But this is fairly basic stuff. Ideally, lenders in this day and age should be using more advanced technology to find and then eliminate fraud. There is a massive array of tools out there that are really effective at tack- ling the issue. We haven’t got the space here to go into any great detail, so let’s just look at one area: Device intelligence. Often the same ‘phone will be used to make multiple loan applications with a range of lenders. But the ‘phone will have a unique ID in cyberspace that can be identified with the right software. So, despite a fraudster phoning from China and cloaking to appear local, the device can be red flagged and the loan applica- tion turned down. Such tech can detect a range of suspi- cious features, for example whether an English-language device suddenly has a lot of traffic in a different language. A device may always have been linked to Commonwealth Bank, but then a range of different banks are using it, suggest- ing that it is compromised. Beyond specific tools, Open Banking in general is itself opening up a new frontier in fraud detection for lenders wanting to reduce their losses to crim- inal activity. It allows algorithms to fine-tune lenders’ systems so they can better detect anomalies.
If a consumer is using Open Banking, a comprehensive profile will be built up of their real-time activity over a period of months. Anything unusual will be noticed immediately. Over time, this profile will become more nuanced and better able to ID illegal transactions. For example, if someone tries to buy 10 TVs on finance (with the intention of selling them online for cash), Open Banking would be able to stop the process by preventing the second TV purchase from going through. There is a wide array of tools out there for lenders to use that is really effective at driving down their fraud bill. However, the issue with all technology is that it usually comes with a cost, and if you don’t think you have a fraud problem in the first place, then you can’t really build a case for spending money on reducing it. This head-in-the-sand approach is ob- viously short sighted. The only way to approach such spending is to work out what proportion of your bad debt is fraud, and then do the maths. If some software can get rid of 80% of your fraud and thereby save say $0.5m (which feeds back to the bottom line), there is a convincing case for spending say $20,000. I have enough experience of the in- dustry to know that you can never do
enough. The problem is much bigger than it used to be and you have always got to try and stay one step ahead of the game. I remember banks saying 20 years’ ago that the new chips then appearing on debit and credit cards were going to stop card fraud in its tracks, but within months of the new cards’ introduction they began experiencing card ‘skim- ming’ for the first time. You really should never underestimate the issue. Presenting an intelligent analysis and costing of your fraud problem to the board is the least you should be doing.
Andrew Tierney is a credit risk professional based in Queensland. Andrew.tierney@balanceriskmanagement.com.au
+61 (0) 8946 79555 | www.lendingmetrics.com/au
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