TrustDecision's Application Fraud Detection solution helped this cash loan platform to boost fraud detection accuracy by over 300%, improved operational efficiency by 30%, and prevented $2 million in potential losses.
Background
The Indonesian financial landscape has been particularly susceptible to sophisticated fraud schemes, with the cash loan sector facing rampant incidents of device tampering, synthetic identity fraud, and cross-platform fraudulent activities.
Against this backdrop, the OJK (Otoritas Jasa Keuangan) has been proactively setting regulatory standards, particularly with regulations like OJK Regulation (POJK) No. 8 of 2023, which emphasizes stringent KYC (Know Your Customer) protocols and enhanced monitoring to prevent fraudulent activities. This regulation applies to the entire financial service sector, ensuring that all institutions, especially those in the fast-growing fintech and online lending industries, uphold strict standards to protect their business operations. Read more about the latest fintech regulations in Indonesia.
However, in 2023, a well-known cash loan platform in Indonesia faced a major crisis. It experienced significant financial losses due to complex fraud activities, revealing weaknesses in its current fraud detection systems.
The Challenges
The platform faced multiple issues that compromised its operational integrity and eroded customer trust:
Device Tampering and Identity Spoofing
- Device Manipulation: Attackers modified devices to register as new users repeatedly, undermining device-based authentication and enabling the creation of numerous fraudulent accounts from a single tampered device.
- Synthetic Identities: Impersonation attacks using AI-generated identities and obsolete devices skirted traditional verification processes, blurring the lines between legitimate and fraudulent users.
Document Forgery and Misrepresentation
- Edited Documents: Fraudsters used photo-editing tools to alter identification documents, challenging the ability of conventional systems to accurately identify fraudulent applications.
Organized and Coordinated Fraud
- Targeted Attacks to Bypass Liveness Detection: Attackers studied and exploited vulnerabilities in the previous service provider’s risk management system, coordinating attacks that circumvented liveness checks using manipulated devices and forged documents.
- Syndicate Fraud Operations: Organized crime groups reused stolen or synthetic identity elements across multiple applications and platforms, complicating detection efforts. They also exchanged contact information and applicants among members, camouflaging their activities to appear independent and unrelated, which hindered effective multi-platform analysis.
- Loan Stacking: Using automated tools, fraudsters applied for multiple loans across different platforms swiftly. The absence of synchronized communication among financial services enabled them to exploit these loopholes, increasing their fraudulent success.
Industry Challenge
- Vulnerabilities in Older iOS Devices: Older iOS devices were easier to manipulate due to less stringent security updates and controls.
- Flexibility in Android Operating System: The accessibility and availability of tools to reset and modify Android devices made it easy for fraudsters to alter device identifiers and bypass platform securities.
- Costly and Effectiveness of Identity Verification Solution: The high costs and limited effectiveness of existing identity verification systems failed to prevent the increasingly sophisticated fraud tactics, particularly in verifying the authenticity of digital identities.
- Loan Stacking: A pervasive issue where individuals exploited loan services by acquiring multiple new loans to settle existing ones, creating fictitious financial profiles and amplifying the overall risk.
Our Solution: Integrating Application Fraud Detection System
TrustDecision offers a detailed Application Fraud Detection system tailored to address sophisticated financial fraud. This solution utilizes a multi-layered approach to tackle various fraud challenges, consisting of five real-time decisioning events and an offline data retrieval service which are designed to enhance security and improve fraud detection.
Device Fingerprinting and User Behavior Analytics
- Advanced Fingerprinting: Our advanced system uniquely identifies each device and assigns a risk label if tampering or malicious tools are detected. By analyzing user behavior patterns, such as application frequency, we can identify potential syndicates using one device to impersonate multiple users. This approach ensures early detection and effective prevention of fraudulent activities, safeguarding the platform's integrity and maintaining customer trust.
- Device Intelligent Network: Our device fingerprinting service has a multitude of classic service cases across Southeast Asia in mainstream Internet industries, including finance, social networking, entertainment, travel, and e-commerce. This enables us to construct an intelligent network structure based on mobile devices, profile and reconstruct the online identity portraits of end-users, and identify associated fraud risks.
5 Real-time Decision Events
- Registration Event: Detects and prevents fraudulent registrations by identifying issues with device tampering and fake identities.
- Login Event: Monitors login attempts to guard against credential stuffing and brute-force attacks, ensuring that only genuine users gain access.
- Verification Event: Verifies identities to prevent spoofing and ensure that the identity information matches the user.
- Credit Issuance Event: Assesses various factors—such as account activity, verification actions, and risk intelligence — to identify potential credit fraud.
- Credit Utilization Monitoring: Tracks credit usage to spot anomalies, including unusual binding/unbinding of information and irregular fund transfers.
Batch Data Processing and Analysis
- Data Analysis: Utilizes encrypted calculations and network graph analysis to evaluate suspicious activities. This method helps generate lists of potential fraudulent groups, significantly reducing manual review efforts and associated costs.
- Performance Improvement: Enhances fraud detection effectiveness, resulting in a substantial increase in the identification of fraudulent applications, improving overall system performance.
SDK and API Integration
- Seamless Integration: Our solution integrates smoothly with existing platform infrastructure through SDKs and APIs. This integration ensures effective data flow and interoperability, supporting comprehensive fraud detection across platform operations.
The Results
Over a comprehensive two-month cycle of fraud management, utilizing TrustDecision’s Application Fraud Detection solution, the platform witnessed significant improvements in its ability to detect and prevent fraud.
300%
Increase in Fraud Detection Accuracy
$2M
Financial Loss Avoided
30%
Improvement in Operational Efficiency
- Drastic Reduction in Fraud-Related Losses: The platform saw more than 300% improvement in fraud detection accuracy, resulting in savings of over $2 million that would have otherwise been lost to fraud.
- Improved Operational Efficiency: Automation and enhanced fraud detection strategy minimized the need for manual interventions, accelerating operations and reducing costs by up to 30%.
- Strengthened Customer Trust: Strong security measures restored customers' confidence, which is crucial for retaining existing customers and attracting new ones in a competitive market.
Conclusion
TrustDecision's Application Fraud Detection system has proven to be an effective solution for tackling digital lending fraud and addressing industry challenges. By protecting businesses from fraud, the system helps prevent financial losses, improve operational efficiency, and enhance customer trust. Moreover, it offers robust solutions at a pricing that makes it accessible to local businesses in Indonesia. This comprehensive approach sets a new benchmark for fraud prevention and operational excellence in the financial sector.
Learn more about Application Fraud Detection at https://trustdecision.com/solutions/application-fraud-detection
