Loan application fraud is a lender’s nightmare. It’s a real issue faced by many financial firms. It is estimated that financial institutions lose billions of dollars yearly to this type of scheme, with synthetic identity fraud alone being responsible for over six billion dollars of credit losses. Without face-to-face interactions, fraudsters and thieves attempt to use stolen identities and fictional financial data to commit online financial crimes — believing it to be an easier or more successful prospect.
Application and identity fraud prevention
When fraud happens, it comes with a cost to lenders. In the US alone, close to 300,000 people fall victim to credit fraud every year. In this situation, fraud mitigation must be an integral part of any lending risk management plan.
To achieve a successful fraud prevention strategy, FIs must conduct a balancing act between security and customer experience. They need to put in place an account opening process that includes real-time risk assessment and identity verification while delivering a digitally seamless customer experience. The importance of improving the customer experience cannot be understated. It is best for businesses to guarantee strong identity verification and fraud prevention, as every little mistake in this process can put the customer at risk and damage the reputation of the business. Ensuring a secure account sign-in process builds trust with users and attracts and retains more customers.
FIs can battle fraud on loan applications in a wide variety of ways:
- In-depth monitoring of new account application data
- Monitoring of existing accounts for suspicious activity patterns
- Identity verification to prevent loan fraud
The most common, widely used loan fraud detection method is identity verification testing, and let’s see how identity verification helps in reducing loan fraud.
Digital identity verification to lessen fraud attempts
Fraudsters exploit vulnerabilities in detection by compiling fake applications, or synthetic identities, that are a composite of several different identities. To prevent application fraud, financial institutions must successfully identify fraudulent activity or fraudulent identity documents in real-time at the beginning of the new account opening process. AI-powered ID verification is a great way to authenticate users at scale without sacrificing security while still gaining an edge on scammers.
Digital verification procedures that are part of a well-developed CIP and Know Your Customer (KYC) practices reduce the chance of synthetic identity fraud, while virtually eliminating doctored documents. Through consumer-permissioned (transactional and account-level information that a consumer gives a business permission to access on their behalf) access to financial data, verifications can be based on or validated by information direct from a financial institution. This is dramatically better than relying on documents that have changed hands at least twice in the loan application process.
AI- powered digital verification by Insight Consultants
Insight Consultants AI-Powered Document Verification Solution is was designed to give financial institutions an easy-to-use, compliant, secure, and cost-effective method of loan application fraud prevention. AI-powered identity verification provides optimal fraud prevention and ensures highly effective authentication in compliance with KYC requirements.
Using consumer-permissioning provides an additional layer of protection as it requires the applicant to know unique personal identifying information (PII) for each financial account they intend to use. As they go through the digital verification process, several aspects of an applicant’s identity are challenged. A fraudster would require access to PII to successfully launch a digital verification, which is nearly impossible.
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