Early payment defaults, also known as EPDs, refer to instances where borrowers default on their loans shortly after the loan origination or within the early stages of the repayment period.
The New Cyber Menace – Identity Theft
One of the key factors that has been identified as a reason for early payment defaults is inaccurate, fraudulent or incomplete loan application information: If borrowers provide fraudulent, incorrect or incomplete information during the loan application process, lenders may approve loans based on false information. What has become evident more recently is identity theft or misrepresentation is a leading source of risk for lenders.
Warning bells in the auto sector
Recent data* from the U.S indicated that up to 70% of auto loans in which the borrower stops paying within six months of origination included fraud on the application. Some evidence stated that early payment default (EPD) is an early indicator of fraud that was originally missed by lenders. In practical terms this means that a person has gone to a lender and misrepresented themselves in some manner including identify theft.
We’re not alone
Here in Australia the impacts of recent fraud and cyber activity have been well documented for some of our best known organisations and brands. There are very few risk, security and IT managers who aren’t left wondering if their organisation is going to be next. In fact, ask any Chief Risk Officer what their number one concern is. Their answer will not surprise.
Don’t wait…it may be too late
While CISO’s and IT managers are shoring up their firewalls, implementing patches, upgrading their servers, and dishing out big dollar contracts to cyber risk consultants, the business of originating new sales and orders continues unabated. It’s at the point of origination of new business that the risks are born. By the time the data has gone into the systems ether, the primary opportunity to protect the customer, the data and the business may have already passed.
While many businesses, especially financial institutions have implemented identity checking processes at the point of business origination, (including multi-factor authentication and various other forms of digital verification), recent acts of fraud (Latitude is the best recent example) have shown that the systems are far from fool proof.
Combatting identity theft – Facial liveness to the rescue
Organisations collecting customer and personal data cannot rest on their past practices or claims they are compliant with industry standards. The smart ones are setting higher standards including implementing facial recognition – not just facial recognition but ‘live’ facial recognition. These are processes not fooled by photos, masks, or deepfakes, and ensures that a person is physically present. For lenders in Australia (in fact all organisations with a requirement to validate identity), this is a no-brainer. Eliminate the opportunity for fraud at the point of collection and origination. Once the data passes the point of liveness validation, the risk of a fraud being perpetrated falls materially.
When it comes to identity protection, no longer can we hope that we got it right. These days we need surety. Facial liveness is a big step in the right direction. The BRYK Group is a leading provider of liveness solutions through it’s BRYK.ID product https://brykgroup.com/brykid/
*According to risk management platform Point Predictive’s latest auto lending fraud trends report
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