by Kelty Wallace
Financial institutions (FIs) have many concerns about security, two of which are: credit risk management and fraud mitigation. There are multiple techniques that banks can implement using alternative data to manage both of these concerns simultaneously and make application processing more efficient in the process.
First of all, although they can be managed in similar ways, what are the differences between credit risk management and fraud mitigation? Credit risk management is analyzing how much risk a consumer poses to a financial institution. This is based on financial history of the consumer and how that relates to credit risk criteria determined by the FI. Fraud mitigation is discovering and preventing malicious activity that is occurring on existing accounts or when a consumer is attempting to open new account. While fraud and credit risk management are different, they can be moderated in similar ways.
One way to combat both issues is through the use of alternative data to gain additional consumer information. Alternative data is any information that FIs can use to build a profile of the consumer, but is not included in a traditional credit file. This can include utility payments, phone payments, payday lending history, address records, and records of professional licenses. Alternative data can be used to cross-check consumer information to determine if it is consistent with other existing information. For fraud mitigation, it can be used to verify addresses and identities. If a consumer has a phone bill, water bill, and electric bill and they are all sent to the same service address, but the address provided on the financial product application form is different, it is likely that a fraudster is trying to open a fraudulent account. For credit risk management, banks can use alternative data to monitor consumer behavior over the lifetime of an account and accurately track risk to the institution. For example, if a consumer has taken out multiple payday loans and has missed their last three utility payments, banks can determine that the risk level associated with the consumer has increased and after a manual review of the consumer, modify the consumer terms to reflect this behavior.
Another way to combat fraud and manage credit risk is using alternative data to build a holistic view of consumers. This includes using traditional, internal, and alternative data; implementing advanced modeling and analytics to determine a normal behavioral pattern for the consumer; and detecting unusual or risky behavior throughout the lifetime of the account. When a holistic view of the consumer is built, FIs can use advanced analytics to catch fraud based on behavioral patterns. When consumer behavior seems unnatural or highly unusual, there may be fraud involved and the FI can contact the account holder. This can include unusual purchases (usually of high value) or using the account in a suspicious geographic location without notification to the FI. For credit risk management, having a holistic view through alternative data is important for the reasons mentioned before--banks can accurately gauge consumer risk based on information that may not be available through traditional credit history.
Credit risk management and Fraud mitigation are both concerns for financial institutions and both can be managed through the use of alternative data. Alternative data can be used to verify identities, catch discrepancies in information or normal behavior, and track consumer credit risk to the institution.
http://goarticles.com/article/Credit-Risk-and-Fraud-Mitigation-Two-Peas-in-a-Pod/5218728/
Financial institutions (FIs) have many concerns about security, two of which are: credit risk management and fraud mitigation. There are multiple techniques that banks can implement using alternative data to manage both of these concerns simultaneously and make application processing more efficient in the process.
First of all, although they can be managed in similar ways, what are the differences between credit risk management and fraud mitigation? Credit risk management is analyzing how much risk a consumer poses to a financial institution. This is based on financial history of the consumer and how that relates to credit risk criteria determined by the FI. Fraud mitigation is discovering and preventing malicious activity that is occurring on existing accounts or when a consumer is attempting to open new account. While fraud and credit risk management are different, they can be moderated in similar ways.
One way to combat both issues is through the use of alternative data to gain additional consumer information. Alternative data is any information that FIs can use to build a profile of the consumer, but is not included in a traditional credit file. This can include utility payments, phone payments, payday lending history, address records, and records of professional licenses. Alternative data can be used to cross-check consumer information to determine if it is consistent with other existing information. For fraud mitigation, it can be used to verify addresses and identities. If a consumer has a phone bill, water bill, and electric bill and they are all sent to the same service address, but the address provided on the financial product application form is different, it is likely that a fraudster is trying to open a fraudulent account. For credit risk management, banks can use alternative data to monitor consumer behavior over the lifetime of an account and accurately track risk to the institution. For example, if a consumer has taken out multiple payday loans and has missed their last three utility payments, banks can determine that the risk level associated with the consumer has increased and after a manual review of the consumer, modify the consumer terms to reflect this behavior.
Another way to combat fraud and manage credit risk is using alternative data to build a holistic view of consumers. This includes using traditional, internal, and alternative data; implementing advanced modeling and analytics to determine a normal behavioral pattern for the consumer; and detecting unusual or risky behavior throughout the lifetime of the account. When a holistic view of the consumer is built, FIs can use advanced analytics to catch fraud based on behavioral patterns. When consumer behavior seems unnatural or highly unusual, there may be fraud involved and the FI can contact the account holder. This can include unusual purchases (usually of high value) or using the account in a suspicious geographic location without notification to the FI. For credit risk management, having a holistic view through alternative data is important for the reasons mentioned before--banks can accurately gauge consumer risk based on information that may not be available through traditional credit history.
Credit risk management and Fraud mitigation are both concerns for financial institutions and both can be managed through the use of alternative data. Alternative data can be used to verify identities, catch discrepancies in information or normal behavior, and track consumer credit risk to the institution.
http://goarticles.com/article/Credit-Risk-and-Fraud-Mitigation-Two-Peas-in-a-Pod/5218728/
No comments:
Post a Comment