ATLANTA– Small and Midsize Business (SMB) Lending Fraud Study has increased 6.9% since 2020, according to a survey of risk and fraud executives by LexisNexis Risk Solutions.
SMB lending fraud losses account for a significantly higher percent of financial firms’ annual revenues year-over-year at an 6.2% increase overall, with larger banks with more than $10 billion in revenue and fintechs/digital lenders seeing the sharpest year-over-year increase, according to the new report.
Among the key findings, according to LexisNexis Risk Solutions:
- Labor-Focused Spending Increased: “More fraud prevention costs have involved labor compared to early 2020, as lending faced increased loan requests because of the Paycheck Protection Program and battled more fraud related to counterfeit business credentials and fake or stolen consumer identities associated with businesses applying for loans.”
- Increase in Mobile Channels: “Online and mobile channels continue to represent the largest share of lending origination transactions. Mobile channel fraud losses have increased 10% or more, particularly among fintechs and larger banks.”
- Layering Solutions Lessens Cost: “Lenders that layer more advanced identity authentication with advanced transaction/identity verification solutions experienced a lower rate of increased fraud overall and the pandemic had less of a fraud impact on these institutions.”
‘More Challenging’
“The digital channel environment is upon us and continues to grow as customers and prospects expect digital lending options, particularly during times that make in-person transactions more challenging,” said Tom Hunt, director of business risk strategy, LexisNexis Risk Solutions. “At the same time, fraud is evolving and has become more complex for lenders. Various risks can occur simultaneously with no single solution to solve for all of them. To be effective, fraud tools now need to authenticate both digital and physical criteria simultaneous with identity and transaction risk.”
According to LexisNexis, the results of the survey illustrate the deep impact that the pandemic had on lending, contributing largely – more than one-third – to the increased costs associated with SMB lending fraud.
“Respondents indicated that the pandemic negatively impacted them through both increased fraud and more complexity in fraudster methodology than before,” the company said. “Stolen legitimate business and consumer identities and the use of synthetic consumer identities make it incredibly difficult for lenders to distinguish between legitimate and fraudulent loan requests.”
Forced to Change
LexisNexis stated the pandemic forced many lenders to make changes to their fraud detection and mitigation approaches, particularly among fintechs and larger banks, leading to higher labor costs.
“However, though those processing a sizeable volume of loans through digital channels indicate an even larger pandemic-related cost increase, fintechs and larger banks appear to be following best practices of integrating the digital/customer experience within their fraud prevention solutions,” according to LexisNexis.
For additional info: 2021 LexisNexis Risk Solutions Small and Mid-Sized Business (SMB) Lending Fraud Study.
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