Welcome to Informed’s Fraud Watch: Informed’s blog on the latest fraud trends.
As lenders contend with evolving risks in income document fraud, one emerging fraudster technique deserves more attention–“transaction recycling.”
“Transaction recycling” describes fraudster re-use of the real-world identifiers associated with ACH, check, debit, and vendor transactions in bank statements or other income documents. A recent analysis by Informed of over 100,000 bank statements found a steady surge in this fraud technique. Specifically, Informed found a 5% month-over-month increase of transaction recycling in bank statements.
Why transaction recycling is so hard to detect
Real-world transaction data has natural appeal for those seeking to create a fake income document. Through transaction recycling, fraudsters pass fraud checks by supplementing the look and feel of an authentic bank statement with the content of actual transactions. Fraudsters are aware that lenders can detect synthetic transaction codes (see this blog from Informed) so using real data allows fraudsters to sidestep the substantial technical challenge of mimicking these unique IDs and transaction features. Just looking at an income document in isolation, transaction recycling use is almost impossible to detect.
How Informed detects transaction recycling fraud
Fortunately, transaction recycling is detectable by systems that have access to industry-wide transaction streams. To detect this fraud technique, one must have a large enough data footprint to identify data collisions. 75% of the unique misrepresentation Informed detects for its clients comes from identifying collisions of transaction IDs that should be unique to one transaction.
Here is an example of a collision of transaction IDs seen by the Informed Defender service:
What are the latest trends in transaction recycling?
- Larger Banks are the Primary Targets: We are seeing big banks as the primary targets. Their scale, and the sheer volume of legitimate transactions they generate, provide a fertile target for fraudsters. Credit unions are not immune, but more typically they see entirely duplicated bank statements (e.g. the only change is PII), as opposed to manipulations at the transaction level.
- Recycled Transactions Run in a Narrow Range: These transactions tend to be in a narrow range, to maximize believability. The majority of recycled transactions land in the $100-$500 range (with the median being $133).
- Zelle and Venmo Transactions Appear Frequently: We are seeing 30+% of the duplicate transactions tied to Zelle and Venmo.
How does this impact auto loans?
With respect to auto loans, we see transaction fraudsters target higher-value vehicles (10% above the average sales price). Transaction fraudsters have an almost identical credit profile to the average applicant. We also see a high concentration of this fraud linked to specific dealers.
By continuously scanning our network of lending documents, Informed.IQ can identify and protect against emerging risks like transaction recycling. Through “Fraud Watch”, we hope to keep stakeholders across the industry informed.
