Using AI to detect and prevent business lending fraud

Artificial intelligence (AI) has improved the outcomes for hundreds of thousands of businesses by automating and speeding up their processes. Yet, it has also helped the criminals too, making it easier for them to commit fraud and steal money.

Nowhere has this been more keenly felt than in the banking and finance industry, where the technology has been successfully deployed in the fight against fraud, tackling everything from credit card fraud to money laundering. But one of the key areas where it is proving most effective is in detecting business lending fraud.

There’s no doubt that business lending fraud has been on the rise in recent years, increasing at an average of 14.5% year-over-year for small and mid-sized businesses in 2022, as per a LexisNexis report. But that’s just the tip of the iceberg, with many of these types of fraud going undetected or unreported.

The problem was exacerbated during the Covid-19 pandemic as businesses became increasingly stretched, with employees forced to work remotely. As a result, they have become obvious targets for scammers looking to exploit them.

Types of business lending fraud

As technology continues to evolve, so the criminals’ methods have too. There are four key areas where they are now focusing their efforts: application fraud, impersonating another business, providing incorrect information and hiding data.

Application fraud is fast becoming one of the most prevalent forms of deception. It involves a business or individual using their own details to apply for a financial product such as a loan, but when they complete the application they use false information or counterfeit documents, often to try and get a larger amount of money.

Another common tactic among fraudsters is impersonation. By using fake documentation to trick the lender into believing that they are another business, they can dupe them into lending them big sums of money.

Knowingly providing the wrong information is fraud too. This typically includes but is not limited to, the submission of misstated management information and fudged bank statements, which are hard to verify without the correct records.

But perhaps the hardest fraud to uncover of all is hiding data. By withholding key information that can be used to determine a lending decision, scammers can secure a bigger loan.

Given the complexity of these kinds of fraud and the fact that they can be committed by individuals and companies themselves or others who have stolen their identity by posing as them, it makes it even harder to identify and prevent them from happening in the first place. And so deceptive are they that the victim may never know they have been targeted or only find out when they are turned down for a loan after the fraud was perpetrated without them being aware of it.

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