According to a LexisNexis Risk Solutions
Study, Digital Channels See Biggest Increase in SMB
Lending Fraud
ATLANTA, Sept. 5,
2024 /PRNewswire/ -- Small and medium-sized business
(SMB) lending fraud has
increased by a double-digit percentage year over year, with most
lenders expecting fraud levels to
continue to increase in the coming months, as revealed by the
latest edition of the LexisNexis® Risk Solutions Small and Midsize
Business Lending Fraud Study.
Overall, more than 80% of respondents said that SMB lending
fraud has risen by nearly 14% over
the last year, even as lenders are less willing to issue new
credit.
SMB lending fraud is increasing
at consistent rates but is gradually moving away from the influence
of the pandemic. Notably, SMB lending fraud is typically caught within the first month of a new
customer relationship.
Organizations recognize that reducing SMB lending fraud can lead to increased revenues and improved
customer loyalty. With most fraud losses attributed to digital channels, 70% of
organizations have adjusted their strategies for detecting and
mitigating fraud. This shift
highlights a proactive approach within the industry, with many
lenders tightening their mobile and online transaction policies.
While smaller banks and credit unions are balancing their policies,
larger institutions are adopting stricter measures.
Key Findings on SMB Lending Fraud
- Top Methods of Fraudsters: In the period surveyed,
stolen legitimate business identity and stolen consumer/owner
identity have emerged as the most common type of SMB lending
fraud, making detection
particularly challenging. Recognizing that reducing SMB
lending fraud can lead to increased
revenues and improved customer loyalty, organizations are enhancing
their detection capabilities. However, balancing fraud detection with minimizing customer friction
remains a key concern.
- Shift to Tech-Driven Fraud Prevention: There is an anticipated shift from
labor-centric to tech-driven fraud
prevention as companies face a recurring challenge in managing and
mitigating fraud risks. SMB
lending fraud is a shared concern
across industries, with most companies anticipating overall losses
between 6% and 10%. About 17% of these losses are due to efforts to
reduce friction in approval processes.
- Increase in Proactive Fraud Prevention: Businesses are enhancing
their fraud prevention efforts by
integrating advanced identity solutions like behavioral biometrics,
geolocation and real-time transaction scoring to bolster their
anti-fraud initiatives.
Fintech/digital Lenders have shown remarkable improvement in this
area.
"Though the perception exists that SMBs have complex
structures, our annual study shows that lenders employing a
multi-layered solutions approach, integrated with cybersecurity and
digital channel operations, experience more positive outcomes when
lending to small businesses," said Tom Hunt, director, business risk strategy,
LexisNexis Risk Solutions. "These include reduced
fraud losses as a percentage of
annual revenue and a slower rate of increase in SMB lending
fraud."
Top Four Recommendations for Preventing SMB Lending
Fraud
- Enhance Identity Proofing: Identity proofing
encompasses both verification and authentication processes. While
verification is a critical step, it may not be sufficient on its
own to detect sophisticated fraud
attempts. Authentication solutions offer a more dynamic and
advanced approach to fraud detection
and prevention, especially in remote channel applications where the
risk of fraud is higher.
Additionally, businesses need advanced fraud detection systems beyond manual methods. Utilizing
technology is essential for effectively identifying and addressing
fraud while minimizing inconvenience
to customers.
- Adopt a Multi-Layered Approach: Businesses
should implement a multi-layered approach to authentication by
combining different solutions to address unique risks from
different channels, payment methods and products. This approach
should integrate cybersecurity with fraud prevention efforts and employ advanced solutions
like OTP/two-factor authentication, biometrics and behavioral
biometrics.
- Focus on Early-Stage Fraud Detection: New account opening is a crucial
stage in the customer journey as well as fraud assessment at the point of origination. Maintaining
robust screening solutions while managing the right amount of
friction is key. This includes checks for fake or suspicious
identification numbers, such as Social Security Numbers (SSN) and
Tax Identification Numbers (TIN). A significant portion of
fraud cases are identifiable and
then prevented by enhancing the screening process.
- Share Intelligence: Businesses should leverage the power
of collective intelligence through consortiums and digital identity
networks. By participating in a consortium, companies can share
valuable data, creating a peer-based intelligence layer that allows
them to gain greater context, secure their digital channels against
cybercriminal networks and make smarter, real-time risk
decisions.
Methodology
The study surveyed 135 individuals
working at banks, credit unions, fintech/digital lenders and
payment processors with responsibility for risk and fraud assessments or decisions for SMB customers.
SMBs are businesses earning up to $10
million annually. The study set out to better understand SMB
lending fraud, specifically its
volume, how institutions identify and track fraud, the types of fraud
experienced, what institutions are doing to combat fraud and whether there are differences in SMB
lending fraud based on the size or
type of organization.
Download the latest LexisNexis Risk Solutions Small and
Mid-Sized Business (SMB) Lending Fraud Study.
About LexisNexis Risk Solutions
LexisNexis® Risk
Solutions harnesses the power of data, sophisticated analytics
platforms and technology solutions to provide insights that help
businesses across multiple industries and governmental entities
reduce risk and improve decisions to benefit people around the
globe. Headquartered in metro Atlanta, Georgia, we have offices throughout the world
and are part of RELX (LSE: REL/NYSE: RELX), a global provider of
information-based analytics and decision tools for professional and
business customers. For more information, please
visit LexisNexis Risk Solutions and RELX.
Media Contact:
Marcy
Theobald
678.860.3639
marcy.theobald@lexisnexisrisk.com
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SOURCE LexisNexis Risk Solutions