Issue: Jul ~ Sep 2008
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White Paper
Tackling the issue of bust-out Fraud

Tackling the issue of bust-out fraud
Financial fraud is a crime on the increase and the fraudster’s methods continue to increase in sophistication, fuelled by a significant growth in electronic fraud.
It is not uncommon for the individuals perpetrating these crimes to be linked to organised criminal groups who favour it over traditional criminal activities that are given higher priority for law enforcement. It is also growing in popularity among the less sophisticated criminals fuelled by advances in technology and increasing competition among financial providers.
Bust-out fraud typically involves customers who:
1. Build a good credit history
2. Show good payment patterns and lodge high deposits within savings accounts
3. Have a good payment behaviour rewarded with increased credit limits
4. Suddenly increase their spending - or acquire additional credit facilities
5. Disappear suddenly, leaving behind unpaid balances
Bust-out is a growing area of open account fraud in the financial services industry. It is a type of first party fraud, where the fraudsters open new accounts with the intention of taking funds at a later date.

Within a retail banking environment, bust-out fraud involves a deliberate manipulation of current account behaviour.

The fraudster simulates normal banking

activities in order to inflate credit turnover and “fool” credit systems and behaviour scorecards into granting additional lending.

Bust-out is performed either on the initial credit product or on a subsequent product granted by the organisation.

The increase in spending could typically happen over a period of only a few days, giving the financial organisation very little time to react, and be left with a large unpaid balance and debt collection costs.

The identification of bust-out is difficult for many organisations given the uncertain timing and suddenness of the bust-out event. Many organisations and industry insiders feel figures reported for bust-out fraud underestimate the problem.

It is estimated that as much as 25% of credit losses can be attributed to this type of fraud.*

 

Some lenders use models to predict bust-outs and the white paper “Tackling the issue of bust-out fraud” from Experian outlines the work it has undertaken to develop more robust models. The research shows that there are many strong predictors including current account behaviour and transactional patterns, credit bureau trend data and ‘event’ trigger data.

The work by Experian demonstrates that there are practical measures that can be implemented to tackle the issue of bust-out fraud.

*From a survey of UK clients by Experian

 

Contact us for further information about this article or to request the new bust-out fraud White Paper from Experian
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