3 Ways to Prevent Fraud through Lending Automation
Lending automation allows for more convenient fraud mitigation for financial institutions (FIs). FIs can use automated systems to incorporate steps into the lending process that would be inconvenient and time-consuming if using only manual processes. Through automation, FIs are better suited to use multiple data sources, mitigate fraud in various steps of the process, and use software that incorporates both manual and automated reviews.
FIs can use multiple data sources through the use of a vendor network. Data aggregation solutions give FIs access to information from a plethora of data sources. This means that FIs no longer must rely on only internal and traditional credit data--they can use various forms of data to cross-check consumer information in order to gain a holistic view of the consumer. Cross-checking consumer information is important for fraud mitigation because it is easier to spot discrepancies or unusual information when more than one data type is used. For example, if a consumer has utility and phone bills sent to one address, but the address provided on an application is different, there could be fraud involved. To gain a holistic view of consumers, FIs can use multiple data sources besides traditional data to build a more complete picture of what the consumer is actually like. This means that banks can see how consumers perform in multiple aspect of their life, not just in their traditional credit history. For example, if a consumer has lived in the middle of a city on the east coast their whole life, does not own a truck, and has never travelled to the Midwest, but suddenly applied for a loan to buy a horse trailer in Kansas, fraud is most likely involved. When a complete view of the consumer is built, FIs can easily notice this kind of unusual or unlikely behavior.
During the lending process, banks can use other fraud mitigation techniques that include incorporating automated and manual reviews into the processing workflow. When automated reviews are used, FIs can easily detect differences in consumer information and use modeling and analytics to analyze consumer behavior, as discussed above. Beyond that, FIs can incorporate manual reviews that will verify fraudulent activity and resolve false positives. When discrepancies in the information are discovered, applications are put into a manual review queue where they are reviewed on an individual basis. If the information is fraudulent, the fraudster is discovered and the automated lending process is stopped. However, if the information is reviewed and found to be legitimate, the stipulation is resolved and the application is put back into the workflow where it left.
There are many ways that FIs can improve their fraud mitigation strategies through lending automation which include: using multiple data sources, incorporating fraud mitigation into multiple steps, using advanced modeling and analytics, and incorporating manual and automated reviews into the workflow. When financial institutions use these techniques they can more accurately catch fraudulent activity and preserve the integrity of their institution.
Questions and Answers
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