Solving the Problem of First-Party Fraud

Do you do that online? Whatever “that” is, you probably do nowadays. The Internet has become a universal part of almost every aspect of our daily lives. Whatever you’re trying to accomplish today, there’s probably a website, mobile app, online store or social media link that could help you do that faster and more easily than ever before.

In the modern world, our extensive digital footprint can offer so many positive improvements in our daily lives. However, this digital footprint can also make us more susceptible to the risk of online fraud. Every day, there are thousands of online criminals attempting to conduct a variety of fraudulent schemes on all kinds of victims.

First, second, and third-party fraud are each known for varying levels of misrepresentation. This means misrepresenting yourself, misrepresenting someone else, or knowingly allowing others to misrepresent you. Today, we’re looking at first-party fraud and answering three questions: What is it? How does it impact you? And how do we solve it?

What is first-party fraud?

First-party fraud refers to cases of online fraud where a consumer misrepresents themselves, their information or their intentions. An individual will make a promise of future (re)payments in exchange for some type of goods or services online, with no intention to honour that debt. These fraudsters purchase goods online, secure services, apply for loans or credit cards and lie to financial institutions to secure more favourable rates.

This can be done by misrepresenting who they are, where they live, what they earn, their financial history or their willingness to cover a debt. This can extend to larger online fraud rings, where groups of individuals are persuaded to use their own information to obtain loans or credit cards on behalf of a criminal syndicate.

First-party fraud became far more prevalent in 2020 during the pandemic. This is as a result of the incredible growth in online activity for work, communication and shopping. Consumers have, unknowingly, become part of a huge (digital) criminal enterprise that preys on your financial data and personal information.

First-party fraud is often diagnosed and written off as a credit loss due to bad debt. The reality’s that a huge portion of what financial institutions, companies and small businesses perceive as bad debt is, actually, a case of online payment or application fraud. This can cause these organisations to mis-evaluate what they’ve lost to cyber fraud compared to credit risk.

How does first-party fraud impact you?

Almost all businesses and most financial and banking institutions have had to face the reality of first-person fraud. Whether you’re a large corporation, a small family business or an individual starting out on their first online venture; you’ll be susceptible to the reality of cyber criminals and their fraudulent schemes.

First-party fraud’s one of the most common causes of financial losses for anyone and everyone with businesses operating fully – or partially – online. The multitudes of online criminals who commit cyber fraud, or commission others to do it on their behalf, are looking to make money at the expense of businesses and financial institutions all over the world.

For organisations and institutions at risk of cyber fraud, it’s important to use digital tools and protections to help identify cases of bad debt from first-party fraud and to monitor their financial data to prevent fraud before it occurs. This means analysing and understanding your customers’ online behaviour and their financial history.

Interpreting online behaviours and monitoring financial transactions can help determine cases of fraud, but can leave room for other errors, losses and regrettable client interactions. It’s important to avoid imperfect or unreliable cyber-fraud solutions, which can strain relationships with honest customers who feel persecuted when questioned.

However, it’s also important to consider that good customers can develop fraudulent intentions and leverage their good credit history to commit acts of fraud or join larger cyber-fraud schemes. Distinguishing what losses are bad debt and what losses are caused by fraud helps companies better correct those losses and prevent them from damaging your earning potential in the future.

How do we solve the first-party fraud problem?

Due to the frequency and variety of fraudulent online schemes, that are growing proportionately to our increasing digital activity, we need to change the way we think about online fraud. Each case of first-party fraud and each company that suffers it will look a little different. However, humans can’t monitor and assess their financial data and transactions fast enough to identify cases of fraud.

Preventing first-party fraud requires the combination of malware detection, device assessment and behavioural and financial analytics tools; a digital solution for a digital problem. Banks, businesses and individuals can build a financial database that’s constantly monitoring for abnormal online behaviour. This identifies ‘normal activity’ associated with bad debt compared to losses caused by cyber fraud.

First-party fraud needs to be approached differently to second or third-party fraud and each piece of financial activity needs to be monitored and evaluated against your digital transaction histories.  Businesses need digital monitoring systems that identify potential cyber risks and alert managers, owners or lenders to potential fraud. This acts as a preventative measure against cyber risks and a useful tool for identifying bad debt versus fraud, not to mention the cost-saving opportunities.

At MarisIT, we are committed to protecting South Africans and their businesses from the growing threat of cyber fraud. We offer a range of products and services designed to mitigate cybersecurity risks and keep your online presence safe and secure. For more information, contact MarisIT today.

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