With the average cost of cars being close to buying a small house, auto financing is almost always required for most buyers. Digital retailing is here to stay in the automotive industry, and it is growing exponentially. While many think the auto industry is most worrying about getting inventory levels back to normal, their primary concern is fraud in digital retailing and the subsequent threat of profit erosion. According to industry estimates, approximately one out of every five car buyers is considered primarily digital, meaning they have done more than 50% of the work to buy a vehicle online.
According to the 2021 Cox Automotive Car Buyer Financing Journey Study, 96% of consumers say they are willing to apply for online financing. These consumers say online or digital platforms save time, and they tend to be more satisfied with their dealership experiences than those consumers taking the same steps in person. The bottom line is that car buyers not only want to do their transactions online, but they are also increasingly conducting business that way.
But therein lies the new challenge for dealers and lender partners, while they have seemingly solved one problem of giving car buyers what they want, online purchase options, they have opened a potential can of worms for more fraudulent threats. The hackers know this and are/will be targeting these online applications. This is not a total surprise, especially since the overall retail industry deals with similar scenarios in e-commerce. E-commerce is fast-paced, competitive and ever-changing. Digital purchase and finance resources such as mobile apps and wallets, cryptocurrency and financial technology all contribute to the next scam and fraud opportunity.
During the pandemic, e-commerce fraud increased significantly worldwide. Mid to large general merchandise retailers faced 70% more fraud attempts per month during the 2020 lockdown than before that time. Auto dealers and lenders now find themselves facing similarities. According to a recent study, 84% of dealerships have directly experienced identity fraud at their dealerships since the pandemic started, with a third seeing more than a 20% increase in identity fraud-related activities in that time. And, in just the past year, 79% directly experienced an identity fraud-related vehicle loss at their dealership.
The report was based on a survey of over 700 auto dealerships across the US and reveals that while dealerships cite identity fraud as their top fraud challenge/concern, (and almost unanimously agree that its increase is because of the increased digitization of the deal), 67% lack adequate identity fraud protections.
When asked to explain the increase in identity fraud, 95% relate it directly to the increase in the digitization of the deal and remote buying experiences, with 86% predicting that as more of the transaction moves online, identity fraud will increase and become harder to prevent. The report also reveals that losses are not limited to identity fraud, with the vast majority of dealerships reporting an increase in loan-application fraud in the past year. Seventy-seven percent (77%) saw a 10-20% increase or more, with over one-third reporting that one of every 100 applications at their dealership was fraudulent.
The report also investigated steps dealerships take to try to prevent fraud, “photocopying the driver’s license/ ID” (64%) is No.1, with the “Red Flags Rule” (56%) at No.2. Only 33% reported using critical document authentication as part of their process, a significant disconnect.
Currently, most dealers utilize scanning technologies to scan a person’s driver’s license to satisfy compliance when populating the customer relationship management (CRM) system at the time of loan applications or even during test drives. While these processes are important, they lack a significantly critical element that can potentially prevent or even thwart the vast amount of synthetic fraud attempts.
Scanning of the driver’s license is important, but dealers must also use verification technology to validate the driver’s license and the person’s true identity. This additional step helps to validate and verify the individual via address verification, and red-flag potential dangerous criminals and organizations as required by the Office of Foreign Asset Control (OFAC) or synthetic fraud checks. A large majority of dealers today apparently still don’t include this verification step in their process, which is why photocopying is muscle memory for dealers, and gives a false sense of security.
Sales personnel frequently have customers send them images of their drivers’ licenses via texts. These images (NPI /PII) can remain on a salesperson’s phone indefinitely, which is a direct violation of one of the FTC’s new 2022 Safeguards Rules, which goes into effect 9 June. Dealers and their partners can leverage new technologies today that combine prescreen, prequalification and ID verification tools to prevent fraudulent activity.
With the spread of current digital and online shopping skyrocketing, the verification and validation of one’s identity is even more critical when potential fraudsters fill out loan applications in the privacy of their own homes. Mobile and ID scan technologies are now widely used in online banking applications, and these could significantly help dealers during an online transaction. By introducing these readily available technologies into the online and in-store workflows, dealers and their lender partners can save themselves a lot of headaches and save even more toward the bottom line.
Red Sky Alliance is a Cyber Threat Analysis and Intelligence Service organization. For questions, comments or assistance, please contact the office directly at 1-844-492-7225, or feedback@wapacklabs.com
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source: https://www.wardsauto.com/dealers/fraud-digital-retailing-here-s-what-dealers-can-do
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