First party fraud: Is your business at risk and what can you do?

First party fraud: Is your business at risk and what can you do?

A blog post by Louise Lunn, fraud specialist and Business Manager at GBG 

First party fraud is not a new issue, but it could be more costly than you think. 

It can be difficult to detect and address, as businesses often misclassify it as bad debt and therefore place it into ‘collections’, where it is never reported as fraud.

So what is it?

The perpetrators of first party fraud can exhibit their traits in a number of ways. Their behaviour could follow one of the following trends:

  • They could have no intention to pay from the outset. They may have fabricated an identity or even used a real identity, with no intent to ever pay on their accounts and defaulting on the first payment.
  • Following a number of months of ‘model’ behaviour they have a ‘change in intention’, potentially influenced by changing financial circumstances and default on payments.
  • After a prolonged period of utilising their facility in the manner of a ‘good payer’ they abruptly stop payments having used the maximum facility available.

First party fraud continues to be a challenge facing organisations today trying to balance regulatory and consumer pressure to treat customers fairly. 

Dishonesty, making a false representation on an application is a recognised criminal offence under the UK Fraud Act 2006. The main challenge in preventing first party fraud is to prove that it is pre-meditated (won’t) and not simply a genuine inability to pay (can’t).

What’s the profile of a first party fraudster?

There are identifiable fraudster characteristics which tend to be consistent across sectors and markets. For example there is a greater propensity for a certain age bracket to commit first party fraud.

Through the use of rules, predictive analytics and third party data we can start to build the profile, identifying the characteristics and observing trends to distinguish what is ‘can’t’ and ‘won’t’ pay thus identifying bad debt and fraud.

First party fraud is more likely to grow rather than diminish. Especially as cash strapped individuals may revert to fraudulent activity to obtain goods and services due to the economic climate. Organisations need to focus on a comprehensive assessment of potential customers at the point of application as this strategy is crucial in the prevention and detection of first party fraud.

What can be done?

Forward-thinking organisations are taking the following steps:

  • Monitoring applications is a great way to attempt to detect first party fraud before it even takes place. 
  • Sharing that information with other organisations and across sectors helps to recognise those individuals committing fraud and mitigate the risk they pose. Fraudsters will often make attempts with a multitude of different goods and service providers.
  • Having a real-time holistic view across an individual’s application behaviour is the key to assessing an applicant fairly and reducing the frequency of false positives.

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