Borrowers are getting fake employment certificates for Rs 20,000: Report on loan KYC fraud (2024)

As per a recently released report titled, ‘KYC Risks in Lending’, 1 out of every 14 loan applicants tried to deceive Know-Your-Customer (KYC) checks and fraud detection systems done by banks, Non-banking finance companies (NBFCs) and Fintech apps. The attempts have been made by submitting someone else's photo Identity. The report has been released by IDfy - an integrated identity platform offering products and solutions for KYC, KYB, background verification, risk assessment and digital onboarding.

The report says that out of all the ID proofs accepted for KYC as part of loan applications by banks and other financial institutions, the Voter ID is forged the most with a 6.78% fraud rate, followed by PAN Cards at 3.84%, and Aadhaar cards at 3.11%. The report says that solutions that can catch Aadhaar tampering are only 85% accurate. As per the report, there is a mismatch between the name on the loan application and the ID submitted in case of 39% of loan applicants and 7.6% of borrowers have submitted a tampered photo ID.

The report suggests that the scope of underwriting checks needs to be expanded as well. As per the report, 18% of individuals with prior criminal records tend to willfully/deliberately default on loans and 14% of the borrowers lie about employment status in their loan applications.

This problem of document tampering and fraud is also widely prevalent in the employment and merchant onboarding space. There are multiple ways to bypass employment and criminal record checks. IDfy conducted field investigations that revealed that a fake employment certificate with complete stubs and tax documents can be produced for as little as Rs 20,000 in less than a week.

For lenders, it is very difficult to check if a court case or an FIR has been registered against a potential borrower. This is after most of the current risk detection platforms are already in place.

The report suggests a solution to detect employment fraud is an Employees’ Provident Fund Organisation (EPFO) check. Checking the employment status via EPFO can help verify the current employment status of the borrower and avoid fraud. Similarly, in the case of criminal records, a comprehensive background check for criminal or legal red flags through the eFIR database maintained by different states can help lenders detect potential fraud.

When a loan application is submitted by the borrower, the lending process starts with the KYC process. This includes verification of identity proof, address proof, income proof and so on. According to the report, a lot of frauds are reported at this stage. The most common frauds are:
i) Face comparison fraud - This means passing of live check with a non-live photo. Up to 7% of such cases are flagged.

ii) Name comparison fraud - The names on the Aadhaar and PAN cards do not match. Nearly 6% of the cases turn out to be fraudulent.
iii) Impersonation fraud - This refers to pretending to be someone else when borrowing, especially when one-time-password (OTP) is involved.

New-age frauds
The report also highlights new-age frauds which result in lenders disbursing money into the fraudsters’ bank accounts. This happens when fraudsters use their own Aadhaar and bank account details but another person’s PAN card to get loans. This is done by exploiting loopholes in the current lending process to achieve this. The steps via which new-age fraud is done are as follows:
i) Digilocker is used by lending companies so the fraudster’s Aadhaar card passes the face compare and liveness test. One needs an Aadhaar number and mobile number linked to Aadhaar to use Digilocker services for KYC purposes.
ii) Next, the fraudster submits the PAN card of another person. This helps in clearing CIBIL and credit history checks without red flags. The report highlights that lenders often do not check if the PAN submitted is linked to the Aadhaar of the borrower. Some companies do check but simply accept a Yes/No response which is not sufficient for verification.
iii) Another aspect of this fraud is that the names of the fraudster and the genuine person are similar. For eg: the spelling of the names - Goel and Goyal, Vinit and Vineet.
iv) The fraudster gives the mobile number of a genuine person to pass verification and follow-up calls by lending companies.
v) The fraudster then gives their own bank account details, unlinked to the PAN. If this is done smartly, the available technology will be unable to detect it, as per the report.

The best way to avoid this fraud is to simply check if the bank account is linked to the PAN given by the fraudster.

The report has been prepared after analyzing 80 million data points, as per the report released by IDfy.

Other innovative ways of fraud
As per the report, apart from the new-age frauds, there are other innovative frauds as well. For instance, the report also uncovered that collection emails never reach up to 18% of loan applicants who often utilize disposable email IDs. Upto 3% of the loan applicants use VPN to forge location and subsequently to evade repayment.

Due to such frauds, the credit scores of the individuals who were impersonated dropped. These individuals received calls from lenders for non-repayment of loans and top-ups that they had never availed.

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