I was looking over my blog archives the other day and read this chestnut from December 2015: “With the introduction of EMV in the US, both [card not present and application fraud] are up – especially the sophistication of the synthetic identities used in application fraud.”

Well, isn’t that the truth. Fast-forward a year, to the fourth quarter of 2016, when financial losses stemming from application fraud, which includes the creation of synthetic identities, grew by 42%. Online lenders are being hard-hit; fraudsters are applying for multiple loans within minutes, with no intentions of repaying them.

Customer expectations create fraud opportunities

Here’s what’s happening: Consumers expect instant gratification and there are many, many companies willing to indulge them: Uber, Amazon, Seamless, ad infinitum. Those expectations have transferred directly to lending; customers expect ever-faster loan approvals, and online lenders are happy to oblige.

Loans that used to take three days to get approved at the local branch can now be approved in less than a minute over the internet. You can even get approved for a mortgage in just eight minutes.

But the ease and speed of new loan origination systems, optimized for use on consumers’ mobile devices, have led to catastrophic fraud losses for many institutions. As lenders promote the ease and speed of the application process, and open up their channels to process the flood of applications, the geometric increase in fraud is arithmetically simple: When you open up your channels to process 10,000 or more loan applications a day, there are that many chances for fraudsters to strike.

How lenders can fight back

In the race to win consumers, lenders have inadvertently made loan fraud easy to perpetrate. But that’s not a reason to let the tail (fraud) wag the dog (the lending operation).

To meet customer expectations for speed and convenience, lenders must upgrade their fraud defenses. Those defenses need to be agile and address weaknesses such as application fraud.

FICO is responding to the surge in application fraud by enabling the tight integration of two of our most powerful solutions: FICO® Application Fraud Manager and FICO® Origination Manager. These products can be easily integrated by customer organizations to map application fraud detection capabilities directly into origination processes to detect first and third-party fraud. In this way, lenders can take significant steps toward reducing runaway application fraud.

And on that note, I’d like to close with a shout-out to a different kind of “runaway” — the 2017 runaway success in NCAA basketball of the South Carolina Gamecocks. What a year! The men’s team making it to the Final Four and the women’s team being the winners of the 2017 NCAA Division 1 women’s basketball title (Surprise––the University of South Carolina is my alma mater.) Congratulations!

Follow my latest commentary on fraud, payments and the occasional sports championship on Twitter @FraudBird.

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