While application fraud is reported to cost credit grantors more than $6.7 billion a year in the U.S. alone, published figures may not account for the full scope of the problem. Most reported application fraud is third-party fraud, which involves identity theft — many industry experts believe the bigger problem is first-party fraud, in which the criminal is the customer, who obtains credit (often by falsifying information) without intending to pay it back. This kind of fraud has historically been difficult to detect, and often the losses are characterized as bad debt rather than fraud. In its October 2012 report First-Party Fraud: The Global Battle Against Diabolical Charge-Offs, the industry analyst group AITE estimates that first-party fraud in credit cards worldwide cost $18.5 billion in 2012, and will rise to $28.6 billion by 2016. First-party fraud is also an issue in mortgage originations, personal loans and other financial services lines of business, as well as in other industries where the extension of customer privileges to people applying under false pretenses costs businesses and governments billions of dollars every year. Identifying fraudulent intent before booking new accounts, delivering products, or providing services will help organizations reduce losses and operational costs, while managing regulatory and operational risk.
Along with FICO® Falcon® Fraud Manager, the world's leading solution for payments fraud, FICO® Application Fraud Manager enables clients to leverage FICO's advanced analytics technologies in the fight against fraud across the customer lifecycle, starting with new customer approvals. The new solution can host multiple models that identify third-party and first-party fraud for specific portfolios, and includes a configurable fuzzy matching algorithm that works with single and multi-byte languages to provide superior results for fraud matching rules. FICO Application Fraud Manager's other components include data orchestration, decision support and case management.
UniCredit Group, a major international financial institution with strong roots in 22 European countries and an international network presence in approximately 50 markets, recently purchased FICO first-party and third-party application fraud models for its personal loans division in Italy. As reported by UniCredit's Risk Management department, "Our main objective was to further enhance our ability in detecting potentially fraudulent applications, while increasing efficiency and effectiveness in our fraud investigations. We needed a solution which could enable us to focus on the credit applications with the highest likelihood of fraud while improving the customer experience. We chose FICO for its international leadership in fraud analytics as well as its ability to partner with us and improve our fraud operations."
The FICO® Application Fraud Manager components can be used with a lender's existing originations system. FICO Application Fraud Manager shares relevant alerts, scores, strategies, decisions and case dispositions across channels, products and lines of business. The solution supports batch and real-time fraud reviews, and FICO offers multiple deployment options based on country/region.
"We've designed this solution to deliver rapid results," said Doug Clare, vice president of product management at FICO. "The flexible component-driven architecture shortens deployment time and allows businesses to add components as needed, and build their way to true enterprise protection. Major lenders using our custom application fraud solutions have reduced their application fraud losses by up to 30% in the first year alone."
"While much of the discussion on fraud tends to center around identity theft and third-party fraud, the weak economy and opportunities to commit fraud at credit issuance continue to drive first-party fraud losses," said CEB TowerGroup research director Jason Malo. "Companies approving requests for credit-based services, whether they are financial institutions, mortgage lenders, retailers or otherwise, need a solution that proactively assesses the likelihood of fraud as well as the creditworthiness of the applicant."
FICO® Application Fraud Manager further extends FICO's leadership in payments fraud. FICO® Falcon® Fraud Manager is the most accurate and comprehensive solution for detecting payment fraud, reducing losses by up to 50 percent and protecting more than 2.5 billion payment accounts worldwide. These solutions work together as part of FICO's portfolio of solutions for enterprise fraud management. FICO was recently awarded "best-in-class" status by CEB TowerGroup for card fraud and enterprise fraud management, as well as for consumer loan origination systems.
FICO (NYSE: FICO) delivers superior predictive analytics solutions that drive smarter decisions. The company's groundbreaking use of mathematics to predict consumer behavior has transformed entire industries and revolutionized the way risk is managed and products are marketed. FICO's innovative solutions include the FICO® Score — the standard measure of consumer credit risk in the United States — along with industry-leading solutions for managing credit accounts, identifying and minimizing the impact of fraud, and customizing consumer offers with pinpoint accuracy. Most of the world's top banks, as well as leading insurers, retailers, pharmaceutical companies and government agencies, rely on FICO solutions to accelerate growth, control risk, boost profits and meet regulatory and competitive demands. FICO also helps millions of individuals manage their personal credit health through www.myFICO.com. Learn more at www.fico.com. FICO: Make every decision count™.
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Statement Concerning Forward-Looking Information
Except for historical information contained herein, the statements contained in this news release that relate to FICO or its business are forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially, including the success of the Company's Decision Management strategy and reengineering plan, the maintenance of its existing relationships and ability to create new relationships with customers and key alliance partners, its ability to continue to develop new and enhanced products and services, its ability to recruit and retain key technical and managerial personnel, competition, regulatory changes applicable to the use of consumer credit and other data, the failure to realize the anticipated benefits of any acquisitions, continuing material adverse developments in global economic conditions, and other risks described from time to time in FICO's SEC reports, including its Annual Report on Form 10-K for the year ended September 30, 2012 and its last quarterly report on Form 10-Q for the period ended December 31, 2012. If any of these risks or uncertainties materializes, FICO's results could differ materially from its expectations. FICO disclaims any intent or obligation to update these forward-looking statements.
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