Analyzing the Securitization of Fraud Risk in the Market


Amidst escalating inflation, the recession continues to rage. Lending offers a promising avenue for those hoping to properly adapt to the current economic landscape, particularly Gen Zers and millennials. Consequently, financial institutions and lenders will undoubtedly see an exponential growth opportunity in the market. Securitization of fraud risk across the lending market is an effective way to reduce the negative impacts on business growth.

Barriers to Intensifying Your Securitization Process and Financing Loans 

According to GlobeNewswire, the lending market is expected to grow to 11 billion by 2031.  To cash in on the current opportunity, it is ideal to diversify your loan products. No matter the size of the loans, identity verification of borrowers is essential in establishing fair business relationships among stakeholders and investors. 

Unfortunately, inefficiency in fraud risk assessment is one such hurdle across loan securitization that negatively impacts business growth. Businesses can suffer by rejecting good customers or inadvertently accepting wrong customers during KYC processes

There are many ways that financial institutions or lenders can better manage loan securitization. Lowering securitization risks through seamless KYC processes creates improved customer experience in the customer journey and builds long-term growth opportunities. But it’s easier said than done. Securitizing and arbitraging fraud risks require sophistication in the digital customer onboarding process, including KYC methods. Fully managed KYC and digital customer acceptance solutions are essential. 


Digital Customer Onboarding Friction for Gen Z and Millenials

The lending demographic has vastly changed. Gen Z and millennials want fast money in their wallet through mobile devices, whether through Buy Now Pay Later (BNPL) or any other installment plans. Due to a lack of credit history, younger populations struggle to provide significant data to support their loan eligibility. With Instnt, institutions can verify and accept more thin-file customers like Gen Z and Millenials. One bank that disproportionately rejected over 60% of new customers grew sign-ups by 300% by partnering with Instnt.

Concurrently, synthetic fraud is rising to create fictitious IDs in order to secure credit. Mckinsey reported synthetic identity fraud would cause 20% of default credit card debt, resulting in $6 billion stashed away to fraud. Simultaneously, a report indicated that credit card fraud will cost the industry $408 billion in losses globally. 

There also exists the concern of missing targets for KYC compliance. The situation forces FIs to implement multiple stages of verification processes for their dispersed point solution tools. The need to supply the same information at every customer journey touchpoint repeatedly creates friction, and businesses lose good customers while missing out on opportunities to generate future revenues.


Securitization Reliance on Shared Secret Data 

In the U.S., as per the Patriot Act, banks and FIs must ensure the verification of data of borrowers so that they can avoid terrorism funding and money laundering. Unfortunately, these companies undertake verification processes using databases of the credit company, different third-party vendors and phone companies. But little do they know these are stolen data, which can be used to forge an account. Although ample data through the United States has already been stolen, companies use shared secret data for digital account opening. This outdated approach also weakens their ability to identify deep fakes or prevent bots, malware and automated attacks. 


Inviting False Positives Through Point Solution Orchestration 

The legacy approach of orchestrating point solutions by integrating third-party verification tools stack over stack adds more user friction. Additionally, the waterfall orchestration easily neglects fraud detection and allows false positives to get a grip on someone’s account and do the damage. For example, further down the line, in an attempt to carry out multiple steps of account validation (for IP verification, document verification, and device tagging using a stack of point solutions) Gen Z and millennial users might lose patience and abandon the customer onboarding process before they even use the product and services. 


Neglecting First-party Fraud 

First-party fraud refers to when genuine users commit fraud. According to Fed Gov, 10% of consumer receivables is lost to first-party fraud. Users supply information to validate their identities for loan securitization, but they ultimately defraud the businesses. As it is difficult to detect the psychographic behavior of consumers, businesses are forced to write off 10% of every consumer receivable lost to fraud. As a result, first-party fraud costs businesses trillions of dollars of consumer receivable in losses.

The good news is advancements in KYC technologies can help you battle out loan securitization risks. Leveraging a fully-managed and AI-powered integrated digital customer onboarding solution like Instnt combines a variety of verification formats into one platform. 


Remove Friction from Digital Customer Onboarding and KYC Validation

Securitization of fraud risks depends on how seamlessly you carry out customer acceptance and process KYC/AML methods. The ability to remove silos as associated with point solution vendors reduces the probability of false positives. Instnt eliminates the extra steps for customers of providing the same information again and again, thereby efficiently recognizing user identity against the provided information and converting users into more good customers. 

Instnt also uses machine learning to accept good customers and reject fake IDs from proceeding further to rob financial institutions. The digital customer onboarding solution also improves user experience by storing customer information in a white-labeled decentralized wallet to be supplied automatically when accessing services from third-party. 


Combat Deepfakes and the Challenge of Shared Secret Data 

Fraudsters can easily use shared secret data to unleash deep fake fraud risks. Gaining the ability to identify the artificial representation of original users in real time is an effective way to prevent account takeover. 

By leveraging liveness detection technology, your business can thwart fraudulent login attempts. For example, Instnt uses AI technology to identify the realness of human behavior and decide if those faces are fake or genuine. In addition to identifying deep fake spoofing, Instnt also ensures businesses can run facial recognition, document verification, and device ownership. As a result, your business can avoid the risks triggered by shared secret databases. 


Reduce First-party Fraud 

It is an unsolved challenge for businesses to detect first-party fraud that engineered people commit. The best part of using Instnt as your digital customer onboarding tool is that it continues to monitor device activity for every transaction. With the help of machine learning technology, Instnt creates a feedback loop periodically to detect and verify the psychographic behavior of customers and help you understand the characteristics of different types of fraud. You can stay ahead of fraud, and prevent first-party fraud before they occur. 


Recession-proof Your Fraud Handling with Instnt

Financial fraud risk is everywhere. Synthetic bots and automated attacks make it difficult to act in advance and prevent the risk. On top of that, your investment in point solution orchestration takes away a huge chunk of investment that increases your operational costs. With machine learning performed behind the scenes, you can learn from your customers and remove fraud from your business. Instnt helps lending companies securitize loan products while facilitating regulation compliance for businesses and shifting the loss liability off the balance sheet. 

Instnt facilitates more successful digital sign-ups and acceptance of more good customers in the on-demand economy. By helping reduce compliance and fraud loss risks, Instnt allows lending services and FIs to connect with Gen Z and millennial customers and generate a steady flow of future revenues. The digital customer onboarding solution provider also securitizes fraud risks for lending services and gives future generations a better way to thrive. When it comes to tackling fraud loss, no one other than Instnt allows businesses to gain fraud loss indemnification of up to $ 100 million. To learn more about the solution, book a demo today


Deepa Majumder is a product-based technical writer and content strategist for brands excelling at AIML, IoT, and Machine Learning technologies in the space of smart home automation, IT incident management, Business Resiliency, and OTC automation. Exploring a diverse stream of DeFi, NFT, and Metaverse is her area of interest. 



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About the Author

Instnt Inc. is an AI managed customer acceptance platform founded and operated by serial entrepreneur Sunil Madhu, founder, and former CEO of Socure. Instnt is on a mission to bring frictionless inclusion and continuous identity assurance experiences for businesses and their customers through proprietary artificial intelligence technology, open standards, and a collaborative effort in the identity governance industry. Instnt powers various financial institutions, lenders, fintechs, banks, and credit unions across North America. For more information, please visit