Being Faster than the Fraudsters

The prevalence of fraud continues to grow at an astonishing pace. The United States Department of Justice's 2009 Internet Crime Report showed a 22 percent increase in complaints from 2008 to 2009 and a nearly 2,000 percent increase over the 10-year period presented. The associated dollar losses expanded at an even faster pace, up 112 percent in 2009.

Fraud in Alternative Financial Services

Alternative Financial Services (AFS) businesses know the perils and challenges of fraud extremely well, but, unlike the e-commerce industry, don’t have the luxury of the numerous credit card oriented safeguards at their disposal. There are solutions for AFS businesses created to deliver the results and protections needed in such a fast moving environment.

Since AFS businesses regularly encounter fraud similar to or exceeding that found in e-commerce, many already put these aggressive fraud prevention tools to work. As fraudsters continue to adapt their tactics, it’s increasingly important that AFS businesses continue to refine their efforts and work with partners that are proven in reacting to this ever changing challenge.

By adopting more accurate data and decisioning tools and continuing to analyze their own transactions to further refine their scoring models, AFS businesses can compete with more proactive industry peers, reduce incidents of fraud and significantly boost profitability.

This need for constant refinement touches all sectors of AFS. Whether you are a check casher, a retail payday lender or online lending business, every business must effectively address the risks of fraud.

While some aspects of fraud remain consistent, others can change at a sometimes overwhelming rate. In check cashing, for example, AFS businesses know that fraud can be related to the check maker or the check presenter. The ways in which fraudsters can misrepresent this information to outsmart a lender change often, but the scope of this fraud is mostly contained in these two forms.

In other forms of short-term lending, the places to look for fraud range far and wide. In fact, AFS businesses can analyze more than 100 data attributes about an applicant to confirm that the consumer information provided truly belongs together and is accurate/up-to-date or detect fraudulent attempts to secure funds. While a few of the most common flags or indicators include a social security number/name match, a name/address match and a deceased indicator, many AFS businesses find that it pays to look at even more granular and predictive indicators.

To add to the complexity, new forms of fraud affect AFS businesses just as they do e-commerce merchants, and fraudsters are always looking for new ways to win. Still, regardless of the increased sophistication of fraud AFS businesses face, they can protect themselves and stay as profitable as possible by ensuring they employ the most complete, accurate and up-to-date coverage with their identity verification tools, particularly when dealing with consumer-not-present (Internet) transactions.

AFS businesses need speed and flexibility to excel in fraud prevention and effective decisioning as a whole. Systems and rules in place should enable rapid approvals or denials. From the perspective of flexibility, AFS businesses should be willing and able to adjust scoring models on the fly based on the past performance, because an important attribute in both fraud prevention and lending decisions today may not matter tomorrow.

The goal for any business should be to ensure that its scoring models evolve faster than, or at least in step with, the most advanced of the fraudsters.