Setting up anti-fraud rules

After eligibility rules, your decision flow should contain anti-fraud rules. In consumer lending, antifraud-related rules usually contain not only Know Your Customer (KYC) rules but also velocity-volatility-concentration rules.

The four main types of rules are :

  • Veracity Rules
  • Volatility Rules
  • Velocity Rules
  • Concentration & Networking Rules

Veracity Rules

KYC rules often validate information provided against external databases, such as the citizenship identity information database. If access to a database is not automated in your country, validating the truthfulness of information needs to be done using other cross-checks.

The information to be cross-checked is basic personally identifiable information such as:

  • Full Name
  • Address
  • Employment
  • Date and Place of Birth
  • Identification card number

Personal information should be verifiable against personal identity documents. The address can be validated using alternative data such as the history of deliveries to an address.

The identification card number shall be cross-checked against the list of stolen documents and other relevant block lists.

Besides, you may want to check the following information:

  • Social network profiles
  • Phone number
  • Email address
  • IP address
  • Bank account number
  • Credit card number

Volatility Rules

Volatility described how much information provided in the past differs from the information provided in the current loan application. The source for past information can be credit bureaus or alternative data providers. Some volatility - such as a new job - can be normal. Some can be concerning - such as three different addresses.

Volatility can point to a fraudster using a stolen identity and building up a synthetic identity using realistic, but false information. An example can be using a new mobile phone number or using a new bank account number.

Velocity Rules

Velocity describes how many loan applications within a specified period of time happened for an identity. Velocity can be calculated on all attributes of identity such as an address, employer, phone number, or email address. Fraudsters may use the same mobile phone number, employer, same bank, or same address. Velocity rules can contain other time-specific rules such as

  • first time seen
  • last time seen
  • average period between seeing an attribute again

Concentration and Networking Rules

Concentration and networking rules try to prevent risk created by fraud happening in the same location or in a connected network of people. Concentration risk is especially dangerous because it can mean that fraudsters have found a loophole and are trying to push through as many cases as possible as fast as possible. It can result in a fraud bubble that can severely impact the financial performance of your portfolio.

The concentration can be prevented using geo-location (also called geofencing in fintech).

Networking rules depend on doing a network analysis with edges based on as many possible variables as possible. They can be addresses, phone numbers, IP addresses, or device IDs.

Concentration and networking rules can be

  • number of loans defaulted in the nth degree
  • number of loans defaulted from the same region