Scam artists don’t just steal credit cards or take over accounts. They also steal people’s identities and apply for credit cards or loans in their names. Once the thief obtains the new credit card, they typically max out the card and disappear — leaving your bank with the bill.
To prevent this from happening, you need tools and processes that focus directly on protecting your bank from credit card application fraud. Here are some tips to help you.
1. Get to Know Your Applicants
To be compliant with anti-money laundering (AML) regulations, your financial institution has to take certain steps to verify your banking customers including credit card applicants. The exact requirements can be a bit vague, and, in some cases, these requirements aren’t strict enough to protect your bank from credit card application fraud.
Ideally, you should develop your own verification techniques that meet the AML regulations while also going a bit further. In particular, you should set up a Customer Identification Program (CIP), often referred to as a Know Your Customer (KYC) program, that outlines specific steps that you take to double check the identity of credit card applicants.
2. Vary Your Identity Checks
Scam artists often spend time researching the practices of financial institutions they want to target. As a result, if you always ask for the same types of IDs, a scam artist will use that fact to their advantage. To be on the safe side, you should vary your identity checks.
For instance, if you’re working with a credit card applicant in person, you may want to request some combination of their state issued ID, birth certificates, Social Security cards, or other forms of identification; but, you may want to mix up the requests from applicant to applicant.
Similarly, you should also vary how you approach identity checks for online and in-person applications. For example, if someone is applying in person, your loan officer can manually check that the photo on their ID matches their face. Online, you can request people to upload a photo from their computer to see if it matches the image on their ID, and with applications for credit cards over a certain limit, you may even want to require a video chat with a loan officer.
3. Balance Security and Customer Experience
When setting up your controls to prevent credit card application fraud, you need to balance security and customer experience. If the loan application process is too cumbersome, real applicants may take their business to another bank. However, if you don’t have enough security in place, you may end up with multiple fraudulent accounts, and that can hurt your bottom line. The right anti-fraud tools can help you strike this balance.
4. Verify Bank Account Details
If the credit card applicant can prove that they have a bank account in their name, that is a positive sign they are the individual listed on the application and not a scam artist.
To check bank accounts, you can request applicants to enter their bank account sign in details online. You don’t collect this information. Basically, your website facilitates a process that generates a one-time access code to the customer’s account.
Although this process is extremely secure, some customers may feel wary about sharing their sign in details. To give them an alternative option, you may want to do microdeposits. Your bank sends tiny deposits of a few cents to the applicant’s bank account. Once they verify the amount received, you know they have access to that account.
5. Ask ‘Out of Wallet’ Questions
Out of Wallet (OOW) questions are common in internet and online banking, but they can also be helpful in fighting credit card application fraud. Set up your website or train your loan officers to ask OOW questions. Typically, these questions focus on information from your customer’s credit bureau reports, and the questions rely on data collected over numerous years that scam artists aren’t likely to have. For instance, OOW questions often request information about previous loans or old addresses.
6. Invest in Tools to Generate Identity Risk Scores
There are fraud prevention tools that can generate an identity risk score for credit card applications. When you run applications through this type of app, the program alerts you about potential risks. Then, you or your loan officers can do additional identification checks based on the scores applied to different applications.
7. Do Geolocation Risk Analysis
You should also look into tools or processes that can analyze fraud risks based on geolocation elements. For instance, these tools look for discrepancies between the applicant’s location based on their IP address and the address listed on the application, and they alert you to the need for a manual check.
8. Leverage Information from Private and Public Databases
You can set up your application review process so that you compare details from the credit card application to information in private and public databases. For instance, you can make sure the applicant’s name and Social Security Number (SSN) matches, but you can also check information related to phone numbers, dates of birth, and more. While you can do manual checks, you should try to automate as much of this process as possible to save time and reduce the burden on your employees.
9. Leverage Your Own Data
In addition to using other group’s databases, you should also have your own application databases. In a lot of cases, scam artists forget to be creative, and they use the same information on different applications. They may use the same phone number, address, bank account, or other details. If you save details from rejected or flagged applications, you can look for that info to appear on new applications.
Preventing credit card application requires a lot of effort and can distract you from other aspects of running your financial institution. So that you can focus on the important aspects of your business, you need to find a fraud prevention and detection professional who can help your bank deal with the threat of credit card application fraud and other types of fraud. That’s where we come in — to learn more, contact us at SQN Banking Systems.