Small- and midsize-business lending fraud has jumped nearly 7 percent since 2020 due to the pandemic and rapid growth of digital lending services, according to a recent LexisNexis report.
The report, undertaken by the global market research firm KS&R, included data received August-September from 51 banks with $10 billion of assets or less; 63 with more than $10 billion in assets; 23 fintechs and digital lenders; and 12 payment processors.
During the pandemic, loan fraud took place through the Paycheck Protection Program and CARES Act as applicants sometimes used fake or stolen credentials to obtain funds. A 2021 University of Texas report indicated $76 billion of the $800 billion allocated through PPP could have been improperly gained. Half of credit lenders and nearly two-thirds of banks reported that fraud targeting their mobile channels increased 10 percent or more during the past year.
“Small business lenders have been committed to elevating customer experience, which is a good thing, but it also creates the perfect environment for fraud,” the report stated. “Lenders are focusing on streamlining the loan process, but that can make it easier for fraudsters to cheat the system. There are some common profiles fraudsters are using that include combinations of legitimate and fake businesses and real and bogus business owners or consumers.”
According to LexisNexis, there are several steps lenders can take to prevent fraud, including:
- Monitoring the historical transaction patterns of an individual against their current transactions, possibly through near real-time transaction scoring or automated transaction scoring.
- Undergoing basic verification, such as ensuring the applicant’s name, address and date-of-birth match or by having the applicant provide a CVV code associated with a card. This could also include check verification services; or payment instrument authentication. You can use personal data known to the customer for authentication, or require the applicant to provide two authentication factors.
- Analyzing human-device interactions and behavioral patterns such as mouse clicks. You can also undertake browser/malware tracking, device ID/fingerprinting, and other verification methods.
- Seeking external providers with many data and analytics resources to most effectively address identity-based fraud challenges.
- Tracking both successful and attempted fraud by channel type.