Digital Retailing: New Sales Opportunities, New Fraud Schemes

The automotive industry is undeniably undergoing a significant digital transformation. This evolution, accelerated by consumer preferences and technological advancements has opened a new frontier of sales opportunities for car dealers. The move towards digital path-to-purchase experiences and fully digitized transactions is more than just a trend—it’s the future of car buying.  However, as with all advancements, it has opened the door for more advanced fraud schemes, exposing dealers to significant challenges and financial risks.

In 2022 alone, our Identity Fraud Survey Report estimated a staggering loss of over $1.3 Billion due to fraud schemes -with the actual figure likely much higher.  This isn’t a perceived threat—it’s an escalating reality that’s being exploited in real-time, every day.

Common Fraud Schemes

As fraud schemes continue to refine and elude detection, it’s essential for car dealers to understand the risks and adopt robust preventative measures to protect their businesses.  Here are four common identity fraud schemes threatening car dealers today:

1. Document Fraud: Document fraud often complements other forms of identity theft such as true name fraud or synthetic identity theft. Fraudsters create, alter, or use counterfeit, forged, or stolen documents like passports, social security cards, or bank statements to commit fraudulent activities. As these transactions become digital, it becomes increasingly challenging to authenticate documents, exacerbating the risk for dealerships.
2. Synthetic Identity Fraud: This fraud involves creating a unique but false identity by combining personal information from various individuals or entirely fake details. These synthetic identities can establish genuine-looking credit profiles, enabling fraudsters to purchase expensive items such as cars with no intent of repayment. This type of fraud often goes undetected until significant defaults occur or unpaid debts surface.
3. True Name Fraud: A classic case of identity theft where criminals steal and use a victim’s personal details to commit fraud. The perpetrator uses the victim’s identity to take out credit, like car loans, causing severe repercussions for the victim and inevitable losses for the dealership.
4. Straw Borrower Fraud: In this scheme, someone with good credit (a straw purchaser) falsely fills out loan documents to facilitate a low credit individual’s purchase. The loan typically goes unpaid, costing the dealerships the vehicle and potentially impacting the bottom line if the lender asks for a buy back.

Recognizing these fraud schemes is the first step in protecting your dealership from their risks. However, it’s essential to understand that existing fraud controls often fail to provide adequate protection. Dealerships using only manual identity verifications (i.e., photocopying the driver license) or compliance-driven fraud safeguards (Red Flags Rule) are setting themselves up for potential risks and making their businesses an attractive target for advanced fraud schemes.

Today’s fraud schemes have evolved.  Your fraud prevention strategy must evolve too.  Given these threats, what steps can owners and general managers take to shield their dealerships from these expensive risks?

Identity Proofing Technologies in Digital Retailing

The increasing difficulty in detecting and preventing fraud schemes underlines the need for sophisticated fraud prevention technologies and a multi-layered approach to identity proofing.  The right combination of technology reduces customer frictions and is both faster and more accurate than the best-optimized manual methods.

1. Identity Document Authentication solutions forensically authenticate the driver license in real-time to catch expired, stolen, forged, and tampered with IDs.  Document authentication can be used for both in-person and remote transactions.  And performed on any driver license, or any other government issued ID document, issued from the U.S. Canada, Mexico and most other countries.
2. True Identity Verification solutions are designed to detect synthetic and true name fraud red flags by verifying the customers PII (including address, phone, email, and the individuals unique ID combination of Name, DoB & SS#).  These solutions work by cross matching customer-provided information against hundreds of databases, including government agencies, public utilities, cell phone carriers, etc. to verify the customer’s information.
3. Proof of Presence solutions use multi-factor authentications to establish “proof of presence” at the point of sale to confirm the person is the person they say they are.  These fraud prevention solutions compliment or replace traditional knowledge-based authentications with a ‘proof of presence’ feature that sends a one-time passcode to the cell phone number of the customer identified by the phone carrier to confirm the authenticated buyer is physically present at the time of the transaction.

Cyber Attack Protection

Another, much less talked about identity fraud scheme threat comes in the form of cyber-attacks.  A cyber-attack is a deliberate exploitation of your systems and/or network for nefarious reasons.  Car dealerships are prime targets for hackers eager to exploit weak security and access to PII (Personally Identifiable Information) and availability of financial information.

So, how can car dealerships protect themselves against these threats? A good place to start can be found here: How to Protect Your Dealership from Cyber Attacks 

Conclusion

Like many challenges facing our industry, the problem of fraud will never go away.  We expect it to continue to grow and become even more challenging to prevent.  The challenge is real.  And so are the solutions.  The most effective fraud prevention strategy should be combination of technology, automated processes, and a documented identity theft prevention program (Red Flags Rule) that works together to make the car buying process faster and safer. Prevention is always better than cure, especially when your dealership’s reputation and financial health are at stake.