Online sales have low overheads and are a cheap way to acquire a customer. As there is no commission to pay to a third party, there is a quick return on the handset investment and profit is seen considerably earlier than through indirect acquisition channels.

Therefore, there is an obvious appetite to grow online sales in the current marketplace of falling margins. Coupled with this, customers now demand an instant decision when applying online – they no longer accept that web orders may be batched up and processed downstream. To remain competitive we need to provide a real-time decision. This was achieved during 2006.

Challenges

Distance selling, together with a real-time automated credit decision, creates issues in the removal of any form of human interaction between vendor and customer. This results in obvious fraud patterns not being picked up as quickly as they may have been with individuals manually processing orders. Therefore fraud applications can slip through the net if efficient controls are not in place.

Almost as soon as the credit decision became real-time, the fraud community became aware of this and attacked it. These are very well organised fraud rings which always attack the ‘weakest link’ in the chain and are constantly evolving and changing tactics in order to bypass the corrective actions taken. In addition to the increase in volume of fraud we also noticed a shift in the type of fraud. Traditionally, it had tended to be subscription fraud, but we now saw the latest ‘desirable’ handsets being targeted for export to Eastern Europe or Africa, which was largely through impersonation fraud, mirroring the trend seen throughout the credit industry over the last 18-24 months.

Impersonation is so much more difficult to detect at the point of application. Whereas previous scoring routines were able to indicate propensity for subscription fraud, ID theft is harder to determine without a resource intensive manual review – something which is neither practical nor acceptable to apply to all applications.

Mitigation

At Orange Credit Risk Management, we use a range of fraud prevention measures from Experian Decision Analytics, comprising both generic products and more bespoke solutions developed in association, specifically for our requirements.

The primary fraud detection tool we use is Detect. We worked with Experian to develop and enhance the detection rules for the online channel, which proved to be more predictive and produce fewer false-positive matches. The system incorporates the Detect Credit Score, which provides a risk assessment of the applicant as well as indicating the likelihood of the application being fraudulent. This enables the automation of decisions and reduces the resources required within the underwriting department.

At Orange, we also use a bureau-based scoring service, which gives a confidence level of the applicant’s identity being valid. The tool has proved invaluable in highlighting high risk applications and protects the business from identity fraud.

Analysis demonstrated that a large proportion of impersonation fraud was committed as company directors rather than individual identities (as company information is held in the public domain and is easily accessible). Experian’s systems accessed the Directors Database as part of our process flow, and provided a flag to state that an applicant through the web was also a company director, allowing for a manual referral policy rule to be created around this.

All of these products are deployed within the LinkSM Orange Strategy Management Generation 3 application processing system. Using this for front-end credit decisions has been extremely powerful – it brings all the above elements together and is very flexible, which is vital as the rules for fraud detection have to be continually updated as fraud trends evolve. As each new measure is implemented, it has an immediate impact on the fraud rate which is gradually eroded as the fraudsters change strategy. The flexibility of the solution means that, typically, changes can be made within 72 hours from concept to implementation, allowing us to react quickly to a dynamic fraud threat and counter new threats. The result is that the use of Experian Decision Analytics products has helped reduce fraud losses by 88%, saving millions of pounds.

The Future

In addition to our internal Orange database of known frauds called by the Orange LinkSM system, we are currently working with other UK networks and credit bureaux to establish a Telco industry fraud sharing database.

The power of sharing data comes from the increased level of information available for fraud checking, and the sharing of fraud information, means that the fraudster has nowhere to go, protecting the whole industry from this crime.

Melvyn Prescott – Senior Credit Analyst, Acquisition Management, Orange UK – From his presentation given at the Experian Decision Analytics Telco Forum 2007

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