Many online lenders ask borrowers to upload bank statements, pay stubs, tax forms, and other financials to assess creditworthiness.
While the broad majority of borrowers who submit financials are legitimate applicants, some do submit documents that are altered or fabricated to enhance their ability to secure a loan.
Document fraud, like most forms of online lending fraud, is becoming easier to execute. As digital imaging software and specialized counterfeiting services continue to evolve, fraudulent documents are becoming harder to detect.
Read on to learn what document fraud is in online lending, and how lenders can combat the problem with innovative technology.
Document Fraud: Anyone Can With the Right Software or Service
Document fraud can run the gamut from the alteration of individual transactions to creating entire counterfeit paper trails. Alterations are made primarily with PhotoShop and other design software.
The best fraudsters are experts with these applications, but many bad actors do not need design skills to engage in document fraud. Fraudsters can easily outsource their counterfeiting to third parties.
For instance, there are online services that specialize in “Novelty Bank Statements.” The documents these services produce are actually just doctored bank statements. A quick Google search will yield many of these semi-illicit services. Most of these services also generate fake pay stubs, utility bills, and other documents that help bad actors secure loans illegitimately.
Examining the Problem: The Different Degrees of Document Fraud
The best way to examine document fraud is to break things down by the skillset of the fraudsters. On one side of the spectrum, you have fraudsters who are relatively unskilled. They, or the services that they use, make image alterations that are obvious to the naked eye
These alterations are usually botched PhotoShop jobs, made for a transaction or two, in order to inflate the fraudster’s income. Humans and machines alike can detect these alterations.
Here’s an example of that obvious kind of document fraud, with personal information removed for privacy purposes:
In this example, the fraudster made a glaring error with the formatting of the box. Humans and machines alike can detect this form of fraud, although when dealing with thousands of pages, automating the task greatly improves time efficiencies.
The next level of document fraud is more sophisticated. These fraudsters don’t make alterations that are obvious to the naked eye. All the transactions, forms, and financial documents look realistic and accurate. Detecting these alterations usually requires a platform with anti-fraud technology.
A platform with anti-fraud technology can pick up on subtle clues that the human eye misses, such as inconsistent fonts, formatting quirks, and reconciliation errors between the transactions and stated account balances.
In this example, a formatting quirk draws attention to potential fraud in the activity summary of a bank statement. This is what an authentic version of the activity summary should look like:
And here is the suspicious version of the activity summary:
In the suspicious statement, you can see that the black line in the activity summary doesn’t stretch all the way to the end of the listed amounts. The ending balance also doesn’t align with the other numbers in the summary. These are fairly subtle mistakes that human examiners might not pick up on due to the granularity of the fraud. But a platform that automates anti-fraud detection can identify these miscues quickly.
The final level of image tampering is near-flawless document fabrication. These documents do not generate reconciliation errors, seem real to both human and machine observers, and pass a number of authenticity checks.
Sometimes these nearly flawless fraudulent documents can be detected by examining the metadata of the file. In other cases, the set of transactions taken as a whole are suspicious, even if individual transactions appear to be valid.
The Solutions that Fight Back Against Document Fraud
Lenders can fight back against document fraud with the right technology. Ocrolus uses artificial intelligence, multiple layers of machine-augmented human review, and industry knowledge acquired through collaboration with 50+ top lenders to stop fraud - including document fraud - in its tracks.
Ocrolus combines automated fraud analysis with human review by trained specialists. The platform pairs the speed, efficiency, and capabilities of automation with the expertise and judgment of experienced human reviewers, leading to more profitable deals and less fraud false positives.
To gain additional leverage, lenders can also harness digital data sources to augment and streamline anti-fraud underwriting processes.
Data aggregators like Plaid allow lenders to pull up to 24 months of transaction history once a borrower has submitted bank login credentials. Lenders can use data aggregation before funding to ensure that the applicant’s financial documents align with data pulled directly from the bank.
Lenders that combine accurate document analysis and digital verification experience the best of all worlds. This combination widens the acquisition funnel by optimizing for customer experience and non-intrusiveness, while adding multiple layers of fraud detection into the underwriting process.
Document Fraud Is A Real, But Manageable, Threat
Document fraud is a real threat, but technology solutions enable lenders to make the problem manageable. As newer and more sophisticated forms of document fraud emerge, lenders must stay abreast of the latest technology to stay one step ahead.
Of course, document fraud is just one of many other types of online lending fraud, including identity fraud. Any comprehensive fraud strategy must deal with all these different forms of online lending fraud, both individually and as networks of malign activity.
Stay tuned for more from our online lending fraud series!