Global digitalisation is based on the idea of business operations, related to contemporary digital technologies. However, along with the opportunities, including online business effective product development, improved customer experience and reduced operational costs, this also brings a lot of new challenges for online business owners. Speaking of financial institutions, application fraud is one of the most common problems of everyday life. Basically it has become the part of our everyday routine, which wastes companies’ resources and time. Today we are going to highlight the main problems of online fraud and also will shed light on the main ways how to protect your business from application fraud.

What is application fraud?

In general application fraud occurs when a fraudster uses stolen or fake credentials in order to make application for a loan or any other financial product. Stolen data may include passport ID and other documents details, email, address etc. Sometimes fraud also applies to the situations, when a fraudster uses his own name, trying to fake his credit history or account activity in order to get access to a loan. In both cases scammers does not have any intention to repay a loan back to the online lender. However application fraud may be spotted and stopped by any financial organisation before it happens. Let’s review what are the main types of application fraud.

Application fraud types

There are many different types of fraud, which online business has to face every day. There are four different types of application fraud which are most common, especially in online lending and other financial institutions practices. It should be noted that despite of different tools and techniques, many risk officers manage to spot application fraud and protect online business from this threat, as well as the losses that they result in. However many fraudsters manage to bypass the security techniques, since their skill are also increasing every year. Moreover, hundreds of fraudsters can attack a financial institution's resource in a short period of time. A company needs a strong and reliable and effective solutions in order to be protected from fraud.

One of the most common types of application fraud is related to the use of stolen credentials or IDs. In the age of internet there are various ways of personal information leakage or data breaches. The use of personal data is convenient and often does not require highly qualified personnel, while the lack of reliability of IT systems and organizational procedures for the storage and processing of personal data can lead to loss of information and cause irreparable damage to the reputation and financial damage to both data subjects and the operator. A fraudster can find person’s passport data or any personal data anywhere on the internet.

In case if a customer personal data fall into the hands of fraudsters, online scammer can take advantage of the situation and apply for a loan under a false name or register an account on a social network. At the same time, a fraudster can use not only direct customer identifiers, such as full name, date of birth, address of registration and place of residence or card number, but also some other documents’ data, such as insurance info, as well as email, information about the place of work or education data. On average, based on our experience, the risk during attacks related to a large-scale leakage of personal data increases several times.

The next type of application fraud is related to the situation when a fraud is using some kind of a mix of different data from various people in order to apply for a loan or financial product obtaining. Sometimes it may be also information taken partially from real persons and some part of it may be made up or, in other words, created artificially. Sometimes fraudster also may use bots in order to collect necessary information or personal data. Since we already know that there are online scammers, who have access to really sophisticated tools and techniques, it is really easy for them to create a script or a bot which will be able to collect information stored in clouds. These bots can also create various email addresses, make compilations of different persons’ personal data in order it would be more convenient and faster for a fraudster to make new fake applications.

Speaking of bots, we also should note the next type of fraud, related to brute force attacks. As you know, A herd of buffalo can only move as fast as the slowest  buffalo. Fraudsters are constantly looking for weaknesses, as well as so-called "zero-day vulnerabilities" in the system of protection of credit institutions. It often happens so, when a fraudulent attack is carried out from many computers and conventional security programs cannot cope with the detection and elimination of fake requests on the outer loop, since they look very similar to real ones and arrive at the company's servers from a large number of computers, especially when each of them has a unique IP address, etc.

Most of the systems are unable to cope with the influx of information, the automatic system that screens out high-risk freezes or even breaks down and the flow directed by the scammers' computers, or gets a green light, and the company issues a lot of loans that no one is going to repay. Or the system will send received applications for processing to operators, which will entail a general slowdown in the work of the company and will also lead to additional costs.

Also one of the newest and fastest growing types of online fraud in general or fraud with applications is the use of special software by fraudsters, also known as randomizers. The purpose of such software is to thwart existing digital device profiling technologies and disguise the same device from which the fraudster applies for a loan online as a new one every time. Thus, a scammer can take out a loan from the same device unlimited number of times, changing only the borrower's data, while the security system of a financial institution will approve each application and process it as it is unique.

Using the same device to submit applications multiple times is a common type of fraud in many types of industries, unfortunately, this type of fraud may be common for different industries. The so-called multi-accounting is also common in gambling, dating or tourism.

The next type of application fraud is connected with the use of virtual machines. This type of fraud may be regarded as one of the most dangerous, because in such case risk officers or external specialists deal with fraudsters really well prepared and their technologies are very advanced. However it’s not necessarily indicates fraud, because virtual machines may be used for rather peaceful purposes as well.

Virtual device or a virtual machine is a type of machine, which is deployed on a physical device and that is used for nontypical activities of a user with unknown intentions. Usually such virtual devices may be either not designed for making operations connected with financial activities (for example, to apply for a loan or a credit), or may relate to grey legal area.What is a virtual device or machine? It is any type of device (PC, tablet PC, smartphone etc.) created with special software or program code. In fact, such device doesn't differ from any physical computer/laptop/smartphone or even a server. It also has a processor unit, memory module, data and file storages, and it also can connect to the Internet if needed.

However while real computers have physical storage system, memory modules and microprocessor chipsets, virtual machines or software-defined computers exist only as a code. Virtual machine may be a great instrument for dealing with issues related to data protection and safe program delivery, code testing, software performance research.

Virtual device make company's IT-infrastructure operations much easier and also increases productivity due to resource optimization. The use of such technologies in financial products and services obtaining may indicate user's malicious intentions and, therefore, may lead to high risk for the business.

There is also one type of randomization, which are also known as randomised virtual devices. This is the most sophisticated type of fraud, which requires high technology skills. In this article we don't consider this type of devices in detail, as well as the aspect of network connection randomization. From the point of view of practical fraud prevention, it is more important to identify the randomization technologies on the device, which, in most cases, is enough for making a decision. Using randomizers in order to simulate the operation of network connection as well as code testing is absolutely normal, however using this software to apply for financial products and visiting the websites of online lenders is hard to consider as normal human activities.

Many financial organizations loose billions of dollars every year due to this types of application fraud. Let us speak about the main forms of application fraud, which means, in what particular ways fraudsters can steal the money.

Forms of application fraud

So, the first form of application fraud is related to the situation when a fraudster gets the information by means of massive data breaches. After that a fraudster just steals all the necessary personal data, i.e. credit card number or bank account credentials and after that he just transfers money to his own bank account.

The next one is when a fraudster uses synthetic identity in order to get a loan. Ofcourse no need to say that after the full money withdrawal a scammer is going to disappear and has no intention to give the money back.

And finally the third form of application fraud is related to the case of a first-party fraud. So the scammer is a bank account owner himself. In such case a fraudster can be easily detected, because he uses his own credentials. However, unfortunately, he is also prepared for the consequences and also has no intention to give the money back.

One of the best application fraud protection tools

Luckily there is an easy way to spot application fraud and protect your online business.

JuicyScore is the best solution and a forward-looking company that creates antifraud and risk assessment solutions for online-businesses. Company experts also consult on application assessment principles and decision making systems. The company operates in 25+ countries all over the globe. The key feature of the company is that JuicyScore does not use personal or confidential data as well as consumers direct identifiers. The company analyze more that 50 data points and by using machine learning provides an anti-fraud score along with a data vector about 200 predictors important for anti-fraud and credit scoring as well as score on integrated risk assessment model.

On the top of that, JuicyScore help their clients to build customized score on the base of JuicyScore data vector. Company’s products are compliant to GDPR, current and perspective regulating rules and security policies of browsers and operational systems.

Application fraud protection methods

One of the best ways to cope with the application fraud in terms of identification of randomizers, is to use a set of technologies and algorithms for detecting various kinds of device anomalies, which will help to identify new high-risk devices and filter them out in the early stages of the loan pipeline. In addition to that, a stack of technologies for detecting devices which are resistant to various manipulations with individual network connection parameters will make it possible to identify those devices that are used, among other things, by professional fraudsters and organized groups in order to identify application fraud in your online business.

Also one of the ways to deal with the consequences of the incidents related to application fraud consequences and prevention is the wider use of alternative user data in the decision-making system, which, on the one hand, in many cases have sufficient information content, and on the other hand, if this data is lost or compromised, such situation will not cause serious damage: fraudsters simply cannot use such data in order to obtain significant benefits.

In order to cope with brute force attacks problem, you should always remember that successful operation in the online lending market is based on three components: data, technology and team. The data includes various sources that are used to assess the risk of borrowers. For example, it will be very useful for fraud detection to get statistics on the number of requests from the same device and/or IP address, as well as to learn how to identify signs of data manipulation in different applications from the same device.

Technologies for application fraud prevention may include methods for collecting and processing data, building various models, filters and rules, as well as building online flow risk metrics based on previously collected data. A team which may help to prevent application fraud should include risk managers, anti-fraud specialists and other experts, using various tools for analyzing and monitoring metrics, can quickly make changes to the decision-making system if some metrics go into the "red zone" in terms of risk. The presence of a monitoring system for risk metrics distinguishes market leaders and can significantly reduce the response time to the growth of various anomalies in the online flow of applications and to protect your business from fraud.

During the surge in seasonal fraud, financial institutions face a difficult task: it is necessary to provide their customers with the opportunity to use financial products in applications and on websites online, while at the same time taking effective measures to prevent risks. What to do in such a situation? The fact is that such seasonal “scheduled scammers” are, as a rule, not very sophisticated in their business, and many companies manage to stop them even at the stage of a standard initial online verification.

Business impact of application fraud

Application fraud may cause serious consequences in terms of reputational risks and damage to online business. However it may be related not only to dissatisfied customers, whose data was lost due to massive data breaches, but such situation may also do harm to relations with company’s partners and with the new potential customers as well.

This type of fraud affects deeply not only the brand image of a company, but also increases the expenses of the company dramatically, including legal costs and expenses for the user verification (commercial data sources, such as credit reporting agencies, telco etc).

Application fraud also causes profit decrease. Wider audience evaluation tools which are not available via traditional offline channels as well as low risk segments definition and disposable income evaluation.

Application fraud statistics

Sometimes it may cost thousands of dollars per year in order to deal with application fraud and its consequences. According to the latest researches, online businesses lost more that 40 billions of dollars due to various types of online fraud. A risk for your business is higher if you do not implement application fraud prevention solutions. This type of fraud impacts financial services immensely.

Our tips for combating application fraud

• Use proven technologies that will ensure safe operations to your online business;
• Back up your online infrastructure;
• Protect your online infrastructure. Usually this can be done simultaneously with the provider of this infrastructure - for example, when placing your site in data centers, ask for an effective solution from DDoS attacks;
• Use technologies for user verification and protection (two-factor / three-factor verification, dynamic authentication, verification through public services, etc.);
• Restrict access to your customers' personal and sensitive data. Enter encryption of personal and sensitive data of your users;
• Determine for yourself a work plan in case of a partial failure of the online infrastructure and a conservative work plan in case of a mass fraud attack (reducing approval level for applications, introducing additional methods of user verification);
• Create a system for responding to fraud incidents and their investigation and prevention in the future;
• Expand the stack of modern and cost-effective technologies for fraud prevention;
• Expand the fraud prevention data set.