SMB Lending Fraud Is Increasing at a
Significantly Faster Pace Compared to the Last Two Years, up
14.5% Year-Over-Year
ATLANTA, May 3, 2023
/PRNewswire/ -- LexisNexis® Risk Solutions released its latest
Small and Midsize Business (SMB) Lending Fraud Study. Based on a
survey of lenders, SMB lending fraud has increased significantly
during the past 12 months, with many smaller banks, credit unions
and fintechs expecting fraud levels to worsen over the next
year. Overall, 84% of respondents said that SMB lending fraud
has increased at an average of 14.5% year-over-year (2021 to 2022),
a significant increase from the 6.9% increase experienced the year
prior.
Although bogus business credentials and fake consumer/owner
identities remain the most common type of SMB lending fraud,
lenders are also experiencing more legitimate business and fake or
synthetic identity fraud which they find challenging to mitigate
effectively. Most lenders attribute increased fraud to
multiple factors including lack of effort on curbing SMB lending
fraud, market economic uncertainties and the perception that SMBs
are an easier target than consumers and online/mobile channel
transactions.
Key Findings on SMB Lending Fraud
- The Overall Impact of SMB Fraud Losses: SMB lending
fraud losses could represent up to 15% of overall losses for the
institutions surveyed. About 19% of SMB lending fraud losses stem
from post-pandemic acceleration of digital transactions. The
average value of SMB lending fraud losses as a percent of annual
revenues remains higher than before the pandemic (5.5% overall),
with fintechs continuing to experience the highest fraud expenses.
This reflects a slight decline representing percentages closer to
early pandemic figures after spiking as the pandemic
progressed.
- Remote Channel Risks: SMBs submit more than half of
lending applications through remote channels (online/mobile), with
a similar proportion of fraud losses attributed to these channels.
Banks and credit unions are experiencing a limited uptick of
in-person loan applications and fraud losses as most banks resume
normal in-person operations. In the post-pandemic market, most
lenders have changed their approach to detecting and mitigating SMB
lending fraud with online and mobile transactions. This includes
investing in training, increasing staff and adding fraud detection
technology like geolocation and behavioral biometrics.
- Focusing on Fraud Prevention: SMB lenders expect that
they will continue to invest more in fraud prevention, with smaller
banks and credit unions, fintechs and those with mostly digital
channels being particularly likely to increase staffing on fraud
teams. Some lenders indicate that they are also launching special
fraud prevention initiatives and spending more on vendor solutions
to curb SMB lending fraud. While more SMB lenders indicate use of
email and phone risk verification than previous years, the use of
digital identity and advanced transaction verification solutions
remains limited. The most common barriers to investing in fraud
mitigation technology include the lack of time to train staff,
competing budget priorities and cost of solutions.
"The study shows that lenders using a multi-layered anti-fraud
approach that integrates fraud prevention measures with digital
channel operations can be more effective at detecting and
mitigating fraud and its costs early," said Tom Hunt, director of business risk strategy at
LexisNexis Risk Solutions. "This also includes solutions that
assess both the physical and digital identity attributes, as well
as the risk of the transaction itself. Best practice fraud
detection and mitigation involves a layering of complementary
solutions to address unique risks from different channels, payment
methods and products to address every touchpoint across the
customer journey."
Top Three Recommendations for Preventing SMB Lending
Fraud
- Assess Digital Identity Attributes: Authentication is
about confirming that the person is who they say they are. To
minimize fraud, organizations can no longer rely on manual
processes with the assistance of limited technologies or point
solutions to reduce challenge rates, manual reviews and costs.
- Multi-Layered Solution Approach: A point solution
approach is inadequate. Devices, geographies and user behaviors,
such as transaction patterns, payment amounts and payment
beneficiaries, are becoming more varied and less predictable as
consumers transact across locations. A multi-layered, strong
authentication defense approach should include a single
authentication decision platform that incorporates real-time event
data, third-party signals and global, cross-channel
intelligence.
- Protect Endpoints: New account opening is the customer
journey point where fraudsters can become established, causing
problems at later stages. It is also the first point of contact for
many legitimate customers – too much friction and they may abandon
the effort. Use technologies that recognize your customers,
determine their point of access and distinguish them from
fraudsters and malicious bots.
Methodology
The study surveyed 147 individuals
working at banks, credit unions, fintech/digital lenders and
payment processors with responsibility for risk and fraud
assessments or decisions for SMB customers. SMBs are businesses
earning up to $10 million annually.
The study set out to better understand SMB lending fraud,
specifically its volume, how institutions identify and track fraud,
the types of fraud experienced, what institutions are doing to
combat fraud and whether there are differences in SMB lending fraud
based on the size or type of organization. Global market research
firm KS&R collected respondent data by phone during September
and October 2022.
Download the latest LexisNexis Risk Solutions Small and
Mid-Sized Business (SMB) Lending Fraud Study.
About LexisNexis Risk Solutions
LexisNexis® Risk Solutions harnesses the power of data and advanced
analytics to provide insights that help businesses and governmental
entities reduce risk and improve decisions to benefit people around
the globe. We provide data and technology solutions for a wide
range of industries including insurance, financial services,
healthcare and government. Headquartered in metro Atlanta,
Georgia, we have offices
throughout the world and are part of RELX (LSE:
REL/NYSE: RELX), a global provider of information-based
analytics and decision tools for professional and business
customers. For more information, please visit
www.risk.lexisnexis.com and www.relx.com.
Media Contact:
Marcy
Theobald
678.232.0948
marcy.theobald@lexisnexisrisk.com
View original content to download
multimedia:https://www.prnewswire.com/news-releases/small-and-midsize-business-lending-fraud-on-the-rise-according-to-new-lexisnexis-risk-solutions-study-301808399.html
SOURCE LexisNexis Risk Solutions