Don Bush, vice-president of marketing at Boise, Idaho-based anti-fraud company Kount, warns of a potentially dangerous fraud rooted in identity theft and combatted by knowing your customers
Point of sale motor finance in the UK remains robust with the Finance & Leasing Association (FLA) showing that the point of sale consumer new car finance market grew 17% by value and 12% by volume in April, compared with the same month last year. And despite occasional advice for consumers to shop around for finance, private new car sales financed by FLA members through the POS reached 84.9%, up from 82.7% in the 12 months to March .
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In most cases, then, consumers are choosing the right vehicle for them and then taking the dealer finance offered to them.
As the dealers are providing a financial product to customers, there are know your customer and anti-fraud measures which have to be adhered to. Customers will have to produce ID such as a driving licence and could be asked for further proof of address such as a utility bill.
That’s not to say that fraudulent applications don’t, on occasion, get through. But, by and large, the systems in place are, or at least should be, as robust as applying for any other face-to-face application for a financial product.
What about the other 16%? Those who come to the car dealership with their finances ready for the purchase?
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By GlobalDataSome will, of course, be cash buyers. Others, though, will have secured their own financial agreement prior to visiting the showroom, arranging this via banks or specialist car finance providers. They may have done this because they felt they could get a better deal by shopping around or because they had particular needs, such as having poor credit, that they believed could be best served via a specialist provider.
E and mobile commerce
The growth of e-commerce and now mobile commerce is something that’s had a huge effect on retail and business in just about every vertical around the world. It hasn’t had the same impact on the motor trade, though, and for obvious reasons; a car isn’t something bought from a website. The vast majority of people looking to purchase a car will want to kick the tyres and go for a test drive.
However, mobile commerce is starting to impact significantly on the buying of financial products, including car finance. And this is where the potential for fraud creeps in.
Our own research at Kount has demonstrated that for all its benefits, mobile, as a platform, is more vulnerable to fraud than other e-commerce platforms. It isn’t just fraud in retail either, there are a growing number of cases of fraudsters being able to access mobile banking apps and make fraudulent financial applications.
Indeed, reports earlier this year pointed to a growing trend of something called “SIM-swap” fraud. This is a new fraud where fraudsters are able to get hold of a replacement SIM card for an existing mobile phone customer and, with access to their phone number, can access their bank accounts and start not only emptying that account, but applying for financial products in their name. And this could include car finance.
This isn’t the only way that fraudulent applications can occur. Identity theft is another critical method and, with the rise in data breaches globally, there’s been a corresponding rise in fraud as the fraudsters use the data obtained to carry out crime, including false applications for financial products.
In its recent report into fraud trends in 2015, Financial Fraud Action UK, the banking industry anti-fraud group, pointed to a correlation between the rise of data breaches and increase in fraud. FFA UK pointed to a 38% rise in application fraud in the UK in 2015 at a cost of over £14m. This, again, includes loans for motor finance.
For companies who are promoting and selling car finance, especially on mobile channels, the challenge they face is to make sure that their security is especially robust. It has never been more vital that the security protocols and technology they use is up to the task of rejecting fraudulent or suspicious applications while accepting genuine ones. Otherwise this upwards trend in application fraud will continue.
Customer checks
Where, then, does this leave motor dealers when faced with customers who have secured their own finance? Should they be treated with suspicion?
Of course not. But they should have to undergo the same rigorous know your customer checks as those applying for POS finance. Equally, dealers should be able to have confidence that customers have obtained their finance from a reputable company with robust security.
In order to do this, dealers and direct finance providers will need to work together to share best practice, trends and fraud fighting advice.
Application fraud is rising and it’s rising fast. Only a collaborative approach with an emphasis on the best techniques and technology can stop it having a significant impact on the automotive industry.
