Fraud in asset finance companies can be done in different ways. The most common fraud is the use of false documents to purchase assets. Assets are purchased with money obtained under falsified finance application documents. In commercial finance a common fraud scheme is known as the “pump and dump” when a borrower commits to many deals in a row and then disappears with no intent to repay.
While fraud has always been a troubling issue for financial services, costing millions every year, the pandemic exacerbated this. Due to restrictions and lockdowns, many services became more digitalized and fraud technology advanced becoming harder to detect.
The latest UK Experian Fraud Index found that Asset Finance was one of the financial services most impacted by covid and lockdown. Fraud rates increased in 2020 reaching a rate of over 0.30% in November 2020. In this past year, the percentage of fraud applications has oscillated between 0.15% and 0.30%, registering a peak in July 2022, but showing a downward trend in the final months of 2022.
According to the Experian Fraud Index, first party frauds (where a person intentionally provides false information or misrepresents their identity) are the main type of fraud seen in Asset Finance (over 80% of all frauds). In the last year, the percentage of first party frauds grew by 8.5%.
The cost of fraud in financial services in the US has been on the rise since 2020. For credit lending institutions, the cost of fraud has seen a slight decline in the past year, reverting to pre-pandemic levels. LexisNexis estimates that the actual cost of every $1 of fraud is $4.04 for credit lenders. The true cost of fraud is related to fees for which firms are liable, fines and legal fees, investigation costs and external recovery expenses.
Overall, the Federal Trade Commission estimates that in 2022 total financial losses due to fraud was $5.9 billion. The financial impact of fraud is continuing to grow, and financial institutions must spend more every year to prevent fraud.
So, what is the true cost of fraud?
Is your company willing to find out? If you don't want to be part of these statistics, contact us. We specialize in leveraging Artificial Intelligence, Machine Learning and other state-of-the-art data analytics methods to create solutions that streamline businesses growth through prediction, automation and prevention. The best way to avoid fraud is by setting up a plan to prevent it.
Cybersecurity and Fraud in the COVID-19 Environment – ELFA, 2019
6th Annual True Cost of Fraud™ Study: Financial Services and Lending Report – LexisNexis Risk Solutions, US and Canada 2022
Experian UK Fraud Index – Q3 2022