SMB lending fraud is growing, but there are ways financial institutions can protect themselves

Small and Midsized Business Fraud has increased 6.9% since 2020

Fraudsters are leveraging fake identities, synthetic identities, cyberattacks on account creation or identity spoofing for account takeovers.

Small and Mid-sized Business Lending Fraud Study Results


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Preventing SMB lending fraud

Small business lending fraud is a costly growing trend. All types of lenders are affected – large banks, small banks, credit unions and digital lenders.

  • Small and Midsize Business fraud has increased 6.9% since 2020
  • Fraud cost as a percentage of revenues is highest for fintech’s, though larger banks have seen the sharpest year-over-year rise in these numbers
  • Expanding threat vectors and schemes tied to identity fraud and bogus business identities demand a more dynamic fraud response
  • Rapid growth of the mobile channel is driving increased Small and Midsize Business lending fraud
  • Lenders utilizing a multi-layered solutions approach experienced a lower year-over-year increase in Small and Midsize Business lending fraud  

Small business lenders have been committed to elevating customer experience, which is a good thing, but it also creates the perfect environment for fraud. Lenders are focusing on streamlining the loan process, but that can make it easier for fraudsters to cheat the system. There are some common profiles fraudsters are using that include combinations of legitimate and fake businesses and real and bogus business owners or consumers.

Study findings show that smaller banks and credit unions (<$10B in assets) and digital lenders are hit harder by SMB lending fraud, which has increased at a higher rate since early 2020. As a percentage of revenues, they’ve experienced average fraud losses of 6.9 vs. 5.9% for larger banks (>$10B in assets). And, they’re likely to expect fraud levels to increase over the coming year. 

Study results also show that organizations that reported that they’re more effective at identifying SMB lending fraud actually are more effective. They’ve not only largely prevented fraud increases over the past 24 months, but experience a lower level of fraud – 3.0% of annual revenues (vs. 5.0% among those that are reported as only somewhat effective at identifying SMB lending fraud).

Your approach to fraud mitigation is as important as the tools you use to support it. Firms that track fraud tend to be more effective at stopping it early than those that don’t. Lenders who use a multi-layered solutions approach to assess fraud risk by various transaction channels and payment types, by physical and digital identity attributes and by transaction have experienced a lower year-over-year increase in SMB lending fraud.

Using a holistic approach that tracks fraud by both payment and channel type can halt fraud from  multiple endpoints and approaches. Fraudsters continue to test for the weakest links and where they can operate undetected. Knowing where they’ve been successful is important for plugging the gaps; but also knowing where they’ve tried and failed is important in order to maintain vigilance.

Outsmarting the fraudsters starts with having the right toolset and a multi-layered fraud strategy that supports a 360-degree view into the business and the people associated with the business. Combining advanced identity authentication solutions with advanced transaction and identity verification tools to assess SMB fraud risk will help to mitigate fraud risk. 94% of the businesses in our study that were the most effective at preventing SMB lending fraud engage in special fraud prevention initiatives. Get the full results of our new SMB Lending Fraud study to see how your financial institution compares and how you can shore up any gaps you may have. 

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Insights from Past Resources

First Party Debt Collections Report

2020 SMB Lending Fraud Study Infographic

First Party Debt Collections Report

2020 SMB Lending Fraud Study E-book

First Party Debt Collections Report

2020 SMB Lending Fraud Study Brochure

First Party Debt Collections Report

2020 SMB Lending Fraud Research Study

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