Technology integrations key to fraud mitigation

Fraud remains a constant concern in the equipment finance industry, but new technology and more efficient integration capabilities present solutions.  

In fact, 96% of financial institutions lost money to fraud in 2022, while 91% said they saw an increase in fraudulent activity in 2022, according to fraud fintech Alloy’s State of Fraud Benchmark Report. These trends continued through the first half of 2023, Jason Ioannides, director of solutions engineering at Alloy, told Equipment Finance News. 

“What was in the report is still bearing out in the market,” he said. “We’re still seeing those numbers holding fairly true.”

Fifty-nine percent of financial institutions surveyed indicated increased investment in machine learning and artificial intelligence to help combat fraud.

 “There are a lot of financial institutions out there but, in general, we are seeing the same consistency in attempted fraud attacks,” Ioannides said. “When that happens to one of our customers, we have people on staff constantly watching, so we’re able to reach out proactively when we see that volume start to tick up and help them through the fraud attack with the goal of being able to return to that original baseline on the other side of it.” 

Lenders and vendors need to understand that while the method of committing fraud may change, there are always people behind it, he said. 

“The truth is always that it’s people committing fraud [and] they’re going to use different tools, but if we can really focus on the identity piece … then we’re going to be in a much better place,” Ioannides said. “A lot of solutions in the market try to look for transactional patterns — and there is a signal in there to be sure — but it’s really about the people and the identities.” 

Anti-fraud partnering 

Alloy partners with several companies, including identity document verification provider Onfido, cloud-based fintech nCino, and credit reporting agency TransUnion.  

Alloy’s report respondents identified synthetic identity fraud and applications fraud as their two main concerns.  

Synthetic fraud uses an identity made with a combination of data, Kristian Dolan, chief executive of Northeq, said during the Equipment Leasing and Finance Association’s Credit and Collections Conference on June 8, adding that ID verification like Alloy has through Onfido helps fight non-first-person fraud.  

“It’s not going to help with the first-person fraud because the fraudsters are taking a picture of themselves, but for that synthetic and third party, it can help their data validation,” Dolan said. 

The ability to bundle and connect to data sources is key for companies in the equipment finance industry, as lending in the current fraud market requires in-depth insight into the customer, Ioannides said. 

“One of the primary benefits of [connecting to data sources] is if you are a financial institution who’s trying to either create or improve an equipment lending program, you’re going to need data from the outside,” he said.  

“For the lending component, you’re going to need to bring in some kind of credit performance data, either commercial or individual, depending on who you’re lending to, to understand what kind of term and rate you can offer for an equipment loan,” Ioannides added.