As fraudsters become more sophisticated, more types of fraud are affecting auto finance. But rather than put the bulk of resources into emerging fraud types, auto lenders should develop a holistic approach to fighting fraud, experts say.
"There is a tendency for lenders to react to the fraud of the moment," which for now is synthetic identity fraud, said Frank McKenna, chief strategist for Point Predictive.
Identity fraud -- the fastest growing type of identity theft -- occurs when a criminal combines real and fake information to create a new identity to open bogus loan accounts and make fraudulent purchases. Synthetic identities can have a real Social Security number from one person and an address, date of birth and phone number from three others in some cases, making it extremely difficult to detect.
Some lenders are targeting synthetic identity fraud rather than developing a holistic fraud management strategy, McKenna said. That's not the most effective strategy.
Mike Gross, director of product innovation for global fraud and identity at Experian, agrees. "Fraud requires a layered approach," Gross said. "You can't just focus on one type of fraud, because the next day that bubble is going to move. Fraudsters are very quick to adapt and change their method of attack when the opportunity presents itself. The key is having multiple solutions in place, including identity."
Auto lenders aren't the only companies that could benefit from a holistic solution. Only 40 percent of businesses are "very confident" in their ability to detect fraud, according to Experian's 2018 Global Fraud and Identity Report, published last month.