Month: October 2023

Let’s just agree on one thing – digitization has changed the financial sector for the good. No more waiting hours, no more visiting brick-and-mortar locations, and the ability to do things instantly.

But, there’s a downside to doing everything digitally. Without face-to-face interaction, businesses become open to application fraud. As banks can’t see the person that’s behind the screen, fraudsters can easily commit fraud. 

This is a challenge that financial institutions, realtors, creditors, and other businesses face every day. Even a miniscule miscalculation on the business’s end can lead to huge losses. 

Fortunately, there are ways to protect businesses against application fraud. In this article, we’ll go over everything about application fraud.

What is Application Fraud?

Application fraud is when an applicant submits false information to a business for approval. This can include misrepresenting personal or financial information, including:

• Falsifying employment history
• Inflating income
• Providing fake ID documents
• Misrepresenting credit history

The biggest example of application fraud is when an individual for credit cards, loans, or other products. A fraudster would use fake information about their financial information, employment, or further relevant details. 

If everything goes the fraudster’s way, they will have access to a credit card or a loan that they can use to conduct other financial frauds.

How do fraudsters get access to the fake information? Well, just in 2023, over 4.5 billion personal information records were stolen. 

Technology has made it easier than ever to steal personally identifiable information.

How is Application Fraud Committed?

Consumers want instant financial services. So, banks, credit unions, and other financial institutions offer digital products to keep up with customer demands.

Processing online applications puts businesses at a risk of being defrauded. When a person applies for a credit line or loan, they expect a seamless process. To make this happen, companies offer fast approval times. These fast approval times lead to mistakes and invite fraudsters to commit third-party fraud.

When committing third-party fraud, criminals will fill out applications under someone else’s identity trying to trick the organization. If a fraudster has enough information at hand, they can trick the systems. 

By the time the company or the individual figures out the fraud, it’s too late. Because of digitization, criminals can submit fraudulent information to as many companies as they want. This is only possible because of advanced tools like bots, cloud infrastructure, and virtual machines.

This is likely why loan application fraud is growing.

Common Methods Criminals Use for Application Fraud

There are a number of ways scammers use to commit application fraud. One of the most common ways is using synthetic identities.

It’s challenging to identify the type of fraud when businesses allow online application submission and application of ID documents. But how do scammers collect this personal information and commit application fraud?

1. Breaching Databases

Data breaches happen to businesses of all scales. Some happen intentionally, while others happen by accident. Accidents such as an employee can create an insecure password. Or leave the password at a place where anyone can access it. 

It’s highly common for data breaches to happen when hackers blatantly target an entity to breach their database. Fraudsters use a number of technologies to break into a company’s database. They often use bots that insert millions of variations of a password to brute force a password. 

Once a data breach happens, millions of data records can be stolen. Common data includes:

• Names
• Date of birth
• Addresses
• Phone numbers
• Account details

2. Targeting Call Centers

The Internet isn’t the only way criminals are stealing identities. One of the second most used methods is using call centers. Unfortunately, voice isn’t enough to determine someone’s identity, making it another easy target for fraudsters.

As there’s no way to detect synthetic identities or fraud patterns, criminals can easily use it to their advantage. 

3. Intercepted Mails

Intercepting emails are more sophisticated than stealing envelopes from mailboxes and hoping to grab something valuable. Criminals today use USPS informed delivery while applying for credit cards. This is a service that USPS offers to allow users to track mails and packages before they are delivered.

This notifies the scammer when the credit card will be delivered so they can snatch it before the legit customer has a chance to see it. 

4. Using Cloud Infrastructure

Criminals also use virtual spaces to commit identity theft and application fraud. This includes using the same cloud services businesses use daily. Fraudsters use the cloud to run automated scripts and bots to conduct large-scale fraud attacks.

Bots can also be used to brute force attacks by hacking into accounts by entering different variations of PINs and passwords. It’s not uncommon for fraudsters to search for available credentials. This is when fraudsters use a collection of personally identifiable information.

How to Detect and Prevent Application Fraud?

1. Security Measures for In-House Personnel

Employees are the first line of defense against fraudulent attempts, so they should be educated about fraud applications. To detect and prevent application fraud, businesses should educate employees on:

• Common areas of fraud
• Scenarios where fraud happens the most
• Anti-money laundering training for our team
• Third-party verification of data
• Verify incorporation documents
• Verify underwriting data with third-party vendors

2. Machine Learning Solutions

Artificial intelligence and machine learning are revolutionizing the industry. AI and ML technologies can make it possible for companies to detect and prevent various types of fraud. Financial institutions use rules engines and a mix of supervised and unsupervised machine learning.

But these technologies become outdated, so you need solutions that can evolve. If solutions are not updated, engines and rules-based systems can become susceptible to false positives.

3. AI for Application Fraud Detection

Financial institutions also use AI-based document verification tools for fraud detection. Some AI solutions use existing data sets to verify information provided by customers.

This offers more efficient and ultimately automated document fraud leading to fewer loan write-offs. Using AI for fraud detection is excellent for organizations that process dozens or even thousands of applications every day. This leads to a lower risk of fraud and improves user experience.

Conclusion – Fight Application Fraud

Digital transformation is an ongoing trend for modern businesses. Organizations are becoming quick to adopt new technologies to streamline operations, improve customer experiences, and boost competition.

But as businesses increasingly rely on interconnected devices, the risk of fraud is also increasing. Application fraud poses huge risks to businesses, which can lead to huge financial and reputation losses.

Businesses should rely on all available methods such as DIRO to prevent application fraud. DIRO document verification verifies documents from the issuing source to prevent the use of fake and stolen documents. This helps businesses improve the entire onboarding process and reduce user experience.

The holiday season is upon us, with Black Friday and Cyber Monday just around the corner. As the festive shopping rush begins, it’s important to stay vigilant against potential fraudsters who are gearing up to exploit the season’s hustle and bustle with different holiday shopping fraud.

Whether you’re a retailer hiring seasonal workers or a shopper making wish lists, staying informed about common scams can help you safeguard your financial security. 

Here are five prevalent scams that are expected to show up unexpectedly this holiday season.

5 Ways to Protect Against Shopping Scams?

There are some basic steps everyone can follow to prevent holiday shopping fraud. Without proper vigilance, it’s almost impossible to distinguish between legit sellers and scammers.

1. Vigilance Against Phishing Attacks

Phishing attacks are the biggest concern that intensify during the holiday season. At this time of year, fraudsters often deploy emails or text messages designed to lure recipients into sharing personal information or clicking malicious links.

These messages may appear to come from legitimate businesses and offer enticing rewards or promotions for minimal effort.

For instance, fraudsters may exploit the increase in package deliveries by sending fake tracking notifications or emails that claim there’s an issue with a shipped package. The end goal is to prompt recipients to enter sensitive information.

To defend against these scams, it’s crucial to exercise caution and critically evaluate suspicious offers. Ask yourself whether a legitimate organization would request payment details or personal information through such means. 

If in doubt, reach out directly to the business using verified contact information to confirm the legitimacy of the message.

2. P2P/Zelle Scams: Be Wary of Unsolicited Calls

Scams involving peer-to-peer (P2P) payment apps like Zelle are an ongoing concern. Use of these apps tends to spike during the holiday season. Fraudsters love to impersonate banks or credit card companies, making unsolicited phone calls to victims. 

They may claim there’s been fraudulent activity on the victim’s account and instruct them to transfer money to a purportedly secure account—owned by the fraudster.

In addition, fraudsters may manipulate consumers into making payments through P2P apps outside the legitimate shopping websites. 

For example, they might pose as sellers on popular marketplaces and entice buyers to make direct payments through P2P apps to evade fees or secure exclusive deals. 

To avoid falling victim to these schemes, stick to the official payment methods offered by trusted websites and never make direct payments to individuals.

3. Guarding Against Account Takeover

Account takeover scams, a time-honored tactic, continue to pose threats during the holiday season. In these scams, fraudsters gain access to victims’ accounts and exploit their credentials to make unauthorized transactions, often targeting e-commerce and retail accounts.

Be vigilant for notifications about unusual orders, shipping addresses, or other account changes. Amid the holiday rush, it’s easy to overlook such notifications, so be proactive in monitoring your accounts.

If you suspect any unauthorized activity, act promptly to secure your account and prevent further fraudulent actions.

4. Promotion Abuse: Don’t Fall for Too-Good-To-Be-True Offers

Holiday sales often tempt consumers with irresistible promotions. Scam artists capitalize on these offers, exploiting promotions that involve referrals, sign-ups, or Buy Now, Pay Later (BNPL) services.

They may open fraudulent accounts to cash in on these promotions or leverage bots to automate the process. Be cautious if you receive confirmation emails about new accounts you didn’t create.

While you might not directly suffer financial losses, the prospect of fraudsters using your personal information illicitly remains a concern.

5. Vigilance Against Fake Websites and Seller Accounts

Fraudsters deploy fake websites and social media accounts to impersonate legitimate businesses, thereby enticing users into divulging personal information or downloading malware. 

These fake websites are designed to closely mimic authentic ones, even appearing in search engine results and sponsored ads. Similarly, on e-commerce platforms like eBay, fraudsters create counterfeit seller accounts to trick consumers into paying for nonexistent items or services.

Exercise caution while clicking on links in emails or social media posts to mitigate these risks. Verify the legitimacy of websites before entering personal information. If a deal seems too good to be true, it’s wise to approach it skeptically.

Secure Your Shopping Experience

While the holiday season offers joy and celebration, it also presents an opportunity for fraudsters to exploit unsuspecting consumers.

To protect yourself, remain vigilant, and adopt a skeptical approach to unfamiliar offers or communications. Staying informed about prevalent scams and following best practices can ensure that your holiday shopping remains safe and secure.

Remember, your awareness and proactive response against frauds are powerful tools in thwarting fraudsters’ attempts and preserving the joyous spirit of the season.

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