LexisNexis Risk Solutions released its latest Small and Midsize Business (SMB) Lending Fraud Study. Based on a survey of lenders, SMB lending fraud has increased significantly during the past 12 months, with many smaller banks, credit unions and fintechs expecting fraud levels to worsen over the next year. Overall, 84% of respondents said that SMB lending fraud has increased at an average of 14.5% year-over-year (2021 to 2022), a significant increase from the 6.9% increase experienced the year prior.
Although bogus business credentials and fake consumer/owner identities remain the most common type of SMB lending fraud, lenders are also experiencing more legitimate business and fake or synthetic identity fraud which they find challenging to mitigate effectively. Most lenders attribute increased fraud to multiple factors including lack of effort on curbing SMB lending fraud, market economic uncertainties and the perception that SMBs are an easier target than consumers and online/mobile channel transactions.
Key Findings on SMB Lending Fraud
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The Overall Impact of SMB Fraud Losses: SMB lending fraud losses could represent up to 15% of overall losses for the institutions surveyed. About 19% of SMB lending fraud losses stem from post-pandemic acceleration of digital transactions. The average value of SMB lending fraud losses as a percent of annual revenues remains higher than before the pandemic (5.5% overall), with fintechs continuing to experience the highest fraud expenses. This reflects a slight decline representing percentages closer to early pandemic figures after spiking as the pandemic progressed.
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Remote Channel Risks: SMBs submit more than half of lending applications through remote channels (online/mobile), with a similar proportion of fraud losses attributed to these channels. Banks and credit unions are experiencing a limited uptick of in-person loan applications and fraud losses as most banks resume normal in-person operations. In the…
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