FICO has launched an analytic solution that combats first-party and third-party application fraud which reportedly costs credit grantors in the U.S. more than $6.7 billion a year.
Application fraud is committed when individuals submit a new credit application with fraudulent details to a credit provider. Fraudsters usually collect the personal and financial data of innocent users from the identity documents, pay slips, bank statements, and other source documents to commit application fraud.
The information collected from all these documents will either be forged, the document itself will be stolen illegally or the details in the documents will be changed for the purpose of submitting a new credit application.
FICO said most application fraud is third-party fraud, which involves identity theft. Meanwhile, many industry experts believe the bigger problem is first-party fraud, in which the criminal is the customer who obtains credit (often by falsifying information) without intending to pay it back.
This kind of fraud is often difficult to detect, and often the losses are characterized as bad debt rather than fraud. An October 2012 report from the Boston-based research and advisory firm Aite Group titled, “First-Party Fraud: The Global Battle Against Diabolical Charge-Offs,” estimates that first-party fraud in credit cards worldwide cost $18.5 billion last year and will rise to $28.6 billion by 2016.
First-party fraud is also an issue in mortgage originations and personal loans where the extension of customer privileges to people applying under false pretenses costs businesses and governments billions of dollars every year.
With application fraud such a prevalent issue, FICO developed Application Fraud Manager that combines advanced decision management and investigative workflow capabilities with analytics for both first-party and third-party application fraud into one solution.
The product can host multiple models that identify third-party and first-party fraud for specific portfolios, the San Jose, Calif.-based technology provider said. Other features the solution provides businesses is that it can be used with a lender’s existing originations system and share relevant alerts, scores, strategies, decisions and case dispositions across channels, products and lines of business.
The solution also supports real-time fraud reviews and FICO offers multiple deployment options based on where a company is located.
“We’ve designed this solution to deliver rapid results,” said Doug Clare, vice president of product management at FICO. “The flexible component-driven architecture shortens deployment time and allows businesses to add components as needed. Major lenders using our custom application fraud solutions have reduced their application fraud losses by up to 30% in the first year alone.”