Small Business Credit Insights

Experian and Moody's Analytics have just released the Q3  2021 Main Street Report. The report brings deep insight into the overall financial well-being of the small-business landscape and offers commentary on business credit trends and what they mean for lenders and small businesses. Labor shortages, wage pressure, and supply chain issues challenge small businesses   Small business credit performance was mixed in the third quarter as businesses dealt with the COVID-19 Delta variant.  Early-stage delinquency rates rose modestly while late state delinquency and bankruptcy rates fell decisively. With daily COVID cases falling, demand for goods and services should rise in coming quarters.  Downside risks are concentrated on the supply side with businesses struggling to hire workers and dealing with supply chain stress. Early-stage delinquency rates rose in the third quarter with servicers reporting that 1.27% of small business credit balances were 31-90 days past due. While higher than the second quarter’s 1.19% rate, performance was only slightly worse than a year ago and significantly better than the pandemic high of 1.66%. Perhaps more notable was the sharp drop in late-stage delinquency, with 1.92% of balances reported as being more than 91 days past due. Supply chain issues are impacting both the availability and price of key inputs.  Nowhere is this more apparent than in the semiconductor industry, where bottlenecks have shut down the manufacture of entire carlines. If you would like to get the full analysis of the data behind the latest Main Street Report, watch our Quarterly Business Credit Review webinar. Just scan the code or go to the short link and remember to download your copy of the latest report. Download Latest Report

The Beyond The Trends Report - Fall 2021 Out Now!   Did you know that there are about a million restaurants in the U.S? And those restaurants employ nine million people?  As we prepared the latest Beyond the Trends report for Fall 2021, I took a deep dive into the restaurant industry in our small business data set to explore how restaurants were performing through the pandemic and how resilient they are now. Here's a quick snippet — the SBA's Restaurant Revitalization fund delivered 74,498 grants accounting for $22.4B in funds for May through June of 2021. It's a shot in the arm for restaurants. Here's how the funds were distributed based on annual sales. Distribution of Restaurants by Annual Sales Size source: SBA, Experian The RRF program has done well servicing a diverse set of applicants and underserved community segments. The Women-owned businesses made up almost half of the recipients Veteran-owned businesses were only 5% of the program. Veterans received fewer loans overall but had much higher average loan amounts awarded Restaurants in LMI designated areas were over a quarter of the program Restaurants in lower socioeconomic areas were over a third of the program's recipients Would you like to learn about this and other trends impacting small business? Download the Fall 2021 Beyond The Trends Report! Download the Latest Report

  Gain the ability to identify the most stable and profitable small business clients Join our webinar, in partnership with the Small Business Financial Exchange (SBFE): Disruptive Strategies to Empower Small Business Lending Tuesday, September 21, 2021, 10:00 a.m. PDT | 1:00 p.m. EDT Learn how to target small business growth opportunities and enhance the customer experience through automated credit-risk decisioning, with special focus on: Advanced methodologies for developing and leveraging new data attributes Advantages to having explainable, machine-learned models Effortless data visualization to conceptualize growth opportunities Ability to target populations and product mix for financial inclusion Register for Webinar

Subscribe To Our YouTube Channel [Gary]: I'm joined by Yvon Desieux, a Senior Director in our product team, and Yvon is responsible for product strategy and driving innovation in lending through the creation of products and applications for commercial lenders.  Sitting next to Yvon is Mike Myers, our Vice President of Product Management here in Business Information, and he leads the product team and AgileWorks Innovation Lab. Welcome to Business Chat, gentlemen. The COVID-19 pandemic spurred a wave of innovation in e-commerce, in restaurant delivery services, in FinTech, digital has raised the stakes. There's an expectation with consumers and businesses that client experiences should be on an even playing field across industries. But when it comes to applying for loans, particularly on the commercial side, those processes can be quite manual. One of the things that speed things along is real-time, financial statement data. What is real-time financial statement data? [Yvon]: Well, simply, financial statement data in real-time is just when lenders are able to access accounting software via the Internet, to power their lending decisions, and our new product offering Experian Datashare, provides this capability with the power of owner permission data. With this permissioning, small business owners are empowered with the ability to leverage their own financial data, to apply for the loans and other services that they need. So, unlike a credit report, permissioning puts the owner in control of what transactional data they share, to qualify for the loans and lines of credit that they need to keep their businesses running. So this consented data provides personalization balanced with privacy for businesses and growth, balanced with accountability for the lenders. What problem is real-time financial statement data solving for lenders? [Yvon]: The feedback that we've received falls into four-tier categories. It's revenue growth creating operational efficiencies, decreasing risk, and creating a better client experience through a modern digital journey that's easy to understand and delivers faster decisions and quicker access to the financing that the small businesses need. Mike, when you talk to clients about digital transformation, what are the things that are keeping them up at night? What are they most concerned with? [Mike]: I think all of our clients, to some degree, are going through a technical transformation, or we often call a path to modernization, and Experian is in the same boat. You know, it's hard to stay on top of technology and really leverage the cloud and be able to get new products, new services, new capabilities to market quickly. Some of the biggest challenges our clients expressed to us are how do we operate in what's become a very different environment over the last year, year, and a half with COVID. Things have moved at a much more rapid pace, as far as digitization. So the interactions with their clients have changed. It's become a bit more impersonal. It's become a bit more quick and with a sense of urgency, and many clients are struggling to do everything online and do it at a breakneck speed. This is often where API's and with different technologies, we can keep pace and help our clients integrate data, access data, and ultimately render decisions to their end-users in a much quicker and more time-efficient way. Can you talk a little bit about Experian's API Hub and getting access to our data? [Mike]: The API economy has been here for many years, and our clients are integrating our data and, you know, putting it into their systems so their users can access data real-time. And Datashare is one of those services where this data can be integrated into our client's systems. And there's no drop-off, there's no manual, or swivel chair type activity where you're going to multiple systems. It becomes a much more efficient process. And not only the client wins, but also an applicant gets a much more rapid decision and can go ahead and power their business. Can financial statement data play a role in helping emerging and underserved businesses grow? If so, how? [Yvon]: Yeah, for new and small businesses that haven't yet established business credit and rely on the owner's personal credit profile for lending decisions, Datashare gives them the ability to share their financial statements and show the financial health of the business. This expanded data can be used, in the decision-making process in addition to the standard bureau data to create more approvals. By permissioning data, these businesses are able to move out of an unscorable or subprime, hard money loan bracket,  into a space that helps them qualify for more traditional loans and lines of credit, with better rates in terms. [Gary]: Mike, I've got another slide here; businesses of color, have been severely impacted by COVID. You can see some of these stats here. 30% of black business owners say that access to credit is the biggest challenge in the next 12 months. 47% said they didn't apply for financing because they did not think they would be approved, only 37% received all of the financing they sought. Recently on a CBA webinar with a Experian, Janelle Williams from the Atlanta Fed was saying that 83% of the PPP loans went to white-owned businesses, but only 1.9% went to businesses of color. How can Experian DataShare help underserved businesses of color? [Mike]: Yeah, Gary, you're really touching on a key point here. You know, small businesses, power our economy. They make up the majority of businesses out there. And based on that recent stat you and Yvon just discussed about new business startups. There's more than ever, and we all have to do a better job of making sure there's an equal playing field when it comes to accessing capital, whether it's trade credit or financial packages, to help them manage their cash flow. And that became more evident than ever again, with the pandemic and the sudden shift in the economy. It became more and more challenging for many small businesses to manage their cash flow, pay their employees, and really see a path forward. So data share is exciting in a number of ways. What excites me is that it now combines a historical process that was done in a much more offline manual way. And now can be done in real-time. And if you start combining that with historical payment information, historical public record filings, in addition to real-time financials, you have a winning combination that can provide a clear view of a small business's financial status and real-time view. So not only the historical, which is a great way to predict future payment behavior, but also the most current accounts receivable accounts payable information that can really help you understand what their future holds. How can DataShare deepen the relationships between lenders and the small businesses that they serve? [Yvon]: Datashare drives operational efficiency. So, it allows the lenders to receive the financial statement data in a standardized format. This is regardless of the size of the business or the source of the accounting data. It drastically reduces the level of manual effort required to underwrite a loan. And it automates much of the time spent on the administrative tasks associated with the lending process. So this means that relationship managers and underwriters and credit teams are going to spend less time creating reports and gathering documents and chasing clients. And they're going to be able to spend more time holding,  we hope, value-driven conversations to deepen the relationships they have with their clients and help those businesses grow and expand in line with their needs. [Gary]: So those small businesses are going to experience greater efficiency, ease of doing business with their lender. The lender has more time to devote and work more closely with those clients, but also maybe the underserved businesses, the unscored businesses, they have that additional insight to see really how that business is doing and how they can grow that relationship with them. Am I right? [Yvon]: Yeah, absolutely. Time is the big commodity, and speed kills. So what Datashare allows lenders to do is negate all of the wasted time and effort spent onboarding and processing clients. And they can dig into that live transactional data, and get to understand the business, and perhaps share insights with the business owners that even the owners don't know. So, it allows both sides to work more efficiently and more profitably. [Gary]: Are you seeing a change in perception on the part of the business owners of today? I mean, a lot of the Millennial business owners they're used to mobile technology, they're used to delivery services on-demand services. Do you see a change in perception in permissioning, access to financial statement data? [Yvon]: Yeah, actually, we have. We typically see adoption rates as high as 90% when it comes to small businesses that are actively looking for financing. So these are motivated clients who typically go with a lender that can provide the quickest time to cash, and Datashare typically cuts down that time to about 65%. We live in a rapidly developing world where digital adoption is at an all-time high, and the same is true for small businesses. As we shift from the stacks of paper and filing cabinets, both lenders and borrowers see the benefits of leveraging technology to make their organizations more efficient and profitable. The annual review process is one pain point that we've heard a lot from clients. Is this something that could help clients minimize some of that pressure, that's a real stressor on bandwidth? [Yvon]: Yeah, absolutely. Datashare automates the monthly, quarterly, or annual review process. So when a small business permissions their data, lenders are able to choose the data refresh frequency, that is also permissioned. So, combined with covenant monitoring Datashare is able to flag accounts that fall out of an agreed risk threshold, which saves the credit team valuable time having to review their entire book of business and allows them to strategically focus on problem accounts and mitigate risk before it gets out of hand. [Gary]: So, any further thoughts on how Experian DataShare can help lenders or the small businesses they serve? [Yvon]: Yeah. Our focus will continue to be on finding ways to automate processes and provide insights into the financial statement data that we acquire. We'll continue to receive feedback from the clients that we've partnered with and integrate that into our roadmap to create new products and services that will benefit both lenders and the borrowers that they serve. [Mike]: Yeah. I would add Gary that we're at a really interesting time. You know, there's the speed and the in-depth view of a small business's financials at our client's fingertips that can help equal that playing field and open up financial opportunities for businesses of all shapes, sizes, and colors, and Experian Datashare helps with that. Combine that with our historical trade and public record data, and you've got a winning solution for both our clients who are offering the financial vehicles, as well as the applicants, the small businesses out there that need help. And that historically may have been on the outside looking in. Now they have an opportunity to share their financial situation, a picture that can help them move their business forward and access capital when they most need it. [Gary]: Well, this has been super informative, guys. I want to thank you for taking the time to come on Business Chat. And if you would like to learn more about how real-time financial statement data can help small businesses, Experian recently published a free ebook perspective paper. We'll provide a link and a QR code for you to download. If you have any questions, of course, feel free to reach out to your Experian account representative to get a conversation started about helping small businesses grow through innovative solutions like Experian DataShare. Thank you very much, gentlemen. Download Perspective Paper Learn more about alternative data Related Posts

In this post, I would like to share some thoughts on the emerging business threat from the Delta Variant as it pertains to small business credit performance. Small Businesses are emerging New business applications are up 53% in the past 12 months, consistently coming in around 450k applications a month. We see these businesses become visible to commercial credit markets 3-4 months following the application. Industries including retail, transportation & warehousing, and accommodations & food services top the list as some of the fastest-growing sectors, particularly in the southern United States. Growth most pronounced in South, with FL, GA, NC Leading (5-year trend) Lenders and creditors are working hard to meet the need of their current customers and rapidly expanding inclusion programs to engage the underbanked in communities and provide access to new businesses. These emerging businesses and micro-businesses will not have the traditional credit history to access private commercial funding without the inclusion of non-traditional data. As stimulus support and moratoriums wind down, the concern is the resilience of small businesses as COVID spread and regional public policy decisions apply pressure to commercial growth and consumer spending. COVID-19 Delta variant emerges as a likely business spoiler The more contagious COVID19 variant is spreading quickly across the U.S., increasing to 21 times the average daily new case count in the last 30 days. Public policy limitation to commerce From a foot traffic perspective, the Delta variant surge has not greatly impacted small businesses as policymakers struggle to hold off on resuming state and local COVID commerce restricting policies. As case numbers rise, legal challenges to this restraint will waiver. We are seeing the return of mask mandates and capacity limitations amid indecision about whether or not schools can or will open in the fall or if remote classrooms will continue. These policy reversals and additional restrictions will be focused on social distancing versus lockdown strategies. This means stores will stay open to foot traffic, but consumers will become warier of utilizing this in-person experience. Delta hotspots highlight the small business threat A slow-down in foot traffic will place pressure on small business growth. Consumer confidence and re-emerging health concerns will play a role in how consumer spending impacts Main Street in the lead-up to the holidays. Regional COVID spread hot spots will impact supply chain for specific industries. As the variant picks up pace the travel industry and supporting industries (Hotels, Restaurants, etc..) will see customers warier to utilize the service, putting a damper on growth in this sector. COVID-19 has impacted all regions of the U.S. We needed a reset to understand how the newest variant is impacting areas outside of previous surges. Experian created a Delta Variant index to understand how small businesses will be affected differently now vs prior surges. We see a divergence of regional growth trends impacted by variant spread, macro-economic pressures, labor re-engagement, and consumer spend. Global trade pressures will continue to impact supply chain success. Creditors are formulating new risk management strategies for onboarding, term flexibility, balance management, and treatment that include traditional and non-traditional data. This COVID variant RESET, how we evaluate small business impact due to spread, is important in identifying areas of resilience and accelerated growth opportunity and uncovering industry and local risk. View COVID Risk Dashboard The COVID-19 U.S. Business Risk Index was developed by Experian Business Information Services to help businesses better understand the impact COVID-19 may have on their commercial operations. Related posts 4 ideas to help your company weather the COVID-19 downturn Visualizing the business impact of COVID-19 with Business Risk Simulator Tool

Q2 2021 Main Street Report Highlights   Experian and Moody's Analytics have just released the Q2  2021 Main Street Report. The report brings deep insight into the overall financial well-being of the small-business landscape and offers commentary on business credit trends and what they mean for lenders and small businesses. Here are a few highlights:  Price increases and supply chain issues persist The labor shortage is driving wage growth in some industries GDP grew at 6.5 percent As some industries struggle to contain price increases and to survive in a post-pandemic world, others are thriving on the back of economic reopenings driving consumption. Reopenings and pent-up demand for services are pushing up economic growth and powering a robust economic recovery. Moderately delinquent small business credit, defined as 31-90 days past due (DPD), moved down in the second quarter to 1.19 percent. But severe delinquency moved higher in the second quarter to 2.35 percent. After a long period of decline, this upward movement in severe delinquency rates is the largest in the post-recession period. Rising costs is becoming a factor among small businesses as they service their credit obligations. In the most recent NFIB survey, 39 percent of respondents indicated they were raising wages. If we break this down, we can see that wages are rising at double-digit rates in industries, such as leisure and hospitality. And this could spell trouble on the horizon in some sectors, as employers fight to control expenses. Real GDP grew at an annualized rate of 6.5 percent in the second quarter, led by consumption. The rapid rebound from Covid-driven shutdowns sustained the rapid economic growth of the second quarter as stimulus continued and vaccination rates increased. Join us for a deep dive If you would like to get the full analysis of the data behind the latest Main Street Report, watch our Quarterly Business Credit Review webinar. Just scan the code or go to the short link and remember to download your copy of the latest report. Download Q2 Report

Summer 2021 Beyond the Trends report. This report goes into a deep dive into the economic trends that we're seeing in the market. We look at some commercial and consumer credit trends that will impact recovery. And we'll deep dive into some of the industries that are most impacted. One of the things we talk about in this edition is the important role small businesses play in the economy.  With vaccination rates rising, consumers are starting to return to Main Street, dining at restaurants, going to movies, and traveling.   But supply-chain shortages are driving prices up, and with it, the worry over inflation. Stay informed by downloading your copy of the Beyond the Trends report. Download Beyond The Trends Report

Experian and Moody's Analytics have just released the Q1  2021 Main Street Report. The report brings deep insight into the overall financial well-being of the small-business landscape and offers commentary on business credit trends and what they mean for lenders and small businesses.     Small business credit performance hedged down slightly in Q1. But, pent-up savings, massive fiscal support, and the winding down of the Covid-19 pandemic will be driving forces for the economy and small businesses going forward in a post-pandemic recovery. Small businesses with fewer than 40 employees added 277,000 jobs in the first quarter, and by the end of 2021 the economy is slated to add nearly 5 million jobs as businesses reopen. After a PPP-induced decline in delinquency, the 31-90 days past due rate ticked up to 1.28 percent in the first quarter, from 1.21 percent in the fourth quarter, down from 1.61 percent one year ago.   Despite a narrative that inflation is rapidly developing, small business owners seem unconcerned. The most recent NFIB survey of most important problems places inflation worries in single-digit territory. If you would like to get the full analysis of the data behind the latest Main Street Report, watch our Quarterly Business Credit Review webinar. Just scan the code or go to the short link and remember to download your copy of the latest report.

Identity Fraud in Commercial Applications We recently sat down with two Experian experts to talk about commercial fraud trends and gain an understanding of why commercial fraud is on the rise, and what organizations can do to combat the problem while at the same time grant credit to growing businesses.  What follows is a lightly edited transcript of our interview. Watch Our Business Chat Interview Subscribe To Our YouTube Channel What follows is a lightly edited transcript of our conversation. [Gary]: Hello and welcome to Business Chat I'm Gary Stockton with Experian Business Information Services, and today we're going to talk about Commercial Entity Fraud with two of our experts. [Gary]: Patricio HernandezBarron is a Product Marketing Manager here in Business Information Services, and he covers the commercial fraud space. Chris Gerding is a Consultant and he also focuses on commercial fraud. Welcome to business chat guys. [Gary]: The two of you recently collaborated on a perspective paper called Identity Fraud in Commercial Applications, and the piece asserts that there's been rapid growth in commercial fraud in the past few years. So, Patricio, if I could ask you, how are B2B companies affected compared to business to consumer companies in battling fraud? [Patricio]: Let me start by saying that both commercial and consumer or B2B or B2C companies are both affected by fraud, whether this is first-party fraud, third-party fraud, or synthetic fraud. They're both affected. Now, where it becomes different is the type of solutions that are out there in the market for them to solve it. There have been a lot more advancements on the consumer front, and it makes sense, consumer trends move a lot quicker compared to the commercial side of things. [Patricio]: But, in 2020, it's been considerably harder for fraudsters to get through the filters on the consumer side. So (fraudsters) being smart, they've started to focus on the commercial lines of business, which they already know that they're a little behind in terms of the sophistication of consumer lines. So, it's opened a potential opportunity gap for fraudsters to get through and businesses can't wait any longer. They need to raise their game and make that parity between consumer and commercial lines of business in terms of the fraud mitigation strategies. [Gary]: What's the scale and size of the problem of commercial fraud? [Patricio]: It's a big problem. A recent report published by the Association of Certified Fraud Examiners stated that 5% of business revenue was lost to fraud. 55% of respondents we asked said that as of 2019 fraud attacks have increased. So there's a clear problem right now, whether these businesses are recognizing these losses as bad credit or as fraud losses, that is the first thing that they need to focus on. [Patricio]: And the thing is, many of our customers would tell us, “we don't have a fraud problem”, but it was because they weren't recognizing and discerning between credit losses and fraud attacks. So that is the first thing that they need to focus on, start differentiating and categorizing those losses differently so they can start looking into it. The other thing that I'm sharing around this topic is many times businesses tighten their credit decisioning in hopes to reduce those losses. But that was counter-intuitive because they were making it harder for potentially genuine customers to make it through the application process. And yes, the fraudsters were passing this filter or no filters but were passing this credit scoring with no problem because they knew the data that would be required, and there were again, no fraud filters in place to stop them. [Gary]: So, Chris, can you talk about some typical scenarios in which businesses, especially small businesses are typically attacked by fraudsters? [Chris]: Small businesses and any business have a lot in common with consumers. There are modes and fraud scenarios where both are vulnerable. And businesses typically have both financial assets and competitive information at risk. They could be phished; they could be socially engineered, and this is exactly what we read on a consumer basis when we hear about how to avoid fraud. [Chris]: Second, leakage of sensitive information over the other channels can result in direct fraud, like account numbers, pins, obvious targets. However, they need to misrepresent their identity in many cases. And the contact information such as the firm name, the address, the owners, or officer's personal details, this kind of information when compromised leads to potentially bigger and harder to detect, harder to stop fraud schemes. Consumers can be defrauded like businesses, but these are the more big-ticket business-specific categories that you're seeing here on this slide. [Chris]: These three represent a good slice of the many ways businesses are defrauded and small businesses with some vulnerabilities associated with not having millions and millions to spend on fraud defenses would be vulnerable to some extent. The equipment financing and leasing firms can be defrauded either out of funds or especially vehicles and heavy equipment. We see cases not many in the news, but you do hear about these, where, if you pass the finance companies fraud screen, fraudsters can successfully apply for financing and potentially come away with, I mean, a car would be on the low end of this, construction equipment for or combined for major capital items. Then they disappear. [Chris]: Number two, fake invoices are a very easy way comparably to collect perhaps smaller amounts, but these can be forged documents sent in under the wire and they are paid sometimes by very busy accounts payable people with very few defenses in place, and something that we're going to talk about later,  fraud payments figure very largely in commercial fraud. Payments that are not backed up by good funds and intentionally sent it to cover a balance on an account are a very big part of commercial fraud.  Fraudsters may actually make multiple payments, playing the timing game so they keep the account and the account balance alive and growing, or the credit balance on the account so that they can perhaps get more from the fraudulent credit relationship that they've built than the intended credit line by this timing and submission of payments.  They can do this for several industries. They can do this for all different kinds of payment items themselves. They could be done with forged paper checks, electronic payments, and sometimes counterfeit payments themselves. [Gary]: Patricio, turning to you, would profit be impacted by implementing fraud prevention filters? I would imagine that would hinder some profitable growth? [Patricio]: It's a tricky one because, you know, there's this big misconception that by applying fraud filters, that's going to affect your profit or affect your number of applications going through. And it is true to an extent by applying fraud filters, you will see fewer applications going through. But affecting your profit, it's the complete opposite. It's actually going to reduce the losses that you'll be incurring, and I briefly touched upon this in your previous question, but what many companies do when they're not able to differentiate between credit losses and fraud losses, they tighten their decisioning in their credit applications. Those potentially good customers don't make it through, but fraudsters make it through with no problem at all. Because the decisioning system that they have for credit purposes does not do much for mitigating the fraudsters. [Patricio]: Many times, these companies don't invest in fraud solutions until they've gotten this big hit from a fraud attack, at that point, it's already too late. So, I would say that the best thing to do to help your profit is to be proactive because fraud can affect your profit if you get impacted. If you're proactive about it, you can protect or reduce those fraud losses that you're currently seeing as overall fraud, or losses that could be a fraud and not just credit losses. [Gary]: What's the number one step that commercial business, especially a small business can take to combat this wave of commercial fraud? [Chris]: Awareness must be built into the culture and it must be built into the solution and how the firm deals with the solution because there's no way to solve the fraud problem with a turnkey black box, turn it on, and forget it, we don't have that. And we may not have that for many, many years. [Gary]: Can you tell me more about the first payment defaults and how lenders are addressing that problem? [Chris]: We spoke a bit about payments in general as a fraud channel, but this is a particularly aggressive form of fraud or credit abuse. And it happens when the borrowing party just never ever makes one payment on the account. They may utilize the entire credit line and they just don't ever pay. So when the first payment is in default, there's a high suspicion that this could be a fraudster. There's a little ambiguity, as I said, but the credit and the fraud dimensions are rather close. They're rather parallel, in terms of how they are dealt with. [Chris]: What are we doing about accounts that are very brazen and do this on the first payment due?  We evaluate the risk at the time of enrollment. This is very important, we don't know, who's not going to pay us the first time. So we need a tool that evaluates, in this case, we offer a score, a commercial first payment default score, which is very high performance and very friendly to the combined mix of consumer and commercial data that a firm might have. Second,  it pays to look at the risk of the entire portfolio for first payment default periodically.  Again, is done with a score, it could be the same score I mentioned. In the third category, if it's necessary,  the host firm may wish to use scoring the individual payment item, the check, the online payment as a fraud evaluation, which is done by a different set of scores to manually perform systemic checks. [Gary]: So Patricio what are some of the most common misunderstandings in fraud prevention products? [Patricio]: Fraud filters will affect the number of applications that you are able to approve. As we mentioned before, it does affect the number of applications that you'll see come through, but it will help increase your profit by incurring fewer losses. Again, fewer fraudsters make it through equals fewer losses coming into your system. The second one would be that most fraud can be solved by verifying the identity of the user. And sure, it's because third-party fraud solutions are very popular, but that's not going to help you with all types of fraud. That's why you do need a layered approach for mitigating what's going to come through the door because, at the end of the day, you don't know what type of fraud you're going to be seeing. [Patricio]: By implementing a solution that will verify the identity of the user, that's not going to help you fight all types of fraud. In fact, stand-alone, you will do very little to mitigate first-party fraud and likewise with synthetic fraud. So again, if the way to solve fraud is not with a one size fits all approach, it's layered whether you have the resources and the capacity to implement a geolocation verification, or verify the validity of the data or verify the identity of the business owner. These are all things that are just going to prevent and help you weed out the different types of application fraud that you could see (coming) through the door. [Gary]: Chris, what can small businesses do to engage with Experian and minimize their fraud exposure? [Chris]: We love to talk, especially to small businesses on a very global scale in terms of their business operations and where it is that we might be able to help them. They may come to us with a great deal of awareness that they have a fraud problem and they kind of know where it is, but they look for a specific solution. Other small businesses may come to us with general concern. And in those, and in other cases, we are happy to sit down with them and do what I would call a free consultation and look at their information and make some suggestions. [Chris]: What we do is we offer solutions, but we like to add to that the knowledge of the particular client's situation, so that they become wiser and they become enabled by the kind of services that we provide, and they become enabled by the information we can bring to them upfront so they can make a wise consumer solution as it were. [Gary]: Well fraud in the payment protection program or the PPP program is all over the news. What do you make of that?  Are these fraudulent applications affecting lenders, even though the losses would be absorbed by the government? [Patricio]: While many of these lenders know and think that the loss of the potential losses would be absorbed by the government, the reality is that it's uncovering many gaps for these lenders. First, we understand there's a greater volume of applications going through their systems. So what many of these lenders have done is either turn off, completely turn off their fraud mitigation systems, or they've reduced the amount of vetting that they do, because they're not too worried because they know that the government is going to absorb those losses because of the volume of applications that they see. Now, the problem with that is that if they completely turned off the system, now they have potential fraudsters within their portfolio, or on the other hand, if they lessened the amount of filtering that they do, and yet still some fraudsters make it through, it's going to be very hard to weed out those fraudsters down the line. It's just putting more risk to your overall portfolio, and, people, once they're in there, they've already uncovered some gaps in your underwriting process. So again, just down the line is going to be very hard to weed out these fraudsters that made it through your portfolio, [Gary]: Chris, anything to add? [Chris]: That was a good summary. I would add only that the other side of the coin is when you put many, many tens of millions of good Government money into the hands of fraudsters, you're sort of inflating the entire credit system. You're allowing bad people to get what appears to be credit for good loans until they're discovered. Many of these will probably not be discovered. So you're kind of adding bads to the system and calling them goods. And that's never good for all of us. [Gary]: Well, this has been very helpful guys.  I want to say thank you very much for coming on Business Chat and sharing your insights. Related Posts