How to use a layered fraud strategy for business solutions channels

Published: September 19, 2023 by Nathalie Stecko

Fraud Strategy

The future of the economy has proven to be shifting in a way that has made business planning difficult, especially in a time of such strong movement towards digitalizing the customer journey. Firms that provide commercial and business solutions within the US markets have seen their share of challenges related to creating a safety net for fraud as new business creation has skyrocketed post-pandemic. The burgeoning fraud rates that are associated with pandemic-related recovery efforts for small businesses have left a strange situation for firms that are faced with addressing the opportunity to bring new customers into their portfolio.

Rapid new business formation during the pandemic

Experian’s commercial inquiry analysis shows fraud rates across industries

A recent analysis of Experian’s commercial credit inquiries has shown first-party fraud trends across multiple industries. The inquiries were scored by the new Commercial First Party Fraud Score, a score designed to predict first payment defaults, the results showed:

  • Over 16% of recent Financial Services inquiries were rated as high-risk by our Commercial First-Party Fraud Score, with these inquiries were projected to carry 39% of all the first-party fraud risk within the population.
  • Our Commercial First-Party Fraud Score rated over 39% of recent Fintech inquiries as high-risk. These inquiries were projected to carry 62% of all the first-party fraud risk within the population.
  • Over 11% of recent inquiries from B2B companies were rated as high-risk by our Commercial First-Party Fraud Score. These inquiries were projected to carry 19% of all the first-party fraud risk within the population.
  • Over 17% of recent inquiries from communications, energy, and media companies were rated as high-risk by our Commercial First-Party Fraud Score. These inquiries were projected to carry 35% of all the first-party fraud risk within the population.

New solutions that can help firms achieve better fraud rates within their business portfolio

When extending new services and devices to customers digitally, how do firms know that their customers are who they say they are, when the customer may have hardly any credit history? In an age where open-source regenerative AI solutions have sent waves through many organizations on what is truly possible in terms of automation and business planning, how can firms look at leveraging automation to stop fraud with intelligence?

At a time when the economy is hinging on a strict diet of federal rate increases to tamper inflation, how can firms invest in additional technology given rapid shifts in consumer preferences and markets? The answer lies in creating an automation strategy that layers predictive insights and technologies to stop bleeding out resources in a reactive way. In the area of fraud, there are new solutions that can help firms to achieve better fraud rates within their business solutions portfolios while addressing all types of fraud.

A layered fraud strategy is a valuable approach in solving this unique problem, giving the ability to identify high-risk segments within small business or commercial portfolios and focus vital resources on mitigating exposure while reducing friction within the customer experience for lower-risk businesses during the onboarding process.

Experian’s Commercial Data Sciences team can help firms with the challenges they face in serving businesses of all sizes, by performing validations on existing portfolios to gain critical insights into the performance of their current fraud strategies. The outcome of these types of validations for firms has often resulted in flagging millions of dollars in fraud that could have been prevented within their business accounts.

Experian’s Commercial Data Sciences team uses a combined approach in testing against historical files provided by the firm with different tools from Experian’s Sentinel™ Suite of Commercial Fraud Solutions, like Multipoint Verification, a tool that carries out entity verification and flags for identity fraud risk. By matching the firm’s data with Experian’s vast business and consumer data sets, and leveraging robust machine learning models, an analysis can be performed with an in-depth view of the risk exposure of any firm’s accounts using Experian’s unique new predictive score — Commercial First Party Fraud Score. Firms who have leveraged this approach can often see a hit rate of more than 99% with a dual-score strategy versus an 85% to 95% hit rate with consumer-only fraud scoring. This means that the layered strategy is highly predictive and accurate for fraudulent identity verification and first payment default.

Many identifying pieces of information are important to understanding the true validity of identity. One surprising finding of many validations performed for firms is that the majority of the accounts in the sample they provide have valid email addresses which represented a large portion of their fraud rate. Of the accounts with valid emails, a high majority of the business owner contacts were not matched to the email addresses provided within the applications, via Multipoint Verification’s consumer-to-business linkage. This aspect of the validation points to the need for firms to truly verify their customer information at many points in the account lifecycle, not only within the new account onboarding phases as the account continues to grow.

To learn more about how to use a layered strategy to gain insights on your own fraud rates within specific industries, click to download the holistic fraud eBook: Shock-proof your commercial strategy with comprehensive fraud tools.

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The latest insight, tips, and trends on all things related to commercial risk by the team at Experian Business Information Services. Please follow us on social media.

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