First-party fraudsters — what do they look like in Australia?

Welcome to the second instalment of our three-part blog series on first party fraud.

In the first article of this blog series, we covered what first party fraud is, the different types of first-party fraud, and how rising interest rates and inflation could contribute to a growing prevalence of first party fraud.

In this blog, we will outline who is most likely to commit first-party fraud and how businesses can better equip themselves to prepare for first party fraudsters, particularly as the nature of fraud evolves with the growing financial pressures on consumers. 

GBG’s latest research into the evolution of first party fraud in Australia uncovered that the majority of consumers will not commit first party fraud. However, the minority who are likely to commit first party fraud is not a negligible amount. Almost one in five (19%) Australians believing it’s OK to tell a ‘white lie’ and report having less debt than they actually have, in a financial service or loan application. 

As the economic climate continues to change, financial institutions (FIs) need to go beyond simply knowing their customer, to having the processes and technologies in place that can anticipate and prevent fraudulent behaviour. This starts with understanding who is most likely to commit first-party fraud.

Research shows there are several common characteristics of first party fraudsters. Most commonly, they are male, young, living in a metropolitan area, and are regularly living beyond their means. This points to a potential trend that young, city-dwelling men are resorting to first party fraud to fund ambitious or aspirational lifestyles they cannot actually afford. With the coronavirus pandemic also putting further financial pressure on consumers, there is a likelihood that first party fraudsters have low incomes. 

While first party fraudsters are often new customers, this is not the only type of customer that FIs and the likes of telecommunications providers need to prepare for. It’s a complex and evolving space that can only be mitigated by robust application fraud technology, as provided by GBG.

Here are the top three behaviours of first party fraudsters and how businesses can take preventative action:

1. Opening accounts:First party fraudsters often apply for a new financial service, open a new bank account, or apply for a loan with no intention of paying back the organisation, and will use their own identity to make their application. To effectively detect fraud and expose suspicious activity from the beginning of an engagement or application with a potential customer, automated technology solutions, including artificial intelligence and machine learning, are critical.
2. Boosting credit limits: Fraudsters will try to increase their credit limits artificially and through manipulation of their behaviour score. Beyond analysing and monitoring customer behaviour in the onboarding process, this is one of the reasons FIs and telecommunications providers need fraud solutions that help monitor first party fraud risk over time by automatically ingesting and analysing emerging customer information and behaviours.
3. Making false claims of fraud: At any time, a fraudster can leverage the growing issue and complexity of fraud itself to trick FIs into compensating for fraud attempts that did not actually take place. Again, FIs need to prepare for the fact that fraud can occur in a range of formats, throughout the entire customer lifecycle. This makes ongoing monitoring critical as a customer’s risk profile is always changing.