approach.”

“The level of collaboration between my team and Experian allowed both teams to benefit from shared knowledge and ensured the success of the review. The fraud operation now makes the best use of our technology and people and the results have already been significant, doubling the value of fraud prevented.”

Alison Clair, Manager Financial Crime Fraud at Cheltenham & Gloucester 

Hunter screens all mortgage applications and highlights data inconsistencies and matches against previous applications and internal and external data sources including National Hunter and CIFAS. These suspicious cases are passed to C&G’s financial crime team for investigation.

In challenging economic times, the investment that organisations make into systems such as these is under further scrutiny and needs to deliver a strong return on investment. C&G are committed to delivering continually better results and recognised that there were opportunities to streamline the fraud prevention operation and improve effectiveness and efficiency. They wanted to undertake a comprehensive review with an initial focus to make better use of their fraud resources. The team were seeing a rising false positive rate and wanted to ensure the fraud operation had a risk based approach with the

C&G already works closely with Experian following the implementation of its Hunter fraud system and has a relationship that spans the Lloyds Banking Group. Experian worked in partnership with C&G to provide fraud analytics, consulting and training to support the team with its fraud review.

Benefits

  • Increased value of fraud detected by more than 100%
  • Improved resource management, focusing effort while finding more fraud
  • More effective detection of fraud producing lower quantities of referrals whilst capturing a higher propensity of frauds
  • Enhanced use of value-added external data sources including accommodation addresses, saving £2.4 million of fraud in first week of changes Increased fraud volume by 36% with lower rate of false positives
  • Tackling new fraud methodologies and trends to stay ahead of the fraudsters
  • Truly collaborative project ensuring the success of the review and significant results

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Cutting credit card losses by 90% by combating application fraud

“Hunter is a cutting-edge fraud prevention tool that continues to redefine the boundaries of fraud detection.” “Hunter has become a vital part of LV’s fraud detection processes. The system also promises to be at the forefront of leading technologies for many years to come and LV hopes to be right there next to them.  We have continued to develop the effectiveness of our detection methods by moving onto the next generation system, Hunter II.”

“The standard of service offered by Experian proves that if you invest in a quality company, that prides itself on excellent service and delivery, you can expect a quality reward at the end of it.”

Natalie Finlayson, Bank Fraud Manager at LV. 

LV’s banking business had gone through a period of significant growth, both in the products offered and the size of its portfolio. The increasing applications meant that the potential for fraud was increased so the Bank needed to review its fraud protection.

It undertook a review of its operational processes in order to streamline the lending process in the real-time online environment but without sacrificing fraud protection. A full review of the fraud management function was undertaken, re-evaluating training, processes and staffing levels.

It was recognised that a robust and effective automated fraud prevention system, integrated with the application process, could have a significant impact on the levels of fraud losses and associated costs, and therefore the profitability of the company.

The bank evaluated a number of fraud prevention products that are available in the market. LV had seen the market leading application fraud system, Hunter, in operation at another financial services organisation and was aware of its reputation in the industry.

The success of this system for other organisations, combined with the experience and expertise in fraud prevention offered by Experian, led to the Bank’s decision to choose the Hunter system for their fraud protection.

Hunter offered the right combination of fraud detection power and flexibility, backed by the support and delivery capabilities of Experian. It offered the best return on investment with unparalleled data matching and sharing capabilities.

Benefits 

  • 90% reduction in application fraud on the Bank’s credit card portfolio in the first 18 months of operation
  • 82% reduction in financial losses on cases proven to be fraudulent
  • Improved service and productivity of the fraud investigation team with more effective working and reducing manual processes
  • Maintained service levels with a reduced turnaround time for cases, maintaining customer services levels
  • Higher risk applications targeted to focus on cases with more risk of fraud and losses
  • Apply the fraud profile across the business to identify fraudsters in other portfolios more effectively
  • Reduction in cases and costs offloading data to the national fraud scheme CIFAS

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Fraud in the financial services sector - Using data intelligence to stop fraud before it starts

This White Paper examines the problem of application fraud for financial services organisations and explores how implementing an effective fraud prevention system and processes can have a significant impact on the organisation’s bottom line.

With application fraud costing financial services organisations somewhere in the region of US$ 2 trillion a year and rising, it is a problem that cannot be ignored. Fuelled by the growth of the internet, fraud has over the last ten years transitioned from cottage industry to a mass-market crime opportunity operating on a global scale.

With fraud rates continuing to rise and with the authorities struggling to control the complex, international problem it is up to the financial services sector and the wider credit industry to make it uneconomic for the criminals by preventing frauds at the point of application.

Fraud is a non-competitive issue and all industry sectors need to work together to combat it. The effective use of data, shared at both organisational and industry level, combined with algorithms and effective screening mechanisms can ensure that organisations can combat fraud before it affects profits, reputations and society as a whole.

Increased data sharing is a must, to allow those organisations being targeted to have the widest possible set of data to compare applications and find the patterns and links that deter fraudulent applications and stop fraud losses before they start. Depending on the current fraud protection measures, ROI can be achieved in a matter of weeks and certainly months. 

Fraud Risks at the first ever African-hosted World Cup

This whitepaper explores the vulnerabilities of the South African financial services sector and provides an overview of best practice mitigation strategies for reducing the risk of fraudulent activities during and after the World Cup tournament.  From simple processes to complex fraud detection systems, there is a wide range of solutions which can be adopted to reduce the exposure to fraud during the tournament and for years to come.

During June and July 2010, South Africa played host to the FIFA World Cup tournament.  This prestigious event consists of 64 matches played in ten stadiums spread over nine South African cities.  It was expected that approximately 450,000 visitors from all over the globe visited South Africa during the event.

As hosts to the FIFA World Cup, South Africa benefited from many of the associated socio-economic advantages that often accompany such an event.  Improved public transportation, local facilities, increased employment and many other positive factors are all associated with global sporting events like the FIFA World Cup.

Unfortunately, in addition to these opportunities, such events can also attract criminals with increased opportunities to commit fraud.  Large volumes of foreign visitors and increased spending during such an event all provide cover for fraudulent activities.  Financial institutions are likely to feel the impact of such fraud more than any other collective business as they are at risk from a number of different criminal operations.  In order to be protected against such fraud, financial services organisations will have to be prepared and processes in place which will protect the institution without impacting the legitimate consumer. 

An event such as the FIFA World Cup is an ideal opportunity for fraud and risk managers to strengthen their mitigation strategies which can be continually utilised after the event to provide a more solid platform for business in the future.  Fraud and risk managers should look to the tournament as a means to gain exposure within their businesses to leverage this exposure to encourage investment in fraud prevention processes and systems. 

Tackling the issue of bust-out fraud

The white paper concentrates on the methodologies associated with bust-out, how it is perpetrated and how to predict bust-out fraud.

Bust-out fraud is a growing area of fraud for the financial services industry. For organisations across the globe, bust-out fraud is a very topical issue and the losses incurred are becoming significant.

In the UK, all the major banks have reported an increase in bad debt and provisions in the last two years, part of which could be attributed to this type of fraud.

Identification of bust-out fraud is difficult for many organisations, although Experian’s research shows that there are many strong predictors including current account behaviour and transactional patterns, credit bureau trend data and ‘event’ trigger data.

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