The Benefits & Dangers of Online Lending

the pros and cons of online lending

Online lending offers a valuable option for individuals in need of alternatives for financing purchases. It is fast. It is convenient. And it is growing more popular by the day. But it is also a thriving industry for cybercriminals, so lenders need to be aware of the dangers — and what can be done to protect institutions from fraudulent activity.

What are the dangers associated with online lending?

The threat is real. In 2016, there were roughly one million attacks by cybercriminals targeting online lending applications. It is also increasing. From the third to the fourth quarter of last year, the number of attacks increased approximately 150%. Fraudsters are getting more knowledgeable in their tactics and more aggressive with strikes.

Alternative and online lending appears to be a softer target for criminals, and they buy, trade, supplement and monetize identities that have been stolen. The qualities that make online lending so attractive and popular, convenience and swift processing, makes it harder to control. There is a vast amount of stolen data and an increasing amount of “synthetic fraud.” This is when crooks create an entirely new (and fake) identity.

If cybercriminals had been successful in all of their 2016 attempts — the approximate value of these loans is estimated to equal about $10 billion.

Trending Areas of Consideration:

  • Fraudsters are combining names and incorrect SSN’s to enter the credit bureaus’ systems – which is leading to credit affirmations due to “pairing” after lenders “ping” the bureaus
  • Cybercriminals are also discovering ways to decode the authentication algorithms – providing just enough correct data (and finding out what data is the most important)


What Can Lenders Do to Stay Protected?

As an overall approach, lenders need to manage the authentication of digital identities more effectively. The age of just relying on unique usernames and password is gone. But, the good news is multiple strategies emerging to help reduce fraud and make online lending more safe for lenders and consumers alike.

Options for Protection:

  • Device authentication – ensuring only authorized devices can connect to a given service, site or network
  • Behavioral analytics – analyzing an individual user’s digital footprint to understand high-risk or anomalous behavior
  • Two-factor authentication (2FA) – utilizing a two-step process like sending an additional unique code to a mobile phone or combining a password and a corresponding (and known) image
  • Machine Learning – offering a predictive model which uses data on previous transactions and online behavior

Biometrics will be an increasingly important and popular option in the future. Whether it is fingerprint scanning, facial recognition, or retinal scanning too, biological factors are much harder to duplicate than data. The mitigating factor will be the cost, but as with any technology, hopefully over time, the financial burden for this avenue will lessen.

Online lending will continue to be a critical business tool in spite of the dangers. Diversity and complexity in security measures are the keys to reducing fraud and risk to lenders. Collaborate with reputable partners and keep up with the latest industry news to protect your bottom line and reach your business goals.

Bay National Title Company performs settlement services and escrow duties with the utmost efficiency and accuracy through state-of-the-art technology in a paperless environment.