Making the most of limited resources in fraud prevention

by Matt Ehrlich 3 min read July 16, 2013

I don’t know about your neighborhood this past Fourth of July, but mine contained an interesting mix of different types of fireworks. From our front porch, we watched a variety of displays simultaneously: an organized professional fireworks show several miles away, our next-door neighbor setting off the “Safe and Sane” variety and the guy at the end of the street with clearly illegal ones. This made me think about how our local police approach this night. There’s no way they can investigate every report or observance of illegal fireworks as well as all of the other increased activity that occurs on a holiday. So it must come down to prioritization, resources and risk assessment.

When it comes to fraud prevention, compliance and risk, businesses — much the same as the police — have a lot of ground to cover and limited resources. Consider the bureau alerts (aka high-risk conditions) on a credit report. They’re an easy, quick tool that can help mitigate risk and save money cost-effectively.

When considering bureau alerts, clients commonly ask the following questions:

  • How do I investigate all of the alerts with the limited resources I have?
  • How should I prioritize the ones I am able to review?

I usually recommend that, if possible, they incorporate a fraud risk score into their evaluation process. The job of the fraud risk score is to take a very large amount of data and put it into an easy-to-understand and actionable form. It is built to evaluate negative or risky information (at Experian, this includes bureau alerts and many other items) as well as positive or low-risk information (analysis of address, Social Security number, date of birth, and other current and historical personal information). The result is a holistic assessment rather than a binary flag, which can be tuned to resource levels, risk tolerance or other drivers.

That’s always where I start. If a fraud score is not an option, then I suggest prioritizing the alerts by the most risk and the frequency of occurrence. With some light analysis, you’ll typically see that the frequency of the most risky alerts is often low, so you can be sure to review each one — or as many as possible. As the frequency of occurrence increases, you then can make decisions about which ones to review or how many of them you can handle.

For example, I worked with a client recently to prioritize high-risk but low-frequency alerts. Almost all involved the Social Security number (SSN):

  • The inquiry SSN was recorded as deceased
  • The report contained a security statement
  • There was a high probability that the SSN belongs to another person
  • The best on-file SSN was recorded as deceased

I would expect other organizations to have a similar prioritized risk-to-frequency ratio. However, it’s always good (and pretty easy) to make sure your data backs this up. That way, you’re making the most of your limited resources and your tools.

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When a credit view and a fraud view are generated separately, they must be reconciled instead of read together in the same instant. Every handoff is a place where a decision slows down and a signal gets missed. It's why a fraud pattern that would be obvious next to the credit file often surfaces only after the funds are already gone. Fragmentation also makes it harder to optimize lending strategies over time. When data, analytics and decisioning are disconnected, credit unions have less visibility into what's working, what's changing and where strategies need to be adjusted. An integrated decisioning ecosystem closes those seams by design, with credit, fraud and lending strategy running on one platform and accessed through a single Application Programming Interface (API). Identity and compliance capabilities can be an integrated decisioning flow. The data doesn't need to be reconciled after the fact because it was never separated in the first place. Stop overengineering, start removing friction When decisioning underperforms, the instinct is to build something more custom: a proprietary model, tighter segmentation, more configuration.  Custom modeling has its place for institutions with the scale and data to justify it. But often, for small or mid-sized credit unions, the bigger opportunity is a flexible decisioning strategy that uses a strong, continuously refreshed model. This shouldn't be either/or. The right approach gives credit unions a strong decisioning strategy today, with the ability to introduce more customized analytics and modeling as their needs evolve.  The same principle applies to strategy management: credit unions can gain greater control through self-service capabilities as they build a more sophisticated data science team.   That kind of flexibility is important as credit unions modernize their decisioning infrastructure. Research surveying more than 2,000 senior credit risk and fraud decision-makers across 11 countries found that organizations investing in unified platforms and modern infrastructure are moving faster and realizing the greatest Return on Investment (ROI).   As their needs evolve, credit unions can adjust decisioning strategies without introducing another layer of technology or relying on third parties to make every change. Until self-service is the right fit, choose a partner that understands what makes your credit union’s membership and risk appetite different from others.  Same member, same afternoon, faster answer Consider a credit union growing its auto and personal loan originations.  A member applies for an auto loan on Saturday afternoon. Credit data, identity and fraud signals are read together in a single real-time pass instead of separate reviews:  Most applications resolve immediately, approved or declined based on a more comprehensive view of the applicant. A smaller number are flagged for quick step-up verification and cleared within minutes. Only genuinely ambiguous cases reach an underwriter, who is working from one complete picture instead of reconciling multiple signals. The member has an answer before the weekend is over. The credit union books the loan before competitors even open on Monday. Built to scale This kind of process holds up today. However, the better test is whether it holds up eighteen months from now when application volume has grown, new products are live and the data flowing through the system looks nothing like it does right now. Future-proofing isn't only about handling more volume. It's about having room to be nimbler and make adjustments as quickly as the market changes. A credit union that relies on standard models within a decisioning strategy may want more customized analytics and greater control over its strategies tomorrow. 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