What is Application Fraud?
This form of financial crime occurs when individuals or fraud syndicates set themselves up to apply for finance from banks and credit providers with the full intention of stealing the funds, obviously without the intention of paying back these loans.
Organised syndicates operate schemes whereby they create false documents by either presenting stolen identities or use known individuals’ identities, with their full knowledge and consent to obtain finance. Sometimes these individuals operate on their own to obtain finance, then skip payments where they also intend to not pay back their loans.
How does this fraud occur?
There are two methods that fraudsters employ to obtain loans:
1. Use of stolen identities:
This occurs where individuals discover their identities were compromised and used to obtain loans they were not aware of. Individual’s identities are stolen daily and often sold to syndicates who use the documents (ID book, ID cards, driver’s licenses, or passports). The success rate of syndicates obtaining finance this way depends on the fraud detection systems that credit providers deploy in their loan application systems. The use of facial recognition biometrics which is checked against our national population register should detect most cases of stolen identities, especially where identity documents are tampered with and used for finance applications.
2. Credit Profiling:
This occurs where individuals work with syndicates to purposefully obtain finance fraudulently.
Credit Profiling schemes are very cleverly presented where:
- Fraudsters improve the credit records of their known individual collaborator (“the applicant”) over a period of time by depositing laundered funds into the applicants’ accounts over 6-9 months, then they start applying for small loans at first (and paying them back) to improve the credit records of those applicants;
- once the applicant’s credit records are of a high enough standard as presented by the credit bureaus to obtain larger unsecured loans (approximately R30k) or smaller vehicle loans (approximately R220k);
- the applicant’s bank statements are used to show “proof of funds” and presented to credit providers for larger loans at a later stage;
- falsified payslips and bogus employer records are presented to credit providers which again further create the impression of a false “Credit Profile” of the applicant.
Since the applicants are involved, credit providers need to be placed on high alert to detect falsified payslips and look very carefully at the bank account patterns to detect unusual bank account conduct.
This form of fraud is growing at extremely high levels and now causing significant concern within the financial services industry in most regions globally.
The banking industry, in conjunction with Comcorp, is contemplating how to deploy sophisticated new systems and methods above our existing solutions to detect these patterns of fraud behaviour by using big data sets and fraud models to identify these schemes.
Comcorp works closely with the financial services industry to identify how to prevent and detect the various fraud methods devised by fraud syndicates. We aim to continue this series “Our View”, where we intend to share our insights into how fraud syndicates operate and how we can help South Africa’s financial institutions reduce financial crime.
By Jan Kleynhans – Comcorp’s Chief Growth Officer