Fraud has always been a problem for digital lending platforms or Fintech platforms.

A few months ago, news broke about app-based digital lenders harassing customers, leading to suicides, prompting the Reserve Bank of India (RBI) to intervene and enact new rules. However, the rising number of frauds involving digital lenders has also become a source of concern for policymakers. In most cases, the victims were ordinary people who were taken advantage of by app-based lenders.

According to reports, the majority of the frauds involved the leakage of critical personal account information. The most recent incident involving Tier-1 NBFC and Services app exacerbates the problem and highlights the pitfalls of digital lending. Let us examine the situation.

To begin with, what is the case all about?

Some Small Loans Provider app users have recently complained about unknown parties using their PAN card details to apply for loans on the platform. Some claim that unknown people used their PAN card information to obtain loans through these Loan Providers and that they are now being served with show-cause notices by collection agents for loans they never took.
Complainants also stated that their credit scores had been harmed because credit reports listed loans they had never taken out as defaults.

How worrying is this issue?

The evidence suggests data theft and financial fraud. Essentially, the case here is that perpetrators created fake loans, which is a severe charge. When such loans are not repaid, collection agents begin harassing the actual owners of the PAN cards, which is when the fraud is discovered. Among those affected is actor Sunny Leone, who claimed identity theft to initiate a bogus loan.

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Digital fraud has been on the rise, particularly during the pandemic period. According to a global information and insights company TransUnion report, the share of suspected fraudulent digital transaction attempts originating in India increased 28.32 percent over the previous 12 months ending March 2021.

Solution –

While some loan applicants default for legitimate reasons, some criminals apply for loans and credit lines to max them out and not make any payments. Taking steps to prevent application fraud can help you save money by lowering the cost of debt default.

1. Identification verification and facial recognition

A simple step like requesting two or more forms of identification aids in the prevention of application fraud by introducing an additional barrier for fraudsters.

2. Bank or employer financial documents

When applicants are asked to upload their bank statements, pay stubs, and other financial documents, there is a risk that they will tamper with these proofs.
Instead, ask for permission to contact their bank or employer to confirm their claims. Because you can validate income, assets, and other financial details, it provides a reliable method of preventing application fraud.

3. Knowledge-based authentication

Knowledge-based authentication aids in the prevention of application fraud by going beyond the data points that a criminal could steal or spoof.
Create multiple-choice questions based on an applicant’s credit report to which only they would know the answer. Include questions about previous addresses, other lines of credit, or previous vehicle purchases, for example.

4. Verification via phone and social media

To perform out-of-band verification, you can send push notifications from your app. This step confirms that the phone is a physical device registered to a mobile network rather than a VoIP number.
Furthermore, social media verification aids in confirming the legitimacy of an identity based on social media activity and connections with other users. If an applicant uses a fictitious identity, their social media presence may be non-existent. Alternatively, they lack the typical pattern for profile connections in the same geographic area.

5. Identity risk assessment

Machine learning-based solutions, such as the one provided by Surepasss, analyze multiple data points and cross-reference the information with various databases. This method aids in identifying previously stolen identities and the detection of synthetic identities based on data points from multiple stolen identities.
Furthermore, machine learning solutions examine past account activity, establish links with other defaulted loans or credit lines, and analyze geolocation data to identify discrepancies in fraud detection.

How can Surepass help?

Surepass can assist you in putting in place a multi-tiered approach to preventing loan application fraud and other financial product fraud. Speak with a professional today to learn more about the steps you can take to combat fraud and lower the cost of debt default.

Surepass KYC APIs which Fintechs use:

Surepass enables businesses and governments to transact in our digital world with confidence. We establish trust in seconds wherever your customers want to transact, combating fraud and expediting trusted identities. Surepass’s inclusive technology, which is available to the entire global population, allows you to create, verify, monitor, and securely share digital identities. Our AI-powered identity verification and regulatory compliance (AML/KYC) solutions deliver unparalleled results and operational efficiency with omnichannel deployment.


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