If you’re in the payments industry, you’ve probably heard some variant of this: “When EMV card technology is introduced in a region, fraudsters shift to ___.” Card not present (CNP) fraud is a popular fill-in for that blank. Application fraud is another, enormously costly fraud type, in which fraudsters use stolen identity information to successfully apply for credit cards and loans. With the introduction of EMV in the US, both types of fraud are up – especially the sophistication of the synthetic identities used in application fraud.
Why is that?
Financial fraud is perpetrated by maliciously innovative, highly resourced criminal organizations. They are applying for credit with counterfeit identities that, on the surface, look like bona fide customers. One reason the fake applications are so hard to detect is that fraudsters are using snippets of stolen legitimate information, captured by cyber thieves during data breaches.
And there’s a lot of stolen data available; in 2015 alone there have been more than 700 breaches. As these breaches expose sensitive customer information, the details become a vehicle for criminals to utilize in performing application fraud. The more legitimate-looking the application, the harder the fraud is to detect.
Why application fraud is a priority for banks
Banks and other financial institutions are rigorously investigating application fraud for two big reasons:
First, they stand to lose significant amounts of capital to fraudsters who have no intention on repaying loans or credit card balances.
Second, institutions want to protect their customers from the negative impacts of identity theft, the resulting loss of long-term revenues through customer attrition, and immeasurable damage to the bank’s own reputation.
In fact, according to research done by FICO, one in three customers will close an account or use it less as a direct result of being a victim of a fraud attack.
Technology to fight application fraud
Banks and financial institutions can leverage data assets and advanced technology to help them find weaknesses in the high volumes of applications they process. Key technologies in their arsenal to fight application fraud include:
Entity resolution: Using enterprise and third-party data, entity resolution reveals the true identities of perpetrators, and proactively uncovers fraud rings.
Social network analysis: Employs advanced analytics to discover social network relationships between people, entities and activities, and provides actionable fraud analytics.
Both entity resolution and social network analysis look for linkages and common points among a large, diverse group of applicants. In a global organization, both of these tools are extremely useful in detecting application fraud, and putting analytic insight into the hands of investigators.