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In the past three years, detected fraudulent transactions have increased by a quarter1

With 60 million credit applications in the same year (Experian UK, 2021), could some of those transactions have been stopped before the fraudster was even approved for the funds?

Keeping fraud out at the application stage is high on organisations’ priority lists. We take a look at how application fraud is changing and why organisations need to take action to detect more fraud, without impacting customer experience.

What is Application Fraud?

Application fraud is fraud taking place at the point of application in a customer’s journey, through providing false or manipulated information with the intention of deliberately deceiving for financial benefit. It can take two core forms:

  • First-party, by the customer deliberately falsifying information, such as hiding addresses that have previous defaults, or exaggerating income.
  • Third-party, by a criminal gang using false or stolen identities to apply for credit or set up accounts.

Size and scale can vary enormously, but whether a deliberate inaccuracy on an application, or mass attempts using stolen identities, application fraud is a major challenge.

Where are we seeing change in fraudulent applications?

Fraudulent applications can be made across any lending or account set up journey. From applying for credit, loans and mortgages, to insurance applications and mobile phone orders. Any organisation requiring personal data from an individual, in order that that individual may receive a benefit at the end of the process, is at risk of application fraud.

Our regular Fraud Index, updated quarterly, shows the latest trends in fraud activity across the wider lending space. Through close analysis of this data, we can see changes in first vs. third party fraud, and dive into the specific category of fraud, including all types of ID theft, misrepresentation and product misuse.

What has triggered an increased focus on Application Fraud?

The past two years have been particularly challenging for many people’s finances. With large numbers of the UK population being put on furlough schemes, reduced hours or redundancies, people’s incomes have faced an unprecedented shock. Coupled with the current cost-of-living crisis we are experiencing; people are looking for ways to spend less and save more. For some however, the temptation to misrepresent can be strong, and people may be turning to making fraudulent applications to increase loan amounts, credit limits, or simply to have access to more funds, sometimes with no intention to repay.

In addition, the sharp shift to a digital way of working left some organisations potentially vulnerable. Businesses had to react at high speed to a whole new way of working. In the haste to shift to a digital-first system, potential weak links and loopholes could have been left open to exploitation by the more experienced fraudster.

What is more, those highly sophisticated criminals may have access to the latest technology, more advanced than the fraud-fighting systems implemented in business still developing in their digital maturity. In these instances, the fraudster’s tech may well be capable of falsifying documents or bypassing immature security systems, leaving organisations unable to manage the volume of applications they need to manually review.

How can organisations better identify fraudulent applications?

A layered approach is critical to managing fraud at the point of application. Combined with a greater breadth of data sources and technology, organisations are able to better assess and analyse applications and identify suspicious data points, without impacting good customer’s ability to complete the application process.

Being overly reliant on a single capability or just a few data points is easier for a fraudster to bypass. Having a blend of capabilities, data and analytics allows organisations to quickly and more accurately identify both the genuine and suspicious applications.

Young woman using a credit card with her tablet

Experienced fraudsters, with access to technology and high volumes of data, work to identify the weakest, and easiest systems to bypass. Through adopting a layered and sophisticated approach, fraudulent attempts are more likely to be identified during application phase. The fraudster will identify that lender as having a strong fraud detection system in place and move on to try elsewhere.

As technology continues to advance, lenders can begin blending more and more data points, including non-traditional data, such as biometrics, behaviour or even device information, to help identify fraudulent activity, and reduce false positives.

What should organisations consider when implementing stronger fraud detection capabilities?

First and foremost, detection of fraud is a priority, and its prevention must have a seat at the table in board level conversations. That said, organisations also need to ensure that processes during the onboarding journey do not deter the customer from completing an application. Too many overt checks throughout the process could lead to an applicant abandoning the process and risk loss in revenue growth.

Through integrating layered fraud and identity checks within the onboarding journey, and minimising customer friction, organisations can detect suspicious applications, without interrupting the customer experience.


[1]UK Finance: 2021 Half Year Fraud Update