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November 6, 2016

What are some industries that are threatened by fraud and false identity?

What are some industries that are threatened by fraud and false identity?

TL;DR: Industries threatened by fraud and false identity include those in which arbitrage opportunities are very high, e.g., companies that process e-commerce, insurance, job, and rental applications.

The underlying principle of fraud is that of arbitrage [1], i.e., when information, such as an airline ticket or a product, is acquired somewhere and resold somewhere else at a significant price difference.

Regulations determine the fine line between legal and illegal arbitrage opportunities. Generally, the greater the gain, the greater the arbitrage opportunity and the greater the likelihood of fraud.

In terms of industries threatened by fraud and false identity, the most notable is e-commerce because e-merchants find it hard to verify the identities of their customers [2]. With everything being digital, they don’t know whether the payers actually own the credit cards they’re using or whether the delivery addresses are real.

Similarly, insurance companies are highly likely to be affected by fraud since they rely on the assumption that the claims they receive are true, which may not be the case each time.

Job applications are another area where false statements may be made. Knowing that the odds of getting accepted for a particular job may be low (e.g., a 1% chance), some applicants may embellish their résumés or even make false statements.

Finally, applicants may make false statements on rental applications due to landlords’ high expectations in terms of monthly revenue, the low amount of housing available, and the large number of people searching for homes (this is especially true in big cities like Paris).

Fabrice is the CEO of Ubivar (www.ubivar.com), an AI-driven SaaS solution that helps e-merchants detect, verify, and manage payments at risk of fraud.


[1] Arbitrage - Wikipedia

[2] How does credit card fraud management work?