Lending fraud attempts more than doubled in 2022

By: ameer@trustedteam.com

There was an uptick in lending fraud last year, a study surveying over 140 small and midsize financial institutions found. Participants in the report, including banks, credit unions, and fintechs, believe this trend will continue to grow in 2023.

Eighty-four percent of respondents to the LexisNexis survey said that cases of fraud increased at an average of 14.5% year-over-year, compared to a 6.9% increase reported a year prior.

Factors contributing to this development include a continued rise of bogus business credentials, market economic uncertainties and the perception that small and midsize businesses are an easier target than consumers and online or mobile channel transactions, the report said.  

There is a correlation between economic uncertainty increasing and clients reporting fraud attempts, Tom Hunt, director of business risk strategy at LexisNexis Risk Solution said. 

“Economic uncertainty will drive a number of decisions that a lender will make about their business [such as trimming costs] by shrinking the workforce that combats fraud or invest less in anti-fraud technology,” Hunt wrote in a statement. “This could mean taking steps towards improving the customer experience and reducing friction, which could man reducing protections in place to deter fraud.”

This trend is expected to carry over into this year as the economy slows.

The LexisNexis report also found that as fraud has grown, so have lending fraud losses for businesses surveyed, which represented up to 15% of overall losses for the institutions surveyed. 

Close to 19% of lending fraud losses in 2022 stemmed from a post-pandemic acceleration of digital transactions. Out of the institutions participating in the survey, fintechs experienced the highest fraud expenses, LexisNexis’ survey noted.

Year-over-year, small to midsize financial institutions reported submitting more than half of lending applications via remote channels, such as online or mobile applications. As these channels have grown, fraud attempts have followed suit, Hunt said.

As a result, those surveyed expressed the desire to invest in training, hiring more personnel and adding more fraud detection technology such as geolocation and behavioral biometrics. But barriers remain, such as training staff, competing budget priorities and cost of solutions.

“The study shows that lenders using a multi-layered anti-fraud approach that integrates fraud prevention measures with digital channel operations can be more effective at detecting and mitigating fraud and its costs early,” said Hunt. “Best practice fraud detection and mitigation involves a layering of complementary solutions to address unique risks from different channels, payment methods and products to address every touchpoint across the customer journey.”

A separate report found published in April found that real estate wire fraud is on the rise, with nearly three-quarters of the 2022 requests for help from wire fraud protection company CertifID coming from consumers, primarily resulting from real estate-related scams.

By type of request received, 41% were from buyer cash-to-close transactions, 24% involved mortgage payoffs, and 11% involved the net proceeds sent to the seller.

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