What is application fraud?
Application fraud is committed when fraudsters provide incomplete, inaccurate, fabricated or stolen information with an intent to defraud the service provider. Application fraud can be classified as ‘first party fraud’: those deliberately providing inaccurate or fabricated information, or ‘third party fraud’: those that are stolen from another citizen (Identity Theft) or hijacked from a legitimate customer (Account Takeover).
Application fraud is a serious problem and the fraud losses – mostly categorized as bad debt – can run into millions of dollars a year. Financial services, Insurance and Telecoms industries take the biggest hit in terms of losses. CIFAS, UK’s Fraud Prevention Service, reported that there were over 140,000 reported ‘Application Fraud’ related cases in the UK in 2013 and identity crime (third party fraud) accounted for over 60% of all frauds. The US Department of Justice, in their August 2014 report, published that over 11 million Americans were affected by identity theft. The vast majority of them were in turn used to defraud service providers with losses amounting to over $24 billion. According to the AITE Report: ‘First-Party Fraud: The Global Battle Against Diabolical Charge-Offs’, first-party fraud will be responsible for an estimated US $18.5 billion in credit losses for Financial Institutions around the globe in 2012, this is expected to grow to US $28.6 billion by 2016. Suffice to say, the problem is endemic.
The challenges faced by businesses.
Despite attempts to quell application fraud, businesses face numerous challenges. Not least the growing sophistication in the methods adopted by fraudsters to exploit vulnerabilities in the application workflow and credit controls. For instance, fraudsters adopt a number of simple but effective strategies to exploit vulnerabilities: applying for services using own identity but with subtle changes in personal details to circumvent normal personal data checks – for example, name changed from William J Smith to Bill Smith to prevent detection or use assumed or fabricated identities of customers with good credit ratings. The traditional credit bureau checks are pretty ineffective in these circumstances.
The vast majority of businesses still assess customer risk based on data from external credit reference agencies or using databases compiled by third party providers (e.g. electoral registers). However, a number of studies, and our own experience working with fortune 500 businesses, confirm that credit scoring and third party databases alone are not sufficient to tackle application fraud.
Tackling Application Fraud manually had some effect in loss prevention. However, this has lost steam as the sheer number of applications – often via new channels – has strained the manual process. Quite often even the legitimate customers are put through a long wait before services are approved.
Atreus – A different approach to detect and prevent Application Fraud.
Atreus is a powerful yet cost effective tool to detect and eliminate application fraud using consumer credit history and past behaviour – a goldmine, yet scarcely utilised. Atreus enables businesses to connect new applications to suspicious and fraudulent historical applications, thereby giving an initial accept/reject/refer decision in real-time, and saving on credit referencing costs. Atreus uses fuzzy matching and phonetic processing algorithms, just to name a few sophisticated match and connect models in its engine, and it has a distinct advantage over existing exact-matching tools and credit bureau databases.
Atreus comes complete with a built in Data Integrator (to bring all the necessary credit history data), Application Programming Interface (API) to integrate with existing systems (e.g. Point of Sale or Retail Store systems), workflow, rules that can be customised for specific businesses and risk categories and much more to help prevent fraud at the point of application. A number of clients are already using Atreus and to great satisfaction over traditional credit bureau and third party databases.
Learn more – Atreus FAQ.
Book a demo – firstname.lastname@example.org.
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.