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The hidden face of first-party fraud

FICO and Equifax convened a meeting with card and banking industry fraud experts on 23rd February to talk about new approaches needed to the mounting threats presented by, particularly, first-party fraud across the credit lifecycle and third party fraud at applications stage. The site was appropriate: the St James's Hotel and Club in London, which used to be the home of Ian Fleming.

Just as in Fleming’s Bond novels and the movies based on them, criminals are getting craftier, their technology more advanced. As stated in our news release, this fraud is better hidden than ever before.

Fortunately for the fate of the civilized world — or at least banks and their customers — the good guys have more advanced technology too, and better methods of detecting well-hidden criminals. The key to thwarting criminal intent is to identify it early and to take summary action. Sometimes the fraudster has just opened an account, but often they are playing a long game and have sat, good as gold, on the credit books for weeks, months, even years before seeking to "bust out" (disappear with as much money as possible) with the proceeds from all their acquired accounts.

Many banks are beginning to realise that their bad debt book is littered with individuals who set out to acquire credit facilities with the specific intent not to pay them back. This first-party fraud is distinguished from traditional third-party fraud by the fact that there is no consumer victim — the fraudster is either precisely who they claim to be, or uses a fictitious identity. In either event, such accounts need very different treatment to established credit and collection techniques if the bank is to avoid losses.

Aged, abandoned accounts — where they are attributable to a true identity that performed first-party fraud — may contain important information about customers who may "resurrect" themselves a few years later. These customers want to distance themselves from past records linking them to the debt that remains eligible for collection, either because they want to try to walk away with more unpaid debt, or because they want to make a fresh start. The thing is, in either event, the eligible debt has not been serviced – banks can use this as leverage over a "resurrected" customer. The “good” customers are often only too willing to repay significant sums owed from the past just to keep their current creditworthiness clean.

Strong analytics, combined with effective track-and-trace procedures and innovative debt recovery, are proving the way forward of choice for several banks enlightened to this concept. Based on the detection and identification techniques we discussed last week, even Ian Fleming might have raised his hat in approval.

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