Regulations, compliance and overall risk management place a significant operational burden on financial services. Online lenders are no different. You have to comply with multiple regulatory requirements, and you are- like any other financial service- very susceptible to fraud. If you want to prevent and reduce loan application fraud, your strategy and fraud detection system should include a combination of identity verification, account onboarding protection, and account monitoring. In this post, we’ll explain how identity verification and Know Your Customer processes are related, and how you can expand them for better fraud coverage. We’ve also provided specific recommendations for identity verification security tests, and account origination protection strategies that can help you prevent fraud during the loan application process.

1. Prevent
Loan Application Fraud
HOW TO:

2. I. The Challenges & Opportunties
in KYC for Online Lenders
II. 8 Identity Verification Tests to Prevent Loan
Application Fraud
III. 4 Strategies to Prevent Lending Fraud with Account
Origination Protection
In this presentation, we’ll explain:

3. Challenges
Know Your
Customer
(KYC)
Opportunities
The methodology for assessing an
identity online is less secure than
most in-person interactions, and
documents can be easily forged
online.
Increasing scrutiny increases
drop-off rates of applications, which
can then negatively impact the
performance of your business
model.
However, when performed
correctly, activities during the KYC
process can also help you flag
serious issues like identity theft,
and help you protect your business
from fraud.
The key is to strike a balance
between mitigating risk, and
adding friction that causes
customer abandonment.

4. 8 Identity Verification Tests
to Prevent Loan Application Fraud
1. Identity Document Verification
The following Know Your Customer (KYC) security checks are the most commonly
applied tests used on the IdentityMind platform to better verify a potential
borrower’s identity during the onboarding process:
This is accomplished by analyzing a picture of the image of the
document, and verifying its authenticity. Taking the picture can be
included as part of the onboarding process with the device camera,
on either a PC or Mobile device. This is more reliable than
requesting an already uploaded picture, because a fraudster may
have already stolen such photos from the victim.
This slideshare is a summary of an in-depth guide on our blog.
To see the full post, click here.

5. 8 Identity Verification Tests
to Prevent Loan Application Fraud
2. Identity Data Validation
This is the verification of a match between the submitted information such as
name, address, phone, Social Security Number (SSN), tax ID and date of birth
against public and private databases. It is possible to extract this data from an
authorized document, and compare that extracted data against the provided
information, as well as public and private databases.

6. 8 Identity Verification Tests
to Prevent Loan Application Fraud
3. Bank Account Ownership
The goal of this test is to verify a
client actually has access to the
bank account presented during the
onboarding process. This validation
can be done by having the client
provide the bank’s credential details,
or via micro-deposits to the account.

7. 8 Identity Verification Tests
to Prevent Loan Application Fraud
4. “Out of Wallet” Questions
In “Out of Wallet” Questions- which can also be
referred to as, “Knowledge Based Authentication”
- the system matches an identity based on
submitted information, and provides questions
that should only be answered correctly by that
person. These questions are presented in a
multiple choice format, and the user must choose
the right answer. Common examples of these
questions include previous address, names of
relatives, place of birth, vehicle information etc.
?

8. 5. Identity Risk Scoring
8 Identity Verification Tests
to Prevent Loan Application Fraud
This test compares submitted information with databases of stolen attributes and
heuristics, providing you with a risk score based on the likelihood of the given
identity being forged using compromised information.

9. 8 Identity Verification Tests
to Prevent Loan Application Fraud
6. Out of Band Phone Verification
Out of Band verification allows you to assess in real-time whether the presented
phone number is indeed in the possession of the identity being evaluated. In some
geographies, you can even verify whether the phone number and subscriber data
match.

10. 7. Social Media Analysis (feature in-roadmap)
Social Media analysis examines social network information to identify risk
conditions that may indicate the identity in question is fake, or presents enough
risk indicators to require further vetting. This is especially useful if the onboarding
process is tied to social network accounts.
8 Identity Verification Tests
to Prevent Loan Application Fraud
!

11. 8. Video Conversation (feature in-roadmap)
In some countries, you are required to have a personal conversation with the
potential client. This can be accomplished by embedding a video chat plugin to
perform a video conference with the potential client.
8 Identity Verification Tests
to Prevent Loan Application Fraud

12. Beyond Identity Verification -
4 Strategies to Prevent Lending Fraud
The last section showed how KYC tests can play a role in fraud prevention in
addition to fulfilling AML compliance requirements. This next secion explains the
other pieces to an effective fraud prevention program.
The following strategies- gathered from real use cases with our clients- describe
some of the ways you can prevent loan application fraud during the onboarding
process using our platform:
1 2 3 4

13. 4 Strategies to Prevent
Lending Fraud
1. Leverage Industry Data
Fraudsters tend to reuse stolen identity data
across businesses in the same industry. If a
fraudster is able to acquire a loan from one
lender, they will attempt to acquire a loan using
the same information at a different online
lender.
The IdentityMind platform shares fraudulent
data in real-time, alerting you when fraudsters
recognized by other online lenders are applying
for a loan at your institution. The relevance of
industry data has been demonstrated
repeatedly as fraudsters focus on a particular
industry.

14. 4 Strategies to Prevent
Lending Fraud
2. Leverage Your Own Data
We enable clients to seed the IDM system with historical
data, including your watch lists, black lists and rejected
users.
Our system automatically adds the attributes of rejected
applications to a watch list, and alerts you when they appear
as part of a new application. This allows you to easily identify
recurrent users trying to hide their previous attempts.
The system highlights these “watched” attributes even when
hidden under several layers of transactions (what we call
“degrees of separation”). Similarly, and perhaps more
important, is when this reveals new applications connected
to entities on your black list.
!
!

15. 4 Strategies to Prevent
Lending Fraud
3. Common Attributes Outside Identity Data
One of our clients configured a rule that flagged new loan
applications attached to bank accounts already
associated with another identity.
This rule detected fraudsters who had passed all identity
verification security tests, and had even verified
“ownership” of the bank account.
These fraudsters had used different devices, but the
same bank account. The loan applications were then
rejected, and the fraudsters attempted another
application using a different bank account. However
those attributes were already tainted from the previous
process, and they were repeatedly denied for new loans.

16. 4 Strategies to Prevent
Lending Fraud
4. Geolocation Risk Analysis
Our clients benefit from our expertise in eCommerce
fraud prevention, specifically with risk analysis based
on geography, distance between the location of the
potential customer and their billing information, and
more.
Location is assessed for all users regardless whether
they are accessing your website from a computer or
mobile phone. Our platform can connect to Mobile
Network Operators and assess the location of the
subscriber, take latitude and longitude from the device
itself, or rely on the true IP address of the computer,
removing proxies in between.
!

17. Final Thoughts
The combination of KYC and fraud frevention techniques during account origination
are a much better solution than just one or the other. The more diverse your
protection is, the better the overall results.
Click below to learn about how our new ONBOARD program is
helping online lenders reduce fraud losses AND streamlining their
onboarding process.