Analysis Featured

Fraud caused 12% of losses in P2P online lending in 2014

IdentityMind, a RegTech company, reports that according to its analysis, fraud caused 12% of losses in P2P online lending in 2014. That translates to almost 1.2% of total funding which is 2-3 times as compared to banks or retail cards.

The alternative lending industry is facing concerns around data accuracy and data verification.

Besides internal company controls, the big issue facing the MPLs of all size is online fraud.

Fraud caused 12% of losses in P2P online lending in 2014 1
Source: IdentityMind Global


The lack of physical interaction, lower underwriting standards due to higher competition and tens of thousands of dollars in plunder in a single hit is luring many sophisticated fraud rings to this industry. Even if one group can demonstrate that it can circumvent the algorithms of a lender at will, it can practically bankrupt the company in no time. This issue has become vital not only for the profitability but the continuity of the industry.  It is important to understand the size of the problem:

Fraud caused 12% of losses in P2P online lending in 2014 2Fraud caused 12% of losses in P2P online lending in 2014 3  Fraud caused 12% of losses in P2P online lending in 2014 4

Source: IdentityMind Global

The MPL industry’s grappling with the issues of online fraud has led to the birth of multiple risk management solutions and KYC validation agencies looking to add a layer of protection to the existing fraud detection systems of alternate lenders. Ideally, the first step for fraud protection should be multiple KYC checks so as to ensure the authenticity of the applicant. The originator should verify the social security number and whether the data provided by the prospective borrower can be connected to any public record which will authenticate the same.  The physical address can be a treasure trove of information, not only it helps understand the socioeconomic position of the client, it also can assist in unmasking scams. Experts agree that addresses associated with prisons, hospitals, universities, warehouses etc are a potential source of fraud. The MPL should also have access to private database providers to ascertain that the applicant is not on any kind of blacklist.


3rd party companies like Microbilt offer existing and proven proprietary anti-fraud tools. For example, Microbilt’s Instant Bank Verification (IBV) product allows lenders to verify that a bank account as reported by the borrower is correct and accurate.

Experian, one of the three largest credit agencies in the US along with Equifax and TransUnion, has launched Hunter – a fraud detection technology for financial institutions. It relies on its extensive databases to cross-link applications and find patterns of fraud. It has been successfully incorporated in the credit monitoring systems of multiple banks and has helped save its clients millions of dollars. There are other fraud detection systems reliant on databases like Contego; it recently partnered with LendInvest for enhancing its due diligence process. Contego enables real-time identity verification by aggregating ‘best of breed’ data from a variety of sources, including law enforcement agencies, commercial suppliers and open data sources. KYC authentication and database scouring for any red flags should be the first line of defence for any MPL looking to fight fraud.

KYC Database authentication is important but the history of the device and the email address from which the application has been made can be a rich source of information. Devices can provide insights which can help deduce the intentions of the person behind the device. Technological solutions exist which identifies and continues to recognize devices over time without requiring personal information. Emails are the first point of contact today and as such a lot of information can be gleaned from the users email ID. Companies like Emailage provide transactional risk assessment by assessing and scoring email data for organizations around the world. It is able to provide advanced information like whether the customer’s name matches the email owner’s name, instances of email tumbling, velocity of the email and other unique characteristics which are not available from a simple online application. Iovation and ThreatMetrix work in the field of device authentication and their tools are being used by multiple banks, credit card companies and online lenders to catch fraud before it takes place.

Proxies and Tor

Proxies and Tor network help not only the office staff to bypass company firewalls for accessing Facebook incognito, but are increasingly used by anonymous online groups focussed on committing fraud continuously. It is extremely vital that an online lender reviews the IP address of its online applications to analyse the geolocation of a borrower by triangulating IP address, phone number and billing information.   Also essential is to understand the flow of traffic to the website; is the traffic coming from non-corporate proxies, is it originating from the Tor network or is it being initiated by a bot? All the above should raise a red flag in the credit department. Companies like Neustar , Kount, IdentityMind have the ability to IP pierce to identify the real location of the user. Being able to examine the real location of an IP in conjunction with billing address and KYC adds another dimension to fraud prevention.

Marketplace originators have revolutionized the business of lending. They have been able to facilitate tens of billions of dollars in additional funding and have entered the mainstream after the IPO of LendingClub and OnDeck. But their soaring popularity and online exclusive approach have made them a prime target for online fraudsters looking to make a quick buck. The industry has emerged to provide a hassle free experience to borrowers and pass on the savings from a non-brick and mortar structure to the investors. It is unlikely they will revert to physical checks to solve fraud. With multiple SaaS providers emerging to provide tools like KYC authentication via multiple databases, email and device identification and geolocation analysis by IP piercing, targeting scams by augmenting existing in-house fraud protection systems is a no-brainer for online originators.

Author: Heena Dhir and George Popescu

George Popescu
George Popescu





About the author

George Popescu

Serial entrepreneur.

George sold and exited his most successful company, Boston Technologies (BT) group, in 2014. BT was a technology, market maker, high-frequency trading and inter-broker broker-dealer in the FX Spot, precious metals and CFDs space company. George was the Founder and CEO and he boot-strapped from $0 to a $20+ million in revenue without any equity investment. BT has been #1 fastest growing company in Boston in 2011 according to the Boston Business Journal and the only company being in top 10 fastest in 2012-13 as it was #5 in 2012. BT has been on the Inc. 500/5000 list of fastest growing companies in the US for 4 years in a row ( #143, #373, #897 and #1270). After the company sale in July 2014 until February 2015 George was Head-of-Strategy for Currency Mountain ( ), a USD 100 million+ holding company focused on retail and medium institutional currencies, precious metals, stocks, fixed income and commodities businesses.

• Over the last 10 years, George founded 10 companies in online lending, craft beer brewery, exotic sports car rental space, hedge funds, peer-reviewed scientific journal ( Journal of Cellular and Molecular medicine…) and more. George advised 30+ early stage start-ups in different fields. George was also a mentor at MIT’s Venture Mentoring Services and Techstar Fintech in NY.

• Previously George obtained 3 Master's Degrees: a Master's of Science from MIT working on 3D printing, a Master’s in Electrical Engineering and Computer Science from Supelec, France and a Master's in Nanosciences from Paris XI University. Previously he worked as a visiting scientist at MIT in Bio-engineering for 2 years. George had 3 undergrad majors: Maths, Physics and Chemistry. His scientific career led to about 10 publications and patents.

• On the business side, Boston Business Journal has named me in the top 40 under 40 in 2012 in recognition of his business achievements.

• George is originally from Romania and grew up in Paris, France.


Click here to post a comment

Your email address will not be published. Required fields are marked *


default image

"Your daily letter is great!" , Ram , Founder and CEO, PeerIQ

default image

"Hi George - just want to tell you that you are doing a great work with Lending Times;-) Brgds, Kasper" , Kasper, Partner and Co-founder at Dansk Faktura Børs A/S

default image

"I've been following your newsletter for some time now and have been very impressed with the content." Charlie,Co-Founder | Bolstr

default image

"Hey George, I must say I really enjoy your site. It has inspired me to do some changes at our platform and we are the biggest consumer lender in Sweden." , Ludwig, CEO @ Savelend Sweden AB

default image

"Your daily email is very useful. It gives quick update on what's going in the market. Thank you very much for all that info." Yann Murciano, Head of Base Metals Trading at Morgan Stanley

Our daily p2p news digest

Daily News Summary Digest Sent Daily To Your Inbox