Experian is the first company offering a solution to fight synthetic identity fraud that is integrated into the credit profile with market-leading assurance.
To gain an insight, Digital Journal caught up with Kathleen Peters, Chief Innovation Officer for Experian’s Decision Analytics business in North America.
Digital Journal: Has COVID-19 seen an increase in fraud?
Kathleen Peters: In economic downturn periods, we normally see high volumes of fraud, and this year has been the same. With so many transactions moving online due to the pandemic, we are seeing fraudsters take advantage of this situation. According to the FTC from January to early November 2020, consumers have reported losing a total of more than $176 million to COVID-19-related fraud.
We anticipate that we’ll continue to see an uptick in third-party fraud, specifically account takeover. This will be driven by the sheer number consumers, especially first-time users, that have been forced online, and who are now managing their accounts digitally. Consumers that may be less tech-savvy are more vulnerable to phishing attacks and social engineering schemes or using out-of-date software.
First-party fraud is on the rise, too. Some consumers may opportunistically look to escape personal credit issues that arise during these unprecedented circumstances. The line between behaviors of financially stressed consumers and fraudsters will blur, making it more difficult to tell who is a criminal and who is an otherwise good consumer that’s under pressure. Forced to rely on credit for everyday expenses, some legitimate borrowers may take out loans without any intention of repaying them, which will impact businesses’ bottom lines.
Businesses should also prepare to see an increase in synthetic identity fraud from opportunistic fraudsters who want to take advantage of offerings given to consumers from the stimulus package or new financing offers. Criminals tend to use economic volatility as a way to hide the fact that they’re building up credit before busting out.
DJ: What are the most common forms that fraud takes?
Peters: Fraud is typically classified as one of two types—third-party fraud and first-party fraud. Third-party fraud occurs when a fraudster steals an individual’s identity and/or account information to impersonate them and use the account without the accountholder’s consent. In this instance, there’s a clear victim who is required to verify, and often even sign affidavits, attesting that fraud has occurred. The result is that the impacts of third-party fraud, in terms of dollars, frequency, and tactics are much more clearly understood. For those challenged with the responsibility of managing fraud, this clarity makes it somewhat easier to identify which treatments will find the fraud and how they will affect ‘good’ customers.
First-party fraud involves a person making financial commitments or defaulting on existing commitments using their own identity, a manipulated version of their own identity or a synthetic identity they control. Since the fraud involves the owner of the identity, there is no ‘victim’ to report fraud, confirm fraud or to cooperate in any subsequent investigation. Without a victim, institutions can’t easily differentiate between first party fraud, which is deliberate theft, and credit risk in which the person intends to but cannot meet the payment obligation. First party fraud is often written off as a credit loss and lenders need to set aside reserves to offset them.
DJ: What is synthetic identity fraud?
Peters:Synthetic fraud allows criminals to steal money from creditors who extend credit based on a fake, manufactured identity. According to McKinsey, synthetic identity fraud is the fastest growing type of financial crime in the U.S., accounting for 10 – 15 percent of lender losses each year. To create synthetic identities, fraudsters usually use a combination of real and fake information, such as names and social security numbers, to create “Frankenstein IDs,” which are then used to obtain credit. Fraudsters often utilize social security numbers from children, the elderly, and others, combining them with additional mismatched identity data elements to apply for credit.
Fraudsters will typically try multiple times to open an account or credit line with a newly created synthetic identity, at various institutions, until one gets approved. One of the easiest paths for criminals is to add the identity to an existing credit account as an authorized user. Once established, the synthetic identity can be used to open additional fraudulent accounts, maxing out credit lines, before busting out.
DJ: What are the main impacts on businesses?
Peters:Major lender losses are the main impact of synthetic identity fraud on businesses. Experian data shows that up to 15% of credit card losses are due to synthetic identity fraud. McKinsey states that synthetic identity fraud is the most rapidly growing type of financial crime in the United States and Juniper Research predicts that by 2023, it will fuel $48 billion in annual online fraud losses.
DJ: What are some of the solutions to counteract this threat?
Peters:The potential losses that can result from synthetic identity fraud highlight the need for innovative solutions to combat it. In the past, there hasn’t been a common industry-accepted definition for synthetic identity fraud. At Experian, we’ve created a standard set of criteria to help the industry identify, categorize and reduce the associated fraud. Through our new offering, Sure Profile, we use machine learning models to analyze various trade and identity behaviors, isolate traits and predict synthetic identities. The models also look at historic information regarding the identity’s establishment, and relationships between this identity and others. Solutions like this, layered with other first-party and third-party fraud detection techniques, are the best defense.
My advice to lenders right now is to get fraud prevention platforms and strategies in place immediately to alleviate the impact that COVID-19 volatility and fraud schemes could have on their portfolios in the very near future.
DJ: What is Experian Sure Profile?
Peters:To address the rising threat of synthetic identity fraud to the credit and lending industry, we announced Sure Profile, which validates consumer identities, detects profiles that have an increased risk for synthetic identity fraud and helps cover losses resulting from synthetic identity fraud for assured profiles. Experian is the first company with an offering to combat synthetic identity fraud that is integrated into the credit profile with market-leading assurance.
This new offering provides a composite history of a consumer’s identification, public record, and credit information, but also determines the risk of synthetic ID fraud associated with the consumer in review. It helps lenders identify likely synthetic identities, thereby enabling them to take extra steps before issuing loans to potentially fake individuals. When a lender initiates a consumer credit application, or a “credit pull,” Experian in real-time will return a first of its kind enriched credit profile flagging identities that pose an increased risk that they are synthetic. In this way, Sure Profile is helping the lender streamline the applications of real consumers, knowing this person’s identity is assured by Experian.
Experian’s Sure Profile utilizes machine learning, AI, and the nation’s most comprehensive and proprietary data to differentiate between authentic identities and potentially risky applicants so lenders can increase application approvals with more confidence and less risk.
