Using data and user experience to mitigate fraud and friction

The Covid-19 pandemic threw the world into a sharp economic downturn with many national governments launching support schemes to protect jobs and help businesses survive. In the UK, £80 billion of funds were approved for UK businesses through the three primary government Covid-19 support schemes - the Coronavirus Business Interruption Loan Scheme (CBILS), Bounce Back Loan Scheme (BBLS) and Coronavirus Large Business Interruption Loan Scheme (CLBILS) - to help businesses during this difficult period. However, the rollout of these support schemes was perhaps not as smooth as it could have been. 

Under pressure to get these schemes live as fast as possible, application procedures came with few checks on borrowers. Improved measures to vet loan applications were slowly implemented over time. The Financial Times reported that a check to identify duplicate applications would only be installed in June of 2020 – weeks, if not months, after the schemes had gone live. 

Fraught with challenges to get funds to businesses as fast as possible, fraudsters took advantage of Covid support schemes. Approximately £47 billion was lent by banks under BBLS alone, and current estimates suggest that anywhere between £3.3-£5 billion of this sum could be lost to fraud. According to a policy paper by HM Treasury, “Lenders stopped nearly £2.2 billion in potential fraud from the Bounce Back Loan Scheme” (BBLS) in the UK. 

Business interruption loans (CBILS and CLBILS) would total £32 billion and the value of grants to small businesses would reach £11.5 billion. While there is a prediction of approximately £1 billion in fraud losses on the latter, the prediction of fraud losses on CBILS and CLBILS is currently not disclosed. 

The pattern is repeated elsewhere in the world. A fraudster in California was recently convicted for a $27 million fraud involving the Paycheck Protection Program (PPP). Fraudulent applications were made in respect to a bogus $400,000 monthly payroll with 100 fictitious employees. Experts say there is as much as $80 billion of fraudulent claims, around 10% of the $800 billion PPP total cost. This is on top of the $90 billion to $400 billion of fraudulently stolen from the Covid unemployment relief programme. 

I don’t believe we will ever have a clear picture of the depth of the fraud frenzy over the last few years. Some fraudsters are opportunistic, but many others are well organised and accustomed to using sophisticated techniques to achieve their goal. Whether it’s the type, channel or mechanism, fraud will forever be evolving. 


An issue of trust 

Trust could easily be considered one of the building blocks of finance. It has been the cornerstone to driving engagement and increasing loyalty and is central to the success of a bank or lender. Even now, trust (45%) outranks price (43%) as an influencer and is second only to “Ease of convenience of service” (47%). 

Without trust, banks and lenders cannot attract customers willing to borrow money to finance their businesses, and the best way to build trust is through experiences. Whether it be offline or online, a massive part of building trust comes from seamless, exceptional experiences which are the sum of the many interactions and touchpoints. 

But you knew that already. 

I would like to consider the other side of the trust “coin”. I’m talking about a bank or lender trusting a business to whom they will lend money. Trusting that the business will be honest and provide detailed records and accurate information about its operations. Of course, blind trust would be unwise, as experienced by the world’s governments with their generous Covid support packages. So, what can augment or supersede traditional trust? 

One thing we increasingly rely upon is data. The PSD2 initiative and Open Banking have provided transparency on bank account transactions. Open Accounting has enabled the flow of accounting data from a business’s accounting system, especially cloud accounting systems. We now use the term Open Data to refer to the superset of data that may be collated, augmented, validated, and corroborated. Can Open Data bridge the trust gap and enable Banks and Lenders to get cash into the hands of businesses when they need it most?

The relationship between trust, data and user experiences 

Recently, at our Lendscape Live conference, it was mentioned a few times that businesses are not looking for invoice finance or factoring, they want cash. Are we offering the right solutions in a timely and secure manner? How are you differentiating to create unique experiences which speak directly to a customer’s needs? 

Traditionally, the process of on-boarding new customers has been time-consuming, with an onus on the customer to be self-proving – providing a variety of information, some of which they may provide begrudgingly. The sourcing and provision of this information can create friction; there is a discord between the fraud mitigation needs of the lender and a good customer experience. 

Design is important to make a customer-facing digital touchpoint look great, right from the first impressions all the way to successfully completing the task as quickly and easily as possible. It is important to focus on simplicity and intuitiveness to make each interaction a pleasant experience. Banks and lenders can no longer ignore design and user experiences as customer expectations have been set by Big Tech firms such as Apple and Google. 

The other side of this is ensuring that the bank or lender receives sufficient information and detail from the customer to assess risk. Open Accounting and Open Banking may not have had the adoption rate the industry wanted but one cannot stress the importance of open data (other resources or third parties) solutions that can add value to fraud mitigation. 

While more traditional institutions struggle to keep up with the service and experiences offered by new entrants who have fewer processes or bureaucracy, these new entrants struggle to find the balance between fraud prevention with good service and experience – there is an opportunity here for all market participants. 

Whichever side you sit on, this is where the importance of quantity and quality of data becomes crucial. A good volume of accurate information from a variety of trusted sources will not only create a better picture of a customer and their needs but the analytics and insight go a long way to improving risk mitigation. 


Going the way of big tech 

As fraud continues to evolve, banks and lenders will need to evolve too. To make the process more secure for banks and lenders and create more streamlined customer experiences, the former will need to improve the speed of their operations and create a wholistic ecosystem of their products and solutions that relies on data from multiple sources. 

Data is the key to establishing or building trust with customers and improving service quality. More accurately, information from a variety of trusted data points is crucial to enhancing risk mitigation while delivering first-class customer experiences. 

Perhaps it’s time we thought more like the big technology companies? Not only have they used data to build rich customer profiles to make interactions as personalised and relevant as possible, but they streamline journeys and mitigate barriers. While data is by no means the silver bullet, it increasingly allows organisations to effectively determine the cause of problems, and when used correctly, solve these problems. 

Data will supersede trust (if it hasn’t already!) and technology, connectivity and partnerships will become increasingly important as organisations heighten fraud and risk prevention measures, strive to provide excellent customer experience and improve efficiency across a modern business ecosystem built on customer-centricity. 

Article written by: Kevin Day & Iain Gomersall

First appeared: BCR World Factoring Yearbook 2022