Part 4: Automation to Detect & Stop Fraudulent Transactions

Welcome to the final installment of the Bank Automation Summit Fraud Panel recap – the Audience Q&A. The conversation went on so long, there wasn’t much time left for questions. Some were answered in the room, the rest via email follow-up. We’re sharing them all in this post.

As a refresher, the panel members were:

– Jessica Gonzalez, Director of Auto Lending Strategy at Informed

– Kevin Faragher, Senior Director of Product and Strategy at Ally Financial 

– Michael Reynolds, Business Technology Senior Manager for Service Digitization at KeyBank

– Moderated by Whitney McDonald, Deputy Editor Of  Bank Automation News. 

Let’s dive back into the conversation with the Q&A.

How are you making sure you’re onboarding only verified legitimate businesses?

There are a lot of available resources, including the DMV. There are also data sources that can be pretty easily consumed. However, because there is so much data, it’s a good idea to have your subject matter expert help determine exactly which you should use. If you’re not familiar with each data source, ask questions to determine if they are reliable.

When you start aggregating, get as much data from your documents because when you’re onboarding a dealer or a commercial lender there will be loads of data. It’s packages of 50, 60, 100s of documents. So whenever you can, partner with an AI organization to take that heavy lifting off your plate. You don’t want 30 or 40 people spending time looking at documents trying to extract information and put it into a data entry system. It’s not efficient and you sacrifice accuracy. So focus on being able to get at that data so you can see those insights yourself. Then, if needed, enhance the data with the most reliable and efficient data sources.

What are your views on using biometrics to fight fraud? 

Biometrics are key to fighting fraud if they are available and make sense for your organization. When people talk about biometrics, everyone thinks it’s cool. It’s one of those words like digital transformation. It’s great to have biometrics, but a lot of organizations aren’t yet at that point. Meaning that if most of your portfolio is on paper, you won’t have the ability to do (and shouldn’t consider) true biometrics. Be honest about where your organization is. If your organization is paper-heavy, biometrics may not be the right solution, but there is probably a better solution for you. If you’re paper-heavy, you need to digitize before you can ever consider biometrics. And you will have to invest in some kind of image capture and verification process. This is another step where it is critical to leverage a subject matter expert in verifications so they can advise you on platform options that address your specific needs. 

Are you seeing fraud primarily in the consumer lending space? 

Whenever you see market growth like we’re seeing in small business lending, you’re going to see fraud increase. But it takes a while for you to catch that fraud because you’re looking at portfolio performance over time. So it takes about six to eight months for you to know, ”Okay, yeah, there is a fraud issue.” Then we can swing the pendulum too far to the left and overcorrect. So be aware that there are waves whenever that market growth catches up. And be prepared to focus on the right thing. It’s hard to do that equitably for everyone because if you are investing in fraud, you have to staff a fraud team. A lot of small business lenders and credit unions don’t have enough staff. But if you have the right technology, you don’t have to expand your fraud team. And the reason we see an increase in fraud where lenders have a digital presence, is because fraudsters are starting to test those digital portals. If they see that some of the larger organizations have a barrier to entry for that fraud, they’re going to go to the smaller lenders.They’re going to go to the small banks, which really hurts our community. It is imperative that we manage the playing field, so hosting the contributory database and sharing insights across all lenders is important, all of the banking community can benefit.

What types of fraud are most prevalent? 

Benchmarks and best practices are great to understand the overall fraud trends within the industry; however, understanding your data and portfolio is critical in your success. You can be proactive against fraud. But fraudulent tactics change quickly because there are so many different causes of fraud. Being able to interpret your data ensures that you can reduce your potential fraud losses. This is why we provide benchmark results on fraud and trends in addition to breaking it out by specific portfolios and segmentations. We also enable lenders to create customizable fraud triggers and checklists based on indicators from our data analysis. We can analyze your data sets and tweak rules to align with your specific fraud concerns. 

How has automation changed the employee experience in dealing with fraud?

Automation has improved the employee experience because it allows employees to focus on the customer relationship rather than on mundane tasks. It raises employee morale and satisfaction, ensuring that you’re not losing motivated staffers. And it allows staff to be more proactive and be a better relationship manager and undertake strategic improvements within operations.

What fortifying trends are you seeing in the realms of KYB/KYC for top of funnel applicants/businesses?

KYB has been historically more difficult to address because the data resources are not as reliable as KYC. KYB also relies heavily on specific niche databases and resources – some that are more reliable than others. KYB also requires an additional number of onboarding documents that is significantly higher than consumer documentation. Thus, focusing on document retention and data analysis is critical to being able to understand KYB trends. KYC continues to focus on identification. Fraudulent pay stubs have a direct correlation with identity fraud. There is a certain aspect of a waterfall within fraud. So creating barriers to entry on the most accessible types of fraud eliminates other root causes such as tight credit policies. An example of this is if you see a large fraud increase among the self employed it is likely due to credit policies creating a barrier to entry. It is difficult to prove your income when you’re self-employed, so rather than jump through the hurdles of proving that income, a person may purchase a fake paystub. We also see issues with digital employers such as DoorDash and Uber where it’s becoming increasingly difficult for people to prove income based only on bank statements and deposits. Lenders should reevaluate their policies on bank statements as well as self-employed, so that we can continue to lend effectively to these individuals. Having capital available within a community is a top indicator of future success within that community, which makes it critical that we support the self-employed and small businesses.

KYB is also skewed towards larger organizations that have support, education and understanding in creating financial documentation. Small businesses without such resources are less able to prove their identity and revenue, limiting their ability to meet these stipulations. 

We had so much fun answering all these audience questions! We would love to hear what questions you have so that we can answer them – We want to hear from you!

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As Featured in American Banker