Why Digital Retailing Is Increasing Fraud, and What To Do About It

Why Digital Retailing Is Increasing Fraud, and What You Can Do About It

By introducing readily available technologies into the online and in-store workflows, dealers can save themselves a lot of headaches.

No doubt, digital retailing is here to stay in automotive, and it is growing like wildfire. However, while most of the world thinks the auto industry is worried most about getting inventory levels back to normal, what they’re actually worried about is fraud — and the increase in digital retailing is the primary culprit with profit erosion as a significant threat.

According to mid-year industry estimates, approximately one out of every five car buyers were considered primarily digital, meaning they’ve done more than 50% of the work to buy a vehicle online1. Separately, according to the 2021 Cox Automotive Car Buyer Financing Journey Study, 96% of consumers said they are willing to apply for their financing online. These consumers revealed that online or digital platforms save time, and they tend to be more satisfied with their dealership experience than those consumers who take the same steps in person2.

Simply put, car buyers not only want to do their transactions online, they are increasingly doing just that.

New Opportunities Bring New Challenges

But therein lies the new challenge for dealers and lender partners. While they’ve seemingly solved one problem of how to give car buyers what they want — online purchase options — they’ve opened up Pandora’s box for more fraudulent threats.

This can’t come as a big surprise, especially since the broader retail industry has also been dealing with similar scenarios in e-commerce. Afterall, e-commerce is fast-paced, competitive and ever-changing. Digital purchase and finance resources such as mobile apps and wallets, cryptocurrency and financial technology are all now contributing to the next fraud opportunity.

During the pandemic, e-commerce fraud increased significantly worldwide. Mid-to-large general merchandise retailers faced 70% more fraud attempts per month during the 2020 lockdown than prior to that3.

More Fraud, But Dealers Don’t Know What to Do

Auto dealers and lenders now find themselves facing similarities. According to a recent study, 84% of dealerships have directly experienced identity fraud at their dealership since the pandemic, with a third seeing an over 20% increase in identity fraud-related activities since the pandemic started. And, in just the past year, 79% directly experienced an identity fraud-related vehicle loss at their dealership4.

The report, based on a survey of over 700 auto dealerships across the U.S., reveals that while dealerships cite identity fraud as their top fraud challenge/concern, and almost unanimously agree that its increase is because of the increased digitization of the deal, 67% lack adequate identity fraud protections.

When asked to explain the increase in identity fraud, 95% relate it directly to the increase in the digitization of the deal and remote buying experiences, with 86% predicting that as more of the transaction moves online, identity fraud will increase and become harder to prevent. The report also reveals that losses are not limited to identity fraud, with the vast majority of dealerships reporting an increase in loan application fraud in the past year. Seventy-seven percent saw a 10-20% increase or more, with over one-third reporting that one in every 100 applications at their dealership was fraudulent.

The report also investigates what dealerships have been doing to prevent fraud: “photocopying the driver’s license / ID” (64%) is number one, with the “Red Flags Rule” (56%) at number two. Only 33% reported using critical document authentication as part of their process, a significant disconnect.

Using Everyday Technology to Prevent New Fraud

Currently, most dealers utilize scanning technology to scan a person’s driver’s license to satisfy compliance, procedural checklists and to OCR the data to populate the CRM at the time of loan application or even during a test drive. While this process is important, it lacks a significantly critical element that can potentially prevent or even thwart the vast amount of synthetic fraud attempts.

Scanning of the driver’s license is important, but dealers must also utilize verification technology to validate the driver’s license and the person’s true identity. This additional step helps to validate and verify the individual via address verification, red flag, OFAC and synthetic fraud checks. It is estimated that a vast majority of dealers today still don’t include this verification step in their process, which is why photocopying is muscle memory for dealers, and a false sense of security.

Furthermore, sales personnel are repeatedly having over-the-phone customer inquiries send them a “text” of their driver’s license. These images (NPI /PII) can remain on the salesperson’s phone indefinitely, which is a direct violation of one of the new 2022 Safeguards Rules. Dealers and their partners can leverage new technologies today that combines prescreen, prequalification and ID verification tools to prevent fraudulent activity from happening.

With the proliferation of today’s digital and online shopping, the verification and validation of one’s identity is even more critical when a potential fraudster is sitting in the privacy of their own home filling out a loan application. Mobile and ID scan technologies are now widely used in online banking applications, and these could significantly help dealers during an online transaction.

By introducing these readily available technologies into the online and in-store workflows, dealers and their lender partners can save themselves a lot of headaches — and even more toward the bottom line.


1: https://www.wardsauto.com/dealers/auto-industry-transforms-signing-dotted-line
2: https://www.coxautoinc.com/news/2021-car-buyer-financing-journey-study/
3: https://internetretailing.net/growth-2000/ecommerce-fraud-trends-to-look-out-for-in-2022/
4: https://www.prweb.com/releases/2022/10/prweb18975650.htm

You May Also Like

How the Super Bowl Spawned New Video Creativity within the Automotive Industry

The industry leverages creative video in a variety of ways, not only to stand out amongst competitors, but to position their brands for greater success.

Now that this year’s Super Bowl is officially behind us, it’s safe to say the TV commercials shown throughout were as highly viewed as the game itself, in which advertisers showed their commercials to an audience of 113 million, the biggest in the past six years[1].

Whether it was comedian Will Ferrell pitching public acceptance for electric vehicles (EVs) on behalf of GM or Jeep remixing the popular "electric slide" line dance when promoting its second Stellantis offering, the automotive industry definitely played a large role during this year’s big game.

Prejudging Creditworthiness Can Cost You Sales

Today, there are better loan products for consumers whose creditworthiness isn’t reflected in traditional credit scoring metrics.

lendbuzz blog
Building the Right Omni-Channel Experience with Verification Tools

Many dealers continue to ponder the right digital retail strategy, and it is becoming clear that an omni-channel approach is the best approach.

Increase Your Alignment Sales

When properly presented, the alignment should be one of the most straightforward service operations to sell to the consumer.

Why All Evaults Are Not Created Equal

Today’s leading solutions afford the necessary protection to securely manage the electronically originated documents and assets.

Other Posts

Change is Constant: Dealer Success Requires Business Agility Powered by Technology

When it comes to enhancing customer experience, technology is vital to making the car-buying process as frictionless as possible.

How Dealers Can Navigate the Rising Cost of Doing Business in 2023

Risks and trends affecting your dealership — and how to work with your insurer to manage costs.

8 Questions Dealers Should Ask to Choose the Right VoIP Provider

Unlike traditional landlines, VoIP systems come with powerful features to help businesses make the right impression the first time.

You Aren’t Doing Enough to Prevent Fraud

Dealers need to implement what’s now considered everyday technology that can help them spot synthetic identity fraud before it happens.