Fintechs and Fraud: A Look at PPP Loans and Organized Crimes

Financial shakeups and a general fear of uncertainty for the economy tend to spur creativity in fraudsters. This was certainly the theme for much of last year during the pandemic, especially as the federal government established PPP loans to help struggling businesses and their employees. These funds were dispersed with little to no vetting and offered the potential for full loan forgiveness.

Innovation in fintech has made it easier and more convenient for consumers to apply for loans and other assistance, arguably at a time when frictionless experiences are most needed. However, these new pathways to connect with lenders digitally have shed light on just how easy it is to dupe the system.

PPP Fraud Reveals Organized Crime Rings

A recent NY Times report noted that about $30 billion in unemployment claims in California may have gone to fraudsters — about one-tenth of which were paid to organized fraud rings, prisoners, and identity thieves. 

Data from the U.S. Department of Justice also revealed that since the passing of the CARES Act, charges have been filed against at least 65 individuals who collectively tried to obtain $227 million in funding. In these cases, employers were found to be claiming non-existent employees or using PPP funds for personal purchases. Hundreds more PPP loan probes have been opened, and the DOJ has avowed the goal of auditing all PPP loans of $2 million or greater. 

Despite these efforts, however, they all share the common pitfalls of taking a reactive approach to combating loan fraud and racking up investigation costs along the way.

The Growing Need for Security in an Agile Infrastructure

The role of fintechs is expanding as traditional banks don’t have the infrastructure to be agile, as demonstrated by the inefficiencies of the PPP loan program. However, fintechs didn’t get the green light to participate in issuing PPP loans until just two days before the program ran dry. 

While the nimble infrastructure of fintechs would have helped to grant access to more participants, subpar fintech fraud detection likely would not have curbed organized fraud ring behaviors. 

Fintechs simply don’t have the setup to detect fraud in loan origins the way traditional banks can. Nor can they adapt traditional risk mitigation methods for the fintech ecosystem, because these methods have also proven ineffective. Fraudsters are more technologically capable of sophisticated threat attacks, and legitimate businesses committing fraud can fly under the radar. 

Fighting Fintech Fraud with a Comprehensive Toolset

There is an increased need to detect threats in digital channels and detect organized crime rings and coordinated attacks. Because of its multi-channel ecosystem, fintech fraud detection must take a multi-layered approach. 

A comprehensive toolset includes unsupervised machine learning to detect unknown threats and organized crimes, supervised machine learning to detect sophisticated known patterns, device intelligence to detect mobile attacks, rules engine and case management to gain easy insight into fraudulent activities. How do these tools work together to fight fintech fraud? Watch DataVisor fight fraud to find out. Get a live demo.