There’s little doubt that the online lending space has heated up over the last several years.
At this year’s Lend It 2015 conference, Larry Summers, the former Treasury Secretary and well-known economist, gave the industry a ringing endorsement in his keynote address. Summers is on the board of the Lending Club, America’s largest peer-to-peer lender and Square Capital, the lending side of payments company Square.
Summers believes that, “Technology-based businesses have the opportunity to transform finance over the next generation.” In the same speech Summers notes that small business lending is still a small fraction of total bank lending compared to what it was 15 years ago, pointing to the need for online lenders to fill the credit gap.
The technology innovation behind online lending offers a streamlined application and approval process. This makes getting a loan easier and cuts down on the time it takes to get funded. Of course, simplified online procedures open the door not just for a better customer experience, but for cybercriminals as well. At iovation, loan default is the most common type of fraud that our financial services clients notate on an account and share with other members in our consortium. Even so, as hedge funds and other institutional investors enter the space, it will continue to grow as will the need for fraud controls.
iovation works with online lenders who rely on device intelligence to determine if an applicant is who they say they are, and whether they are exhibiting any high risk behaviors. For online lenders, third party fraud creates the biggest risk because these are applicants who have stolen someone else’s identity and have no plans to ever repay the loan.
Device intelligence offers lenders insight into the digital life of an applicant through the lens of the devices they use in the online and mobile space. First and foremost, lenders can see whether a device has a past history of fraud or is associated with any other accounts or devices with a history of fraud. This knowledge comes from over 3,000 fraud professionals in the iovation consortium who place records of confirmed fraud on accounts that propagates out to related devices.
If an applicant uses a proxy to hide their location our risk service can uncover their real location with the actual IP address and geolocation. Behavior that involves applying for multiple loans within a short time frame from the same device will trip velocity rules and be flagged. Lenders can also see whether the information on an application is being changed or associated with different email addresses to manipulate loan outcomes.
Preventing fraud in online lending depends largely on understanding the digital behavior of applicants and having real-time tools that flag risk. As this nascent industry grows, device recognition will continue to highlight the risk or trustworthiness of applicants to keep cybercriminals at bay.