Fraud Prevention with Alternative Data

Secure and reliable verification of identity is always going to be a top priority in the financial sector. However, the recent global pandemic has accelerated the world into becoming digital-first and set off a major resurgence in identity fraud and cybercrimes.

As banks and other financial institutions shift their operations online to reach remote customers, fighting fraud with traditional techniques is no longer enough. As fraudsters become more sophisticated with cybercrimes, so should anti-fraud techniques.

To do this, banks and financial organizations quickly need to tap into the benefits of using alternative data in fraud prevention and fraud management.


What is Alternative Data?

In a nutshell, alternative data in fraud prevention refers to information gathered from non-traditional data sources. When you analyze the data, they yield additional insights that complement the details you receive from traditional sources.

In the case of banking and finance, commonly used types of alternative credit data for fraud prevention include the following:

  • Telco data – in the absence of past credit history, this is considered to have the most predictive power for measuring creditworthiness and preventing fraud. Mobile network data such as calling and SMS patterns, top-up frequency and amount, and data usage are invaluable information.
  • Device data – rich in quantity but contains a lot of sensitive information. Reputable data analytics companies are particularly good at analyzing device data variables while practicing stringent data privacy measures, thus producing valuable insights.
  • Social media data – useful when it comes to fraud prevention with alternative data as social media platforms can be used as a proxy for identityverification or basic fraud verification. This comes in handy in the absence of traditional tools such as a national/government ID or a centralized identity register.
  • Psychometric survey data – through a simple survey, usually containing 10 questions, you can develop a “personality score” that can be used to determine the trustworthiness of a borrower. Parameters such as heatmaps and speed of response can also be analyzed to use as alternative data in fraud prevention.

These types of data enable you to go beyond traditional identification and trust indicators when it comes to fraud prevention with alternative data signals.

pile of credit cards with a lock

Fighting Fraud with Alternative Data

As the fraud landscape grows in complexity, using alternative data allows you to electronically capture the required information from credible sources, eliminating the manual collection of documents and minimizing fraud. Since fraud prevention with alternative data goes beyond typical consumer information to encompass new areas such as geolocations, social media activity, and telco data patterns, you have a wealth of data points to make quick and accurate decisions about fraud risk. All of these can also be gathered in real-time.

With alternative data in fraud prevention, you can look at various factors to identify suspicious and potentially fraudulent activity. For instance, has a SIM card swapped phones recently suggesting unusual activity? What are the usual spending patterns of the customer? Do transaction locations match the location of the customer? Are there only two or three contacts on their device, indicating that it could be a burner phone?

When you consider all of this information, you can prevent fraud prevention with alternative data sources that ultimately help you understand an individual’s daily activities and create a bird’s eye view of their behavioral patterns. It’s only by assessing multiple layers of information that you create a cohesive, data-driven that decreases the risk of identity fraud.


Using Alternative Data in Fraud Prevention with FinScore

Identify legitimate, high-value customer segments from false identities, straw buyers, employment, and other types of fraud with FinScore. With our credit scoring and fraud prevention tools, you can counter any damage and mitigate risks brought about by fraudulent loan applications.

FinScore currently has three fraud prevention tools:

  • Geo-Location Fraud Flag– helps you determine an applicant’s honesty when providing the area or residence and work during loan applications.
  • Contact Person Fraud Tool – compares the applicant’s Contact Person cellphone number with the applicant’s most often called numbers, texted numbers to which the applicant recently sent load (airtime)
  • Social Circle Fraud Flag – compares the applicant’s most contacted cellphone numbers with an existing Fraud list/Blacklist provided by a partner. The Flag requires the Partner to share with FinScore a list of already identified fraudsters. FinScore will use that list to match it with the most often contacted number by the applicant.

All of these tools help financial firms distinguish legitimate from fraudulent applications by leveraging alternative telco data.

Contact us today to learn more about alternative data in fraud prevention. We’ll book a meeting at your most convenient time.

Watch the video: FinScore Fraud Flag Tools

FinScore is a financial technology company in the Philippines that offers a powerful credit scoring platform and fraud detection tools based on alternative data, including telco-based data. 

As the pioneer in lending and scoring of the unbanked, we continuously provide fintech services that empower financial institutions, banks, and credit bureaus with flexible platforms to help them make insightful and reliable credit decisions. Contact us today to learn more about our products and solutions for financial institutions.