In simple terms, Application fraud is the deceptive practice of applying for products or services with an intent to defraud the service provider. Application fraud is pulled off in many ways – using own identity but with subtle changes in personal details to circumvent normal personal rules checks; creating fake, synthetic or multiple identities that pass off as genuine; stealing identities to obtain new products or services etc.
Service providers are most vulnerable at the point of application. Fraudsters exploit the application process as credit checks and credit scoring are mostly done using credit bureau data and not on past credit history held within the organisation. Note that in most cases just a credit check will not help – for obvious reasons that stolen identities can be used to pass credit checks easily. Another drawback with pure credit checks are that it takes a while for the credit bureau systems to get updated on defaults and fraudsters attempt to exploit this delay by applying for new credit when the previous one is still being pursued by collections.
While fraud management systems help to an extent detect fraudulent customers, it’s prudent to have the customer checked for past credit and payment history at the point of application before a decision is made to avoid fraud losses in the first place.
About the Author: Shankar is a certified fraud examiner and is the Founder and CEO of Fraud Risk and Security Research Labs. Shankar has over 18 years of experience in developing complex intelligence and fraud prevention systems for Telecoms, Financial Institutions and Governments.