The minor line to distinguish between consumer convenience and security is wispy especially when considering the competition with the high-value market. Online loan applications have made it convenient for hackers and identity thieves to get approval even though they do not qualify by forging the application. One of the most prominent channels for fraudsters is the mobile market as fintech industries continue to grow with rendering services employing apps.

According to the study of CoreLogic, such scams are on the rise in the US with an estimated 1 in 164 mortgage applications regarded as suspicious. An increase of 15% was reported in the National Mortgage Application Fraud Risk Index between the first quarter of 2021 and 2022.

Loan fraud is a deceitful action to successfully get a loan application approved through illicit methods like falsifying identity verification documents, phishing scams, etc. An example of this deceitful action would be an application to raise his income on the papers to meet the lending regulations, easily misleading the lender about their financial stability.

The continuous evolvement of the fraud landscape highlights the significance of types of lending fraud that financial firms should look out for. Let’s look at some common types of loan fraud:

Mortgage Fraud

It’s also known as the form of first-party fraud where the person availing the loan shares false information with the provider showcasing their false financial position to gain approval for the mortgage. There are types, under mortgage fraud too:

Eliminating details like failing to reveal other financial expenses is also a mortgage fraud.

Payday Loan Fraud

These are high-interest loans entailed for a short payback period by companies focused on decreasing friction for their business model. Fraudsters over here avail perks of minimized friction for loan approvals and then vanish without leaving traces.

Second-Party Loan Fraud

Over here, the individuals exchange their personal credentials or information with another individual leading to fraudulent activity. The individual could be your close one. Also, there are instances wherein the person is unaware of the borrowing scheme for exchanging information.

Due to no traces of illegality, spotting a second-party fraud becomes slightly complex as the information rendered by the individual is legitimate. We’ll help you with the measures to reduce this growing attack.

Third-Party Loan Fraud

Fradusters use fake identities replacing their original with another individual's details without their consent for loan approval with no goal of paying back. It’s mainly backed by synthetic identities wherein the fraudster develops a new ID by merging the stolen credentials and filling of fake details. Further they make the ID look real and influence the credit score to grow by paying off the debts on the small borrowed amounts.

Eventually, they borrow a large amount and disappear with no trace. This fraud can also occur offline whether partially or completely like in the case of employing stolen cards for loan approvals.

The online lending process of frictionless digital onboarding makes third-party fraud more common at a larger scale leading to organizations incurring huge losses. According to McKinsey, 10% to 15% of lender losses are caused due to synthetic identities.

Loan Stacking

Applying for several loans in a short period by a single borrower with no motive of paying back is loan stacking. Since it takes almost 30 days for new accounts and their credit inquiries to be represented on the credit profile. There are times when lenders fail to distinguish the person who applied for several loans in a short period in the given time frame of inquiring about their credit profile.

For fraudsters, this is an open door to exploit the string of committing fraud to their benefit. Such fraud attempts can destabilize your organization. To detect these frauds at their initial stage, robust fraud prevention solutions are available to fight fraud with intelligent AI insights.

Business loan frauds mostly incorporate frauds at a large scale ending with lenders and financial institutions paying for the price lost. These frauds result in ever-lasting damage if not recovered at the same pace which makes it difficult for the organziations to survive.

Herein are the following consequences of business loan fraud:

Hence, B2B lending organizations need to adopt the perspective of accepting it as a fraud prevention method.

It’s highly preposterous to expect consumers to avoid identity theft considering the evolution in fraud attempts. Conventional method of identifying fraud through human decision-making is a concern for businesses leaving financial organziations to identify theft and stop the fraud These steps shall be incorporated by financial institutions and lenders.

Third-party identity validation services

With the deployment of AI and video analytics, users click their pictures or upload the required identity document online. The identity provided gets validated through cross checking with the availability of the same on public databases and machine learning systems.

Micro deposits

For online banks using credit card validation, send two small amounts to the applicant's bank account or a credit card, such as $.01 or $1.00. Then, the applicant must enter both amounts correctly before verifying their account.

Multi-factor authentication (MFA)

Multi-factor authentication is a secured process implemented in the users login procedure to stop from the account takeover. So, even though you steal the credentials or use a bot program, the fraudster still won’t be able to access the loans or cards through the details stolen as the access would be disabled unless passing the MFA successfully.

MFA push notification authentication

These push notifications that pop up on the account owner’s phone for verifying whether its them logging into their account and validating the process. This process disables the bots and human attacks through stolen credentials.

Video call verification

It’s live verification of the user document wherein you are in front of the camera with your government documents to prove their authenticity and your face identity.

Conventional fraud prevention methods have various loopholes due to which relying on strategy isn’t sufficient to stop the fraudulent attempts and the fraudsters. Sign3’s Digital footprinting is an exemplary solution to combat these frauds with the intelligence data insights that detect potential frauds with 99.5% accuracy in data insights.

Developers can associate previous fraudulent activity with a current session, even when the attacker attempts to conceal their identity. With this information, developers can block loan applications, send a loan application to the fraud department, or display an error message to the viewer.

Sign3 provides the most comprehensive digital footprint solution for fraud prevention. Leveraging advanced machine learning models, we deliver actionable insights derived from alternative data sources, significantly aiding in the mitigation of lending frauds. Contact us directly by booking a call through our website to learn more.