Helping Credit Unions Combat First-Party Fraud and Fraud-As-A-Service

By Roy Urrico

Fraud patterns across North America shifted sharply over the past several years —threatening credit unions, other financial institutions (FIs) and other industries — as criminals professionalized their operations, adopted generative artificial intelligence (AI), and exploited faster digital payments.

Atlanta-based LexisNexis Risk Solutions observed these changes and trends through its annual Cybercrime Report, The Calm Before the Storm? an analysis of more than 104 billion global transactions in the LexisNexis Digital Identity Network platform during 2024.

Kimberly White, senior director of fraud and identity market planning for LexisNexis Risk Solutions.

Kimberly White, senior director of fraud and identity market planning for LexisNexis Risk Solutions, offered some insight to Finopotamus regarding emerging fraud patterns.

She pointed to several key trends driving the current fraud landscape:

• First-party fraud, now the leading type globally, is becoming harder to spot. This type of fraud has doubled year-over-year and now accounts for 36% of all fraud, often blending in with legitimate customer behavior like credit defaults or account misuse.

• The dark web evolved into a fraud service-based economy (often referred to as fraud-as-a-service or FaaS). Dark web marketplaces now offer synthetic identities, mule accounts, stolen personal identifiable information (PII), and even fraud tutorials and mentorship, lowering the barrier to entry for organized crime.

• AI is accelerating the arms race. An estimated 85% of identity fraud cases now involve generative AI, from deepfake IDs to synthetic profiles designed to bypass “know your customer” (KYC) checks.

• Faster payments are creating new exposure windows. As digital wallets; buy now, pay later (BNPL); and real-time payments expand across North America, criminals exploit early-stage security gaps before controls fully mature.

“We know that fraudsters reuse devices, they reuse identities and phones and emails, and they do these behaviors within credit unions and financial institutions, but also outside of these industries such as telco, retail and e-commerce, as well,” White told Finopotamus. “No one really sees from a financial institution perspective the full picture. What the Digital Identity Network does is provide that shared intelligence, which reduces those blind spots overall. That shared intelligence really provides a whole ecosystem defense for credit unions.”

First Party Fraud Threat

First-party fraud in banking happens when people use their own identities to intentionally defraud FIs, frequently by misrepresenting financial status, defaulting on loans, or deceitfully disputing legitimate transactions.

White pointed too several recent developments. “It is just so easy now to commit; there is more customer-first policies exploited. We see a lot of normalization on social media platforms that talk about how to commit fraud, these viral fraud communities that are out there. It's hard to detect because it's a real identity.”

The traditional identity verification models don't know how to act with it, noted White, “because it's a real identity. You really have to look at it from overall behavioral analytics. You have to look at contextual information and really strong identity intelligence overall. And that's how Digital Identity Network helps with that as well.”

A Fraud Service-Based Economy

“I've been in the fraud and identity space now for almost 20 years. The dark web has always been there and available for fraudsters. But now it has really matured into this full-service fraud marketplace overall where criminals can buy full synthetic identities,” said White.

She presented a few of the available FaaS products such as pre-verified mule accounts, banking or crypto accounts opened using stolen or synthetic identities; aged email accounts, email addresses (frequently Gmail) created months or years before with a steady reliable history; and fraud tutorials.

“There's so much out there to really help a fraudster. The barrier to entry is nothing anymore if you want to become a fraudster,” said White. “So that makes it really hard because fraudsters can now scale at any level, and then you add gen AI to this as well to make the speed in learning even faster for fraudsters.”

This allows small fraud rings to operate like enterprises, even in terms of interruptions, suggested White. “What I think is interesting about the marketplaces is fraudsters are also being vocal about what really is frustrating them when they encounter strong biometrics or device fingerprinting, digital intelligence or when they can't get through a real-time liveness check. Fraudsters are getting much more sophisticated, but there are also ways we can combat that for credit unions and financial institutions.”

AI Contributing to Fraud

Gen AI tools, which are available to consumers and businesses, also make it easier to commit fraud, maintained White. “These gen AI tools can (make it) look like a real identity. Criminals can just use AI at will. Bad actors are using it for deepfake synthetic identities, voice cloning, that kind of thing. There is a really great way to combat it with AI by looking at more cross-linking identity elements, detecting subtle PII or PII manipulation, or looking at velocity tracking.”

Detecting subtle PII, White noted, encompasses shifting outside of just pattern matching to employ contextual analysis. PII manipulation refers to the unauthorized use of an individual’s data to commit ID theft. White proposed the way credit unions and financial institutions can combat PII misappropriation by employing responsible AI usage as a part of your fraud prevention program.

Slowing Down Fraud in Faster Payments

White referred to the advent of faster payments as “the fastest growing area for fraud.” She explained that when LexisNexis talks to customers and clients, they're all interested in what they can do with digital payments. “It's really about how real time payments, digital wallets are becoming more popular, more use of buy now, pay later, the crypto rails, instant settlement expectations.”

All of these faster transactions are coming at once for credit unions and the fraud teams within credit unions and financial institutions. “They just have seconds now, not days, to detect the anomalies and that's really the challenge. It's important to have more centralized visibility overall and do more around cross-channel monitoring, really a unified customer view,” White continued. “I really emphasize using more behavioral analytics layered with identity intelligence. You have to have the context overall, to really be able to combat this especially if you have to make decisions in seconds, whether this is a good customer or if this is a bad actor.”

Combatting New Trends

The Digital Identity Network provides organizations with the ability to detect and block complex fraud in near real time. “We really want to work with credit unions to move beyond static identity today,” said White.

She suggested the that traditional identity verification methods may not be enough. “We really want to work with them to understand, how they're incorporating more behavioral analysis, contextual analysis, networked identity intelligence. The Digital Identity Network with its threat metrics really helps with that.”

White continued that LexisNexis is trying to encourage credit unions to invest in real-time ecosystem visibility. “Having that shared global intelligence is so important because fraudsters can either bust out or take advantage of you in seconds.”

LexisNexis Risk Solutions is also integrating AI. “Everybody wants to talk about how are we're using artificial intelligence. We have robust, responsible AI principles (that we champion internally and externally) about how we embed it within solutions,” said White. She added, “We’re making sure that we govern it properly and provide that transparency overall. We encourage our customers as we're working with them to really, understand our responsible AI principles overall.”

White described some of the areas the LexisNexis dynamic decision platform can provide to credit unions, including member journeys for onboarding, payments, and workflows. “(The platform) can help them solve the problems that they're seeing and give more of that behavioral and contextual overview by utilizing, more of our identity intelligence overall.”

LexisNexis, explained White, is focused on helping and working with credit unions. “I've been in this industry for 20 years and, and the rise of fraud has been evolving faster than I think even most institutions anticipated. We're here help credit unions provide trust to their members overall. We're excited to help them address some of the challenges that they're facing.”