Fraud Fears Loom Over Stimulus Bill Lending

On March 26, the government approved a $2 trillion pandemic-era stimulus program, designating $350b for small business loans as part of the Paycheck Protection Plan (PPP).

Banks started administering loans on April 3rd, with the goal of getting cash to desperate businesses as quickly as possible. But they quickly hit a wall. Many were not prepared for the unprecedented volume of digital loan applications. One large institution received $6b in loan apps in just the first four hours of PPP launch.

That the process has been less than smooth comes as no surprise. Digital lending is still new enough that smaller institutions may not even have digital lending or enrollment platforms, while many larger organizations have not invested in lending platforms equipped for this kind of scale.

But above all, one concern looms especially large — fraud and financial crime compliance. Just as many institutions don’t have ideal digital enrollment and lending platforms, they also lack leading-edge identity verification and fraud solutions.

Making things more daunting, if banks provide loans to fraudsters, they may not be reimbursed by the government. In the best case scenario, there is confusion about who bears the risk of fraud in PPP. This seriously increases risk for rapid lending in new-ish digital channels.

To remedy the strain on traditional banks, the Small Business Association opened the doors on April 8 for fintechs to administer these loans. As digitally native organizations, fintechs may face fewer challenges, but they too will struggle with fraud in this new frontier of rapid scale.

As a first response to PPP fraud fears, traditional banks responded with hard limits — denying services to customers that didn’t bank with their organization or placing caps on loan amounts. Unfortunately, these decisions run counter to the government’s intention to support as many businesses as possible.

The banks want to do the right thing. Understandably, they do not want to lose money due to fraudulent activity while doing so. The good news is that identity and fraud solutions don’t need to be the biggest issues faced  by financial services organizations in their PPP programs.

There is a clean and relatively easy way for financial organizations to solve their identity and fraud challenges by implementing holistic solutions which include identity verification, real-time fraud risk and ID document verification in an integrated decisioning flow, leveraging a single API.

This holistic approach is simple in its implementation yet robust in its features. Identity verification and fraud prevention can be data-driven and analytics-based for laser sharp accuracy. It can be simply integrated with KYC or KYB and automated digital document verification. Seamless integration and simplified go-live mean that identity and fraud strategies are the enablers of a new nimble in digital lending.

These are tough times, and we’re here to help. As always, please email with questions or contributions at rivka@socure.com