Tag: commercial fraud

Catch the latest brew on fraud strategy at our 15-minute Sip and Solve session hosted by Bonnie Gerrity, sharing best practices over coffee.

Small businesses have been opening at record rates during and following the pandemic. With so many new businesses seeking capital, and not all of them borrowing with good intentions, Experian thought it would be a good time to talk about mitigating fraud with one of the leading FinTech lenders. Ryan Rosett is the Founder and Co-CEO of Credibly, and he shares several valuable insights with us in this Business Chat. Watch Our Business Chat Interview What follows is a lightly edited transcript of our interview. Gary Stockton: Hello, and thanks for joining us for this business chat. I'm Gary Stockton from Experian Business Information Services, and I'm here with our Vice President, Dominic DiGiuseppe, and also Ryan Rosett, the founder of Credibly, a fintech dedicated to helping medium and small-size businesses grow via funding decisions that are based on the holistic health and potential of a business.And we're here today to discuss fraud as it relates to FinTech in the small business space. Gentlemen, welcome to Business Chat. So Experian has recently released some interesting new statistics on the impact of fraud across several industries, notably that over 39% of recent FinTech inquiries were rated as high risk by our commercial first-party fraud score.And that's a predictive score that can predict the likelihood of first-party payment default and the credit bust-out scenarios that we see. These inquiries are projected to carry 62% of all first-party fraud risk within the population. And if you would like to see more on that analysis, we'll be including a link in the blog post for this business chat.So Dominic, I wanted to get your reaction to this statistic, given our mission to serve small businesses and considering small businesses make up the greater part of our economy and economic output.Dominic DeGuiseppe: Yeah, Gary, thanks for that. First and foremost, I want to give a shout-out to our data sciences and product teams for being able to continue to innovate in this space.But really, when you look at post-pandemic, the amount of businesses that have been created, it's, we were somewhat surprised by the numbers as well. But the amount of businesses that are being created, the mission that we have an experience making sure that we can help provide capital and we can provide funding and get that into the hands of business owners quickly.So if we take a look at some of the trends here, the amount of businesses that are being formed since the pandemic is pretty surprising. We've continued to see that trend. Rise and stabilize a bit, but it's still much higher than pre-pandemic levels. So when you think about businesses that are looking to understand the type of fraud that's being perpetrated or making sure that these types of businesses are actually legitimate as they're looking to make credit decisions and provide these companies with lending or funding decisions, these are the types of tools that have been that the team has been creating. Rapid new business formation during pandemic To make sure that we're assessing and helping folks determine the levels of risk that are associated with these businesses. I know we've talked about this in the past, a few times in different conversations, but can you tell the folks tuning in here a little bit about the Credibly origin story I find it super unique and interesting.Ryan Rosett: Oh, absolutely. So my partner and I started the business in 2010. If you think about 2010, it was a contrarian time to start a business. It was coming out of, the Great Recession of 2008/2009, and they were always talking about this double-dip recession, but it was actually an opportune time to start just because small businesses were really looking for access to credit.And what we are is that we're a cash flow lender. So, we look at the cash flow and make decisions and determinations in a very quick manner to provide working capital at an affordable rate for the customer. So that means, it's important to us that the business can sustain the payments that we're providing, and we can maximize the amount of money working capital that we can give them.So it's just something that we're focused on, and we've had the wind in our back for a, I would say, eight years. And then there's something called the pandemic hit, which was like, which, I didn't sleep for, I don't know, four months. But it was a period of time that was really like an interesting time for a small business lender, but then recognizing also that the government money really boosted up the small businesses, and it worked well for alternative lenders like ourselves.Gary Stockton: The pandemic did accelerate rapid digitization, and it does seem like an opportunity for FinTechs to address lending for small businesses digitally. This stat that we were talking about, it's really quite astounding that there were that number of businesses that sprung up during the pandemic.It makes a lot of sense, though, when you consider there were quite a lot of people that were transitioning from maybe a different industry into another industry, home businesses springing up. But with so many new businesses coming online and the impact of cybercrime on small businesses, Dominic, how do lenders know whether or not they are dealing with a real business when they onboard new customers digitally?Dominic DeGuiseppe: Yeah, I think that's certainly a challenge. And I think one of the things that we're looking to answer is, really, three things — is the business real? Is the business active? And is the applicant that's applying for the loan or the type of funding are they actually linked to the business?I think we can certainly answer for that, but I think, since we've got one of the top FinTechs in the space out there, Ryan what is Credibly doing to understand different fraud trends and combat what's happening within the space with fraud?Ryan Rosett: What I can say is that fraud is pervasive right now. And, as we're an online lender, we make decisions in under four hours from app to decision and fund same day. The amount of data alternative data that we're pulling in to make decisions is really quick. And so the risk that there's a fraud application coming through is something that we that you know, I'd say that's largely what we work on.I would say the three largest fraud patterns that we're seeing and you addressed earlier, was an application mismatch. Which is against the verified sources that they listed. And then, we also have just altered documentation associated with the bank statements.And again, that would be something that would be illegal historically, but we're a nonbank lender. And we're just trying to make decisions based on the data that we have. And we want to verify that the applicant is the owner of the business. So those are the types of frauds that we're seeing, I'd say, like a high level and then there are certain things that we do to combat that.So we will call it stipulations to fund. So we may offer to make an offer subject to them supplying additional information. Maybe it's the articles of a corporation. Maybe it's a tax return. And oftentimes, it's not to say whether you're profitable or not profitable, we're looking at who's the owner, who's getting K1s on the tax returns?Those are examples of things that we are looking at. And I know Experian has been an excellent partner of ours in terms of matching and using a number of different data sources that you provide.Dominic DeGuiseppe: How have you seen fraud evolve pre-pandemic to post-pandemic and continue to take shape and take a different shape, from what's been happening as to now?Ryan Rosett: Yeah, that's a good question. So on a pre-pandemic basis today, we're back to the same level of losses. Okay. But the fraud is becoming a little bit more advanced. Okay. Whether it's be it through cyber attacks, whether it's online applications, there's a number of different things that we're working on that we're constantly combating. So it's not it's not something that we put a fix in and then we move away. It's something that we're constantly evaluating, whether it's a submitting partner, or whether we have an affiliate that provides a certain number of lead applications.Those are things that we're constantly measuring to see what the loss rates are, where the fraud is coming from, and then making decisions. So from a pre-pandemic to a post-pandemic, I'd also say that with the PPP, small businesses got a taste of working with alternative lenders through the PPP process, and they became a little bit more comfortable with working with lenders similar to Credibly. So you're seeing like a little bit more comfortability with small businesses having the ability to interface with us and then they're layering in fraud and things of that nature. So it's a constant something we're combating on a daily basis, and it's something that we're thinking about, very often.Dominic DeGuiseppe: Yeah, because when you start to look at it and all the new businesses that are being formed that are coming into the market, working with alternative lenders and FinTech's like yourself, and you guys continuing to shorten the cycle around the app to approval and all the data points that are coming into it. You guys are different than a bank and are able to do those types of things and move quickly. So obviously, with that comes some additional risk; with the FinTech community being tight-knit, how have you been able to benchmark what Credibly is doing against some of the peers that you guys work with in the industry?Ryan Rosett: We have and that's really through public data through asset-backed securitizations; there's reporting relating to the losses that each lender is seeing, of our losses, approximately 10% of our losses we attribute to fraud. The other 90% is, it could be a business that legitimately goes out of business, which happens. So, it's not necessarily fraud. We do benchmark it based on some of our competitors that have asset-backed securitizations and we see the performance in their loss rates and charge costs and things of that nature.Gary Stockton: So, what are you seeing in terms of an amplifying effect on fraud rates with generative AI in the mix and allowing for spoofed content and more access to triangulated private information on business entities?Ryan Rosett: You know, that's a great question. One thing, you're seeing fraudulent IDs. You're seeing IDs that are becoming a little bit more difficult to track and see, because they're creating an identity of someone and they're able to do that through gen AI.So that, that's one aspect. You're also seeing bank statements. We use a number of different bank statements, parsing, and machine learning that looks at these bank statements. It's looking at font type size. There are a number of things when somebody is attributing and oftentimes, sometimes the fraudster is making grave errors also. They're putting data in where data wasn't supposed to be. You're able to detect that really quickly and that's on an automated basis. So that doesn't even touch a human. We see fraud, we kick it out. And, it's declined. So it's a, it's, when we see a, when we fund a fraud application and it's noted as a fraud that we've determined fraud, we then report it we have a, there's a data matching system that we report into so that business owner would never be eligible for. Business financing through an alternative lender. Again,Gary Stockton: Dominic, any closing thoughts?Dominic DeGuiseppe: Yeah, Gary, I would say just in terms of, generally speaking, fraud continues to evolve. There's a number of different things that we're looking at from a business perspective to be able to help our partners. But, Ryan's pointed out a number of those things today, but as FinTechs continue to evolve, fraudsters will continue to evolve and Experian is on our journey to continue to help understand how we can benefit our business partners, making sure that they can combat fraud and keep it out of the business.Gary Stockton: That's great. I think that's a great place to leave today's chat. Dominic, and Ryan, thank you so much for taking time out to share your perspectives on fraud in the commercial space on Business Chat. Thanks for watching, everyone. Related articles:

This post highlights recent commercial fraud insights from Experian and the advantages of taking a multi-layered approach to fraud strategy.

Account takeover fraud is plaguing commercial lenders, we explain how to takle it in its many forms so you can protect small business clients.

Commercial loan fraud is an urgent market issue for lenders working with SMBs, our analysis and recommendations for mitigating the problem.

The Pandemic drove a tidal wave of small business creation, with over 5.4 million new small businesses in 2021 alone, and millions more this year.  Now, the U.S. economy is continuing to change, but becoming more uncertain amid rising interest rates and worries over inflation. With the cost of money rising for small businesses, many are turning to different credit offerings to keep the cash flowing. Application fraud on the rise Some borrowers don’t always have good intentions, and credit issuers struggle to control fraud rates.  If you manage risk for a financial institution, trade credit issuer or just want to understand the persistent wave of fraudulent small business applications you should attend our upcoming webinar. Attend our webinar A Perfect Storm for Business Credit RiskDate: Tuesday, November 29th, 2022Time: 10 a.m. Pacific | 1p.m. Eastern. In this talk, Experian's Fraud Products lead, Li Mao, is joined by Sr. Analytical Consultant Emily Garrett and Brian Stack, Experian's V.P. of Engineering Services, to discuss the fraud problem and what to do about it. Li Mao, Sr. Product Manager, Experian Fraud Solutions Emily Garrett, Sr. Analytical Consultant Manager, Experian Brian Stack, V.P. Engineering Services, Experian We'll cover: New business formation, how to assess younger businessesEconomic pressures on B2B's that you are not yet reading aboutStatistics on the gathering fraud storm3 tips for smooth sailing in your credit operations Register to attend

Experian hosted a commercial fraud trends webinar titled 'Uncovering Undiscovered Fraud Within The Portfolio'. During our session, key Experian experts Dominic DeGuiseppe, Javier Rodriguez-Paiva, and Li Mao, discussed the critical issue of commercial fraud within the financial industry and how it's often misclassified, leading to significant impacts on businesses. The speakers emphasized how businesses often underestimate their commercial fraud issues. Misclassification happens when business operational losses are erroneously categorized as credit losses. Businesses come to realize this when they delve deeper into the instances of credit misuse by fraudsters. Javier Rodriguez-Paiva argued that commercial fraud rates remain concerningly high, especially in small business lending and credit facilities, which are attractive magnets for criminals and credit abusers. This ongoing situation is worsened by lenders often lacking the specific capabilities to detect and manage fraud. In response to these challenges, Experian offers solutions aimed at rapid and early detection of different types of fraudulent activity. As Li Mao explained, the goal is to design solutions that allow businesses to identify risk quickly at the time of account opening, using advanced analytics and substantial data sources. Experian's solutions aim to ensure businesses can understand the different commercial fraud classifications and treat each case uniquely. By identifying the fraud type, be it first-party, third-party or synthetic ID fraud, appropriate responses can be triggered for each application. During the webinar, Li Mao introduced Experian's Multi-Point Verification solution, which verifies application information against trusted sources, allowing businesses to be confident of the identity of the business they are dealing with. This solution incorporates credit, fraud, and identity verification within a single tool. Javier Rodriguez-Paiva concluded by emphasizing the need for a more comprehensive risk management framework. Lenders could benefit from combining traditional credit scores with fraud-screening tools to provide a 360-degree view of a potential customer's risks. Such a multi-dimensional analysis can significantly improve fraud detection and prevention. The webinar highlighted Experian's commitment to supporting businesses in managing and mitigating prevalent commercial fraud challenges. While identity theft and credit abuse fraud are expected to increase, Experian's new strategies, enhanced verification tools, and advanced analytics solutions offer a promising shield against fraudulent activities. Click below to watch this webinar on-demand.

As the economy continues to recover, commercial service providers have a significant opportunity to expand their market share by growing their business and commercial portfolios through new customer acquisition. Compared to consumer relationships, which typically carry a more limited number of accounts, business customers offer the opportunity for a more expansive relationship, with the ability to onboard the customer into multiple accounts and products. A  relationship with a business customer may start with a single checking account, and if the customer is pleased with the service and experience, that relationship may blossom with the customer’s adoption of additional products and services including telephone lines and devices,  business credit cards, loans and lines of credit for business needs, software, and treasury management products, among many others. To gain more share of the wallet, commercial service providers must offer an excellent digital customer experience as the cornerstone of a successful customer relationship, as the market becomes more and more competitive.  Business customers are quickly transitioning their operational processes to be digital-first, and they expect vendors and suppliers, across many industries especially financial institutions, to be a step ahead in offering digital account opening and support. How fraud tools help the customer experience Commercial service providers must continuously innovate their operations and account onboarding strategy to stay competitive and shut out cybercriminals.  A robust fraud prevention strategy should help to reduce losses and operational costs. By prioritizing fraud tools that enable automation, commercial service providers can reduce costs by eliminating labor-intensive processes. The challenge for service providers becomes how to effectively manage that trade-off: creating a technology-enabled process that accurately disrupts fraud attempts while not inconveniencing and adding undue friction to legitimate customers. For example, fraud tools that activate during the onboarding phase can help service providers offer a better customer experience, allowing low-risk accounts to pass through with minimal friction while applying safeguards to slow down applicants in the danger zone for further review. Many commercial service providers are unaware of the amount of undiscovered fraud that lies within their customer portfolio. Undiscovered fraud is a subset of your approved customers who represent a risk of future fraud.  These cases exist because many legacy fraud tools take a one-size-fits-all approach to screening for fraud. But these customers are at a higher risk for future fraud occurrence.  Now, advanced fraud prevention improves the experience for the majority of customers by enabling a less intrusive application process, reducing friction within the customer experience, and increasing operational efficiency. Preventing fraud with an integrated framework of tools There are three major types of application fraud: First-Party Fraud —the perpetrator opens an account without an intent to repay the creditorThird-Party Fraud — the perpetrator opens an account under someone else’s identitySynthetic Fraud — the perpetrator uses stolen information and creates a fictitious identity with pieces of real information, in order to carry out fraud. Tailoring your approach to specific fraud makes for a better customer experience and bottom-line savings. However, identifying and remediating all types of fraud requires a cascade of tools, experts, and data sources. Experian’s commercial fraud suite can be customized within a commercial service provider’s operational workflows to address each form of fraud with the correct treatment.  Experian’s tools are supported by the most robust consumer and business data available, in addition to new, third-party sources, giving commercial service providers the ability to gain efficiency through a single partnership, as opposed to manually integrating data from multiple disparate tools and sources. One way we have created efficiencies for commercial service providers is by blending consumer and business data through our next-generation business verification solution Multipoint Verification. It helps clients cross-reference application information with robust databases backed by blended bureau data and new, third-party data sources. With Multipoint Verification, commercial service providers can leverage practical intelligence gathered from signals that describe the validity of attributes like the applicant’s phone number, professional social media profiles, historical employment information; and business information like a business’ web domain, email addresses, mailing address, industry classification, corporate linkage, Tax ID, and much more. Once the business owners have been verified, providers can score their applicants with Experian’s First Party Fraud Score, a new-generation blended predictive scoring model designed to identify first-party fraud risk or the likelihood of a first payment default within the first 6 months of account opening and to identify credit bust-out scenarios. Growing business customer bases with fraud prevention tools Customer expectations of online applications have changed in recent years, and your lower-risk good customers can enjoy that lower friction experience while higher-risk applications get more scrutiny. Focusing on the customer experience in how you screen for fraud can be a great growth opportunity. By using a comprehensive suite of tools such as Experian’s Commercial Entity Fraud Solutions, which specifically addresses each fraud type and applies the right type of friction when needed, your firm can drive operational efficiency that reduces risk and cost. Learn more about Multipoint Verification