Your Guide to Application Fraud Detection and Prevention

Not only does application fraud pose a growing risk in our tech-savvy world, but it also hurts businesses and individuals. It happens when someone lies in an application for personal gain, like getting a loan or job. Knowing how to spot and stop it is crucial for businesses and individuals. Criminals manipulate personal info, tricking their way into loans and credit.

In this article, we'll explore the nuances of application fraud, from its methods to essential strategies for detection and prevention.

This article covers types of application fraud, detection methods, and prevention. Learn the importance of checking information, and using data analytics and other tools to lower the risks. With the proper knowledge, you can safeguard yourself and your business.

Understanding Application Fraud: An Overview

This section serves as an overview of application fraud to gain insights into the deceptive practices threatening financial products and institutions.

What Is Application Fraud?

Application fraud involves deceitful practices when seeking financial products, like loans or credit card application fraud. The fast acceptance of online applications creates a playground for fraudsters.

In other words, application fraud is when someone lies on applications for credit or housing. This means lying about:

  • Job history
  • Income
  • Using fake IDs or other documents
  • Lying about credit history
Stay ahead of fraud – our Fraud E-Book offers crucial insights and practical techniques. Download the report now for robust defense tools.

What are the Risks of Application Fraud?

Accepting more users might seem like business growth, but it's a risky strategy. Application fraudsters can lead to:

  • Loss of valuable business
  • Offering loans to defaulters
  • Paying compliance fines for KYC or AML

Costs and Impact

Application fraud is a costly affair. According to the Association of British Insurers, in 2021, insurers detected 72,600 dishonest insurance claims valued at £1.1 billion in the UK alone. It is also estimated that a similar amount of fraud goes undetected each year. The impact extends beyond financial losses, affecting both businesses and customers.

The Role of Technology

As cybercriminals become more sophisticated, technology plays a crucial role in

  • Credit application fraud detection (credit card application fraud)
  • Fraud app detection systems

Prevention Measures

Firms must protect themselves with systems that catch suspicious activity early. This can be done by using identity verification, watching customer behavior, and being proactive. Prevention is better than cure for application fraud. Taking proactive measures can prevent both you and your customers from falling prey to fraud. 

Fraudulent Techniques

Application fraud occurs when people deceive financial institutions by providing false information when applying for money products like mortgages or new bank accounts.
Examples include:

  • Using a stolen ID
  • Lying about income
  • Faking payslips
  • Inflating values for insurance

Online Risks

Online companies quickly approve applications, but being too lenient is risky. You risk:

  • Losing business
  • Giving loans to defaulters
  • Paying fines for KYC or AML

Understanding and combating application fraud is crucial for businesses to safeguard their operations and customers.

Comply quickly with local/global regulations with 80% less setup time

Spotting Application Fraud: Knowing the Tricks

In this section, we will learn about application fraud detection, as understanding the risks and tactics is crucial. But first, let’s learn how criminals trick the system. 

7 Ways Criminals Use to Trick Systems

Criminals use clever tricks to fool different systems. Knowing these tricks helps companies stay safe from the growing problem of fraud.

1. Data Breaches

This happens when criminals get into a company's computer systems without permission and take important information, like credit card numbers or personal details.

2. Fake Identities

Criminals create fake identities, mixing real and fake details, cheating out billions through fraud.

3. Call Center Tricks

Fraudsters use call centers to impersonate individuals for loans and credit cards.

4. Mail Sneakiness

Thieves use USPS Informed Delivery to know when credit cards arrive, stealing them from mailboxes without anyone knowing.

5. Seniors Targeted

Fraudsters focus on older folks, thinking they're easier to trick because they might not know much about tech.

6. Cloud Confusion

Fraudsters use cloud tools for big tricks, making it hard to catch them.

6. Fancy Tools in Fraud

Criminals employ tools such as bots, virtual machines, and cloud infrastructure to launch large-scale attacks on financial institutions through fraud applications.

Understanding User Behavior Through Velocity Checks

Velocity rules are like detectives for user behavior on your application page within a specific time frame. They help spot unusual patterns that might mean something fishy is going on.
Here are a few examples:

1. Super-Fast Form Filling: Regular users take a minute or two to complete a form. If someone does it in less than two seconds, it could be a sign of automated behavior.

2. Quick IP Address Changes: Fraudsters often change IP addresses fast to avoid getting caught. Watching for these rapid changes can help catch potential fraud.

3. Lots of Different Names, Quickly: Entering many different full names in a short time could be a sign of fraud.

Top 5 Tips to Detecting Application Fraud

Detecting application fraud online is crucial. Here are five practical tips to enhance your efforts in application fraud detection.

1. Using Real-Time Data

Online forms can be a hassle. Simplify by checking details like email addresses, phone numbers, or IP addresses in real-time for insights into the user's identity without demanding extensive documentation.

2. Watch Social Media

Fraudsters move fast but often skip building a credible online presence. A lack of social media profiles is a big red flag. 

3. Find Connections

Fraudsters rarely stop at one attempt. Look for connections between many accounts by analyzing similarities in IP addresses, email addresses, and blacklisted phone numbers. Tracking software and hardware configurations adds another layer of insight.

4. Use Behavioral Analysis

Sophisticated fraud tactics mimic genuine behavior. Implementing behavioral analysis, powered by machine learning, helps distinguish between genuine and fraudulent actions. It adapts to evolving fraud tactics, adding an extra layer of protection.

5. Collaborate and Share Information

Combat fraud by collaborating with others in the industry. Establish networks to exchange insights and patterns. A collective defense mechanism strengthens resilience against emerging threats.

Application Fraud Prevention Strategies

Now, let's delve into effective strategies for detecting and preventing application fraud.

  1. Identity Verification Systems:
  • Implement an advanced fraud detection system to verify identities.
  • Use fraud detection systems to catch suspicious activity early.
  1. Behavior Monitoring:
  • Monitor customer behavior for unusual patterns.
  • Utilize fraud detection to stay one step ahead.
  1. Proactive Measures:
  • Be proactive in preventing fraud.
  • Prioritize application fraud prevention over reactive solutions.

Read more: Fraud Prevention Strategy: Why a One-Size-Fits-All Approach Fails

What is First and Third-Party Fraud?

First-Person Application Fraud

In the digital age, First-Party Application Fraud is a big concern. It happens when someone applies for something using false details, fooling the company into giving them that thing. Detecting and stopping this fraud is hard because the person doing it is the one applying.

In order to reduce the risk, companies can implement identity verification measures and remain vigilant for any unusual transactions. They can also use smart technology like machine learning to spot odd patterns. These steps help companies reduce the chance of first-party application fraud as the world goes more digital.

Third-Person Application Fraud

In the 21st century, Third-Person Application Fraud is a problem for businesses. This fraud occurs when someone uses another person's info to get credit. Fraudsters might do this for a loan or even to get a job, rent a place, or open a bank account. It's risky for the person whose information is stolen and can cause money problems for the business.

To stay safe from Third-Person Application Fraud, businesses need secure processes. This means checking the identity of every customer and anyone else involved. It also means using data analysis to find strange behavior and make sure all applications are real. Taking these steps helps businesses avoid falling victim to Third-Person Application Fraud.

Examples of Application Fraud

In this section, we will explore real-life instances of application fraud.

1. Insurance Application Fraud

Fraudsters target insurance companies by making false claims. They may exaggerate income for a mortgage, damage items for a claim, or lie about the policyholder, like car fronting.

2. Digital Bank Account Application Fraud

Fraudsters create fake profiles with stolen IDs to open bank accounts. They exploit referral promotions and launder money, and neobanks' smooth onboarding lets them slip through, causing promo abuse, fines, legal issues, and loan defaults.

3. Loan Application Fraud

Loans are risky for fraud. Fraudsters create synthetic IDs using real people's data. These IDs target those with no credit history, including the unbanked. Some go as low as using children's or deceased people's IDs to fool credit scoring.

Application Fraud From a Regulatory Perspective

Understanding application fraud from a regulatory viewpoint is crucial. Laws and rules in different places combat fraud, defining actions that are fraudulent and setting ways to prevent, find, and penalize them.

Regulations often insist on strict identity checks during onboarding to verify information. Fines and penalties are imposed for non-compliance, acting as a deterrent. Collaboration between regulators and businesses, encouraging the reporting of fraudulent activities, strengthens the fight against fraud. Also, adhering to regulations is not just a legal duty but a smart strategy for businesses to protect themselves and their customers.

Tools for Detecting and Preventing Application Fraud

To combat application fraud, businesses adopt smart techniques. Educate your team on common fraud areas, scenarios, and anti-money laundering. Use third-party verification and confirm corporate info. Many insurance agencies deploy AI tools for vehicle records, registration, and address verification.

Evolution of Machine Learning Solutions

Artificial intelligence and machine learning revolutionize fraud detection. Financial institutions use rules engines, supervised, and unsupervised machine learning. While supervised learning needs human tagging and regular updates, unsupervised learning evolves independently. Fraud-detection AI, such as FOCAL, speeds up and improves decision-making through automated analysis.

FOCAL's AI-powered Fraud Prevention solution provides advanced, real-time protection against emerging fraud types. It features cutting-edge AI for immediate fraud detection and proactive defense against high-risk connections. With easy integration and automated processes, it significantly reduces manual efforts and operational costs, ensuring a seamless experience.


This article explored the rising threat of application fraud, emphasizing its impact on businesses and individuals. Covering types, detection methods, and prevention delving into risks, costs, and the role of technology. Practical tips and strategies are offered, from real-time data usage to social media checks. The article details fraud techniques, online risks, and user behavior monitoring through velocity checks.

Further, a simple approach combining real-time data, social signal watching, connection analysis, behavioral analysis, and industry collaboration forms a strong strategy for detecting and preventing application fraud. Stay informed and use advanced fraud prevention solutions like FOCAL to safeguard against fraudulent activities.

FAQs on Application Fraud

Q1. Which Industries Are at Risk?

Fraud can happen in finance, ecommerce, telecom, healthcare, insurance, and government. It's crucial to have strong detection measures.

Q2. What to Do If You're a Victim?

Act fast if you suspect credit card application fraud. Report to the institution, watch your accounts, freeze credit, and tell the police.

Q3. How to Balance Security and Customer Experience for Businesses?

Use tools like FOCAL for fraud prevention and a smooth customer experience. Check identity, assess risk, and use tech like biometrics or machine learning. Keep an eye out and train staff for a good balance.

Q4. How can businesses safeguard against application fraud?

Through a multi-layered approach, including strong identity checks, continuous monitoring for suspicious activities, and staff training.

Q5. What dangers come with application fraud?

Risks include financial losses for businesses and identity theft for individuals.

Q6. Is application fraud widespread?

Yes, it is a common threat affecting various industries and individuals globally.

Q7. What is the most common type of identity fraud?

Financial identity (ID) theft is the most common type of identity theft.

One Suite To Simplify All AML Compliance Complexities