The current most prominent methods of financial fraud are organized fraud, regional fraud, and targeted-occupation fraud. Various criminal and fraudulent organizations, including organizations developing illegal software, hacking databases for sale, and batch registration, have been working together to increase profits. However, their golden times are over now.
With the further development of regulatory compliance in the P2P lending sector, the number of P2P lending platforms is gradually decreasing. In addition, as financial technologies continue to improve through the combination of technology and finance, anti-fraud technologies have started to be broadly applied in financial risk control.
Financial fraud disrupts market order
P2P lending platforms are intermediate platforms that help link users. Some users with malicious intent are now organizing to manipulate portions of the sector.
Insiders have said that certain malicious borrowers used a model similar to “credit card cashing”, whereby they borrow money on P2P lending platforms in bulk via apps or other illegal means, which are basically miniature Ponzi schemes.
These activities are not all done by hand. Some utilize automated software and other methods to automatically register batches of users, which has been labeled “automated” fraud.
While the newly emerged Fintech sector has created a lot of barriers against malicious users, the profit-driven swindlers continue to find new ways around these barriers. Data shows that fraud related losses amount to nearly RMB100 billion per year in the payment sector alone.
An insider once commented, “Certain P2P platforms only have a user retention rate of 20% following promotional events due to malicious users while the remaining 80% became inactive. Platforms spend a lot of money on marketing which has directly led to continually rising costs in customer acquisition.”
These groups of malicious users are usually organized, region-based and target certain occupations. They not only disrupt the market order but also cause heavy losses for platforms and investors.
Mature application of anti-fraud technology to enhance risk control development
“After 3-5 years, with the improvement of the national credit rating system and user data application, intelligent online lending risk controls will be rolled out through the entire process. While the application of intelligent risk control systems has emerged, it has not yet gained popularity.” An industry insider believes that while dealing with organized financial fraud, the industry also needs to further improve risk control systems.
Fortunately, at present, certain platforms in the sector have implemented anti-fraud technology and achieved good results thanks to the gradual advancement of financial technology. Hexindai is a typical example.
1. Hexindai’s risk control technology has laid a solid foundation for anti-fraud progress
Since its establishment, Hexindai has been operating safely for more than four years. As of December 2017, accumulated loans facilitated from the inception of the platform exceeded RMB14 billion while the accumulated interest return to investors was nearly RMB600 million.
What’s behind these amazing results is the risk control system that Hexindai has built by leveraging big data and cloud computing technologies. The system has 200 risk-control expert scorecard models and multiple machine learning models, which can access large quantities of data from various sources and perform calculations and analysis at data processing speeds of millions of times per second. By doing so, Hexindai can comprehensively understand borrowers’ credit status and gain more acute insights into anti-fraud and pre-loan credit evaluation.
Aside from its self-developed credit database, Hexindai also effectively monitors and blocks fraudulent activities leveraging various information sources including third-party personal credit rating systems and shared blacklists.
Pre-emptive alert is the first step in an anti-fraud firewall and can block the majority of fraud.
2. Introducing new technologies to enhance anti-fraud capabilities
On July 24, 2017, Hexindai announced that it has entered into an agreement with GBG DecTech, to implement its Instinct Application Fraud Detection Solution (“Instinct”).
The main purpose of the agreement is to achieve a quick and detailed comparison of borrower credit information, in order to locate and detect fraudulent information and ultimately prevent and reduce the risk of syndicate, small time, third party, and internal application fraud, as well as reduce first payment defaults through effective screening by humans or systems. This ensures that the company does not become an easy target for fraudulent applications.
From the perspective of operating rules, this is a simple but effective anti-fraud program.
Hexindai launched the “Instinct” system in the fourth quarter of 2017, which has further strengthened Hexindai’s fraud detection systems.
The entire P2P lending sector is evolving. With the continuous improvement of credit rating systems, utilizing risk control systems that leverage anti-fraud technologies has become the mainstream trend in China’s P2P sector.
Mr. Xinming Zhou, Chief Executive Officer of Hexindai, said, “Anti-fraud technology is becoming more and more mature, whether it be in terms of its development trend, pre-emptive alerts, or application of big data. This will further enhance the financial risk control capability of the entire sector.”