Fraud is an ever-growing threat that affects millions of people every day – and it’s all because of the “I want it now” mentality. Because everything is available online, 24/7 these days, consumers can’t seem to wait anymore. They want everything – from diapers to electronics – immediately. Waiting isn’t an option, and patience is a forgotten virtue.
Getting a loan is no different. People are flocking to online lenders versus traditional banks because the service is faster, and approval is instant.
This “instant approval setup” has plenty of loopholes fraudsters can exploit. Online lending companies are under extreme pressure because people with zero credit history go to them for a loan, and they need to vet them fast. Online loan applications usually take 24 hours, but how can a lender conduct a thorough vetting process in that amount of time?
The advantages that online lending firms have over traditional banks are also what makes them a target. Here are three types of fraud that affects online lending services.
1. Synthetic Identities
Synthetic identities are a complicated type of financial fraud to detect because criminals use both real and fake information. This type of fraud involves criminals using a “synthesis” of real, but stolen data to manufacture a brand new identity. Estimates put synthetic identity fraud at about 20% of all credit charge-offs and 80% of credit card losses.
2. Loan Stacking
Loan stacking is a fraud type that involves taking out multiple loans from various online lenders simultaneously with zero intention of paying them back. Criminals take advantage of the speed in which lending services approve online loans, which can be less than 24 hours. Because of the quick turnaround, lenders find it difficult to screen for fraudsters until it’s too late. Borrowers who get a second loan within 15 days are more than 4 x likely to defraud lenders. A third loan indicates the borrower is 10 x more likely to commit fraud.
3. Account Takeover
Account takeover is a type of fraud that uses identity theft and targets high net-worth individuals or “whale” accounts. “Whaling” or “whale phishing” is pretty straightforward in execution, but the results in losses can be massive. All a criminal has to do is steal pieces of information from a target, like a Social Security number and mother’s maiden name.
The harvested shards of data will then be pieced together and used to take over an account by posing as the owner. The fraudster takes out multiple loans as fast as possible before cashing out. Online lenders often fail to catch any red flags because criminals take out loans in quick succession and are rarely found.
Preventing Fraud
Online lending companies are joining forces to fight fraud on all levels. The critical element is open collaboration via the Online Lending Network. The network uses “ID Analytics,” enabling lenders to report whenever they release funds or a consumer applies for a loan. Device and IP address authentication are also some of the tools online lenders use to screen for fraud, but these aren’t enough.
Companies need to use a tool that can verify identities by drawing from different sources in one search. Vetting a consumer by using a reverse phone search or checking for links to a past application is one way to defeat fraudsters. Tracking the physical address, email, and IP address used to create the fake account ensures that the criminals won’t be able to use them again.
To prevent fraud, online lending companies need to look at comprehensive solutions, without sacrificing the speed and efficiency which they are known for.
About the Author:
Ben is a Content Director at InfoTracer who takes a wide view from the whole system. He authors guides on entire security posture, both physical and cyber. Enjoys sharing the best practices and does it the right way!