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Socure reports on First-Party Fraud trends, announces new product and consortium

Socure reports on First-Party Fraud trends, announces new product and consortium
 

Identity verification provider Socure released a report that examines trends in first-party fraud (FPF). They also announced their First-Party Fraud Consortium in tandem with its new identification product Sigma First-Party Fraud.

Trends in first-party fraud as rise is imminent

According to the Federal Trade Commission’s 2022 Consumer Sentinel Network Data Book, consumers lost $2.7 billion to imposter scams last year. US Senators along with the Consumer Financial Protection Bureau have been pushing to shift payment scam losses from consumers to financial institutions, which would most likely cover all payment types.

Mike Cook, Vice President of Fraud Product and Investigations at Socure, believes the shift will fuel a rise in FPF attempts. “With the liability burden removed from consumers, some industry leaders worry the shift will make lucrative first and second-party fraud scams even more enticing, fueling a wave of attempts to exploit the system,” said Cook in a statement to Biometric Update.

FPF is already widespread, costing US financial institutions over $100 billion a year. Over one in three Americans report they themselves have committed this type of fraud. Twenty-two percent of those admitting to first party fraud falsely reported lost deliveries, 21 percent charged credit cards with no intention to pay off the balance, and 20 percent disputed legitimate transactions, rounding out the top three most common FPF types, according to the report.

Moreover, many view FPF as a victimless crime. Seventy-seven percent of Americans believe some cases of first-party fraud should not carry any legal consequences. Younger generations are also less likely to see the practice as unethical: 19 percent of Gen Z do not see the act as ethically wrong compared to 6 percent of baby boomers.

Socure’s report used data from financial transactions outside of credit reports to identify signs of FPF and found that consumers with two or more closed accounts linked to FPF are 189 times more likely to commit it again. Risk also increases if accounts have more than five registered users, are opened with newly created contact information, or are closed within 90 days of creation.

Addressing first-party fraud with identity verification

Current definitions of FPF focus on intent and make it harder to identify actual instances of the fraud type. “Financial institutions must align on an updated definition focused on verifiable fraudulent behaviors, not subjective determinations of intent that are difficult to prove,” says Cook.

A shared lexicon that categorizes FPF as a type of fraud rather than credit risk can allow the industry to normalize data collection and reporting that “will help reveal predictive insights into fraudster patterns across institutions,” says Cook. “Equipped with enhanced consortium data and advanced analytics, financial institutions can deter fraud proactively at account origination through risk-based identity verification policies.”

Socure announced it has launched its FPF identification service, Sigma First-Party Fraud, alongside the First-Party Fraud Consortium. The multi-industry consortium will pool data and insights to improve FPF detection. Founding members include the largest digital banks and payment platforms in the US, including SoFi.

An average of 45 percent of FPFC members have overlapping consumer bases. By sharing data across providers, members can identify fraudulent behavior patterns that would go undetected if data were siloed.

Sigma analyzes data from FPFC as well as risk indicators from the company’s Risk Insights Network to analyze a customer’s behavior and predict the likelihood of FPF to prevent continued instances. Socure uses over 400 databases of data across industries that include over 150 million transactions for its identity matching.

Sigma will be able to mitigate bad faith disputes and defaults through analysis of financial histories that aren’t a part of credit reporting in order to identify repeated deceitful behavior across multiple platforms.

Sigma First-Party Fraud works by comparing customer’s reported personally identifiable information (PII) to the compiled network data and creates a list of FPF signals to quickly determine the likelihood of fraud. Some risk signals include an individual’s history of confirmed fraud occurrences, non-granted disputes, open and close accounts, and ratio of good to bad transactions.

The FPFC will expand knowledge of how individuals behave which can help financial institutions, merchants, investment platforms, and others assess risk upon new account opening, the time of transaction and when a dispute is raised.

Customers who use Sigma can reduce chargeback losses, eliminate friction, and enhance identity verification accuracy and trust.

To prevent fraud, regulators should close FPF loopholes like credit washing and piggybacking, says Cook. “In addition, we recommend amending the 1970 FCRA such that information related to fraudulent activities is exempted from the definition of a consumer report, which aligns with the GLBA protections against consumer opt-outs relating to the sharing of consumer information to detect fraud,” he says.

Cook says banks and merchants should fight FPF by performing step-up verification on a consumer with a history of fraud which could include requiring additional bank account validation or income screening.

“Deploying a ‘sentinel approach’ to step-up by performing a document verification with a selfie might deter someone who is considering first-party fraud at the point of a new application or a high-risk transaction,” says Cook.

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