“It takes 20 years to build a reputation and few minutes of cyber-incident to ruin it.” – Stephane Nappo, Global Head, Information Security, Société Générale International Banking pole

Online Frauds is an ever-increasing threat to lending firms. It is a critical problem to address as it directly affects the firm’s profitability, its customer experience, and its bad debts.

Types of frauds in online lending

• Loan Stacking: taking multiple loans from different lenders at the same time without intent of paying them back. Fraudsters can take most advantage in online lending as they are serving a significant portion of the population with little or no credit history.
• Account take over (whale phishing): directly target high profile individuals at an organization, with the aim of stealing money or sensitive information or gaining access to their computer systems for criminal purposes
• Identity Theft: criminals use someone else’s identification to secure a loan. In any case, once the identification of the victim has been verified, the fraudster gains access to loan funds and disappears.
• Web Scraping: extract large volumes of data from web pages and applications and create legitimate-seeming fake accounts
• Accessing data leaked on the dark web

Many customers choose to go online lending because of its rapidity. At the same time, online lenders are also serving a significant portion of the population with little or no credit history. Fraudsters can take advantage of this loophole, without much consequences. Regulations, compliance and overall risk management also place a significant operational burden on online lenders.

How does online frauds impact digital lenders and Fintech?

• Loss of client trust: Clients expect their delicate financial data to be secure. Online fraud is perceived as a breach in the security of personal and financial information, which causes loss of clients.
• Loss of reputation: Unable to secure clients data directly affects firm’s reputation which in turn affects securing new clients as well as relationship with partners and investors
• Financial loss: Fraud reduces organisational assets and increases its liabilities, which impede the going-concern status of the firm

Online fraud prevention is the not just the responsibility of individuals who may fall victims, but of the lenders whose reputation and assets may be on the line as well. While traditional fraud management techniques have been effective in detecting fraud, there are some inherent challenge

Typical challenges in Conventional Fraud Management Techniques

• Inflexible Systems: Lack of flexibility to integrate with different functions of the enterprise and adaptability to read data from traditional and non-traditional medium. As a result, the alerts thrown by these systems are more siloed in nature as opposed to offering a more integrated view.
• Multiple Systems: Firms have multiple fraud management systems across the value chain and there are instances where a transaction gets flagged resulting in a harrowing experience for the customers.
• External Data Access: Lacks in ability to access external data that can act as an additional source for user satisfaction
• Real-time Profiling: Need for real-time profiling to keep up with the pace and rate of online transactions without disrupting the customer experience

 While firms are beefing up conventional techniques and investing in their existing security processes to ensure multiple layers of protection are created, it could be worth exploring additional or alternative approaches. The need for computational power to process large amounts of data and make decisions real time is imperative for businesses to reach quickly to fraud attacks. The only true way to keep the online digital world safe and secure is by analysing the digital identity of every online user.

In this aspect, automating your Cybersecurity will improve the productivity and value of the security team.

Read next article to find out how automation solutions improve Cyber Security.