A decade on from the 2008 financial crisis, levels of consumer credit delinquency are rising worldwide. This should not be a surprise, given that global debt is also soaring.

According to a report in the Financial Times, debt is currently at a record high in the US, persistently high in Europe, growing in Asia, and rapidly increasing across broader emerging markets. Americans now collectively owe $1trn in credit card debt, and the average Briton owes £8,000 excluding mortgage debt.

Although this development has stemmed from a combination of factors – including shrinking real wages, poor spending habits and a lack of savings – one has not been given enough attention: fraud.

Collection techniques sometimes fail because they have been applied on fraudulent accounts misclassified as bad debt. Without a failproof way of separating fraud from genuine inability to pay, financial institutions must be aware of the latest fraud trends, such as the recent surge in application fraud, to stay ahead of the criminals.

An umbrella term for identity-based fraud, application fraud includes:

  • Identity theft: The practice of using another person’s name and personal data to obtain credit, loans and other financial services.


How well do you really know your competitors?

Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.

Company Profile – free sample

Thank you!

Your download email will arrive shortly

Not ready to buy yet? Download a free sample

We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form

By GlobalData
Visit our Privacy Policy for more information about our services, how we may use, process and share your personal data, including information of your rights in respect of your personal data and how you can unsubscribe from future marketing communications. Our services are intended for corporate subscribers and you warrant that the email address submitted is your corporate email address.
  • First-party fraud: First-party fraudsters are applying for credit in their own names, but without any intent of payment. FICO research has shown that first-party fraud losses can reach up to ten times the size of third-party fraud (fraud using someone else’s stolen card details). Depending on factors including region, a bank’s risk appetite, channels, target market, maturity of fraud control measures and portfolio size, first-party fraud can comprise between 10 to 35 percent of all bad debt.


  • Synthetic identity fraud: The making of new identities by blending elements from multiple individuals. Fraudsters will apply for accounts using these fake identities to build validity for their new personas. A survey of attendees at the recent FICO APAC Fraud Forum revealed that six to ten banks in the region are experiencing synthetic identity fraud.

All these figures point to the escalating scale and severity of application fraud. As prevention techniques have improved to stop activities such as card skimming and card-present fraud, criminals are having to change their tactics to get credit cards.

They are helped by the general availability of profile information on social media, which they are supplementing by penetrating poorly defended mobile apps that collect and store personal information. Furthermore, due to the increase in data breaches over the past year, millions of individual email addresses, passwords, financial data, health history and more are now for sale on the Dark Web.

What should financial institutions be doing to combat fraud and lessen their pile of bad debt? Here are four top tips:

  1. Get agile

Choose an agile fraud solution that is also able to address weaknesses such as application fraud. This will ensure that you meet customer expectations for speed and convenience while securing payment transactions and loan approvals.

  1. Deploy behavioural analytics

Fraud rings are gaining in sophistication. For example, half of our APAC Fraud Forum survey respondents reported an increase of 25 to 50 percent increase in card testing, where criminals test the fraud rules of banks to find out what limits and purchase categories will result in a blocking of a card.

An analytic technique that is gaining favour as the fraud environment shifts to one of data breaches and identity theft is the identification of the common point of purchase for compromised cards. Here, analytics is used to link fraudulent transactions and pinpoint the sources of leaked card information.

  1. Develop your understanding of customers

Identity proofing should not stop when an applicant becomes a customer. Financial institutions need to constantly iterate across their customer base to understand how each customer’s identity risk changes over time given the introduction of new data – how they transact, what devices they use to log into their account, and what new applicants they share information with.

By continuously gathering information across each customer lifecycle, financial institutions will gain new intelligence that they might be able to use or act upon in the future, for example, to improve the detection of transactional fraud, account takeover (ATO), and payments fraud.

  1. Share intelligence bilaterally

At present, many financial institutions look at different fraud types in silos, which helps fraudsters take advantage of weaknesses at any point. By looking at fraud in a more holistic manner across the entire enterprise, institutions can be better prepared to stop fraud at all stages of the customer and payment lifecycles. For example, knowledge on transactional fraud detection and ATO root cause analysis can also inform application fraud controls.

With both bad debt and application fraud on a meteoric rise, financial institutions must take full advantage of the tools and data at their disposal. Although it is difficult to determine whether an outstanding payment is bad debt or application fraud, implementing more measures to combat the latter could reduce instances of the former. Critical to such a strategy is a unified data hub that brings together the key information from all data sources. This will form the foundation upon which a layered and integrated approach to fraud prevention can be built.

Matt Cox oversees fraud consulting for Europe, the Middle East and Africa at FICO.