The continual growth in online fraud has led to a shift in Financial Services and Telecommunications business priorities. Experian’s latest research report shows that nearly 3 in 4 senior decision-makers are now prioritising investments to improve protection against fraud.

This illustrates the severity of the fraud threat as more organisations find it necessary to look for new solutions to this problem.

Of equal importance to fraud prevention is the need to improve customer experience (73%).

These top two business priorities are closely linked – as fraud checks often have a negative impact on customer experience and conversion rates.

In response to this challenge, many organisations are looking to use emerging technology that provides a way to improve both of these core priorities.

The advanced analytical capabilities provided by Artificial intelligence (AI) and Machine Learning (ML) are creating new opportunities for organisations to enhance the way they combat fraud and interact with their customers.

These innovative technologies are already having a considerable impact with 62% of the survey respondents saying that AI and ML are radically changing the way they do business.

Reducing fraud and meeting customer expectations is a key challenge

As digital adoption continues to expand there is a corresponding increase in customer expectations for fast and simple application journeys. Experian’s research highlights the fact that a simple application process is the second most important factor for consumers looking for a loan or credit card.

Apart from the cost of borrowing, a simple application journey is now more important than ensuring affordability, the security of the provider and the speed of access to the funds. This indicates how critical a simple customer application is for businesses to drive conversions and stay competitive.

When you consider that 43% of the surveyed consumers felt that an online application was inconvenient if there were too many fraud checks, the negative impact of a slow application journey can be significant to revenue growth.

Finding the right balance between adequate fraud prevention and rising customer expectations is challenging for many organisations.

The research indicates that around half of the surveyed businesses are responding to this challenge by increasing their year-on-year budgets for fraud prevention, advanced analytics and digitalisation of their customer and internal processes. Investment in these areas should provide substantial ROI with a reduction in fraud losses and growth in new customers.

Technology is driving change with innovative solutions 

The pace at which AI and ML are being adopted is a good indicator of the impact of this relatively new technology. Just over half of the surveyed businesses (53%) have already invested in ML with nearly a third (31%) planning to invest in the next twelve months. AI has a similar level of adoption with 61% having already invested and 27% planning to invest in the next twelve months.

The top three use cases for AI and ML are data management, fraud risk decisioning and credit risk models. In each one of these cases, AI/ML can provide a step change in the capability of organisations to analyse and interpret data.

This allows them to create, test and deploy new models in far less time than what was previously possible. This is particularly relevant in mitigating the threat of fraud where ML allows businesses to continually adapt to the latest fraud patterns without manual analysis from fraud teams.

The integration of AI and ML requires considerable computing power which is evident in the uptake of cloud computing. Cloud solutions enable businesses to scale more easily with 76% of the business respondents saying that the flexibility and scalability of cloud computing was an important reason for investing in this technology.

Using AI and ML to improve the accuracy of credit application decisions or online purchases allows businesses to increase automation and therefore streamline their customer experience.

It means less customers are incorrectly rejected, whilst also lowering the number of cases sent for manual review – allowing for faster decisions for the customer.

An automated AI future

With annual fraud losses sharply increasing the use of ML is fast becoming an essential tool to combat fraud.

By adopting the latest technology businesses can keep pace with a constantly evolving fraud threat while improving their customer experience at the same time.

It creates awareness around the importance of financial management, learning healthy credit habits and understanding how to manage and build your personal credit report and credit score.

This awareness is vital because many people don’t understand how their credit profile is assessed or how their financial behaviours impact their credit rating.

At a time when interest rates are rising and the cost of living along with them, there has never been a better time to delve into the how, the why and the what of credit reports and ratings in order to build and maintain a healthy credit profile that will help establish stable financial foundations.

Affordability vs. Creditworthiness 

South Africa’s national credit regulations legally require financial institutions to perform an affordability study to assess your existing financial obligations and a creditworthiness study which assesses your debt-repayment history as a consumer under credit agreements. 

What that means is, financial institutions and lenders are required to perform an affordability check when someone applies for credit, to assess the applicant’s ability to manage payments and their creditworthiness.

While financial applications will differ from company to company as banks, lenders, and insurance companies, among others, will have their own processes, the affordability check by a lender is required by the National Credit Regulator (NCR).

If a person’s affordability assessment is not successful, the lender is unlikely to provide them credit.

The affordability element of granting credit ensures that the lender is lending responsibly, and this assessment is measured across earnings, spending, expenses and other financial commitments.

The creditworthiness aspect determines whether or not you can be trusted to pay on time based on your previous credit behaviour, particularly how well you repay your existing and previous debt.

This assesses your level of risk to the lender. Both these assessments play a significant role in how lenders perceive you.

The credit scores they may use as part of this process could be weighted differently depending on the type of credit you’ve applied for. For example, a car financing company’s score may weight previous car repayments more than smaller amounts whereas a mobile phone company’s score may look at how well you’ve handled smaller debt. 

Finding your credit report

You have the right to a free credit report every 12 months from any credit bureau in South Africa as mandated by the NCR and the National Credit Act (NCA). You can request your report from any one of the accredited credit bureaus in South Africa, such as Experian.

To get your Experian credit report, you can log into My Credit Check (www.mycreditcheck.co.za). Checking your credit report regularly will help ensure that your information is up to date, that it reflects an accurate credit history, and that you can check for any fraudulent activity to ensure that you are not a victim of identity theft.

Your credit report will include your identifying information, your account and payment behaviours, your employment information, details about whether or not you’ve been a principal in an enterprise, property information, and any previous enquiries.

It will also include any negative information such as skipped payments, judgments, notices, debt collections, etc.

 Understanding your credit score

Your credit score is a 3-digit number that reflects all these factors from your credit report. The higher your score, the better your chances of being accepted for credit, provided you pass the lender’s other criteria.

A higher credit score may enable you to potentially negotiate competitive interest rates depending on the provider as well. 

There are two types of credit scores – general bureau scores and custom scores. General scores are provided by credit bureaus like Experian as a guideline to your risk profile. Each bureau has a different scoring system and scoring bands so your score can vary from one bureau to the next.

Custom credit scores are developed by individual lenders and are unique to a specific business and its risk appetite. They rely on credit reports plus other information to create a final score. Therefore, your credit score between the bureaus and lenders can differ.

Simple steps to improve your credit score

If you would like to improve your score, there are steps you can take to better your rating.

1. Pay on time every month. A missed payment could create negative information on your report. Negative information affects your credit rating as it indicates that you can’t pay your instalments on time. Paying your full credit instalment on time, every month is the best way to keep a good credit score or improve yours.
2. Avoid applying for multiple accounts at once. Whenever you apply for credit, there is an enquiry on your account and multiple enquiries may affect your score as this is perceived as risky behaviour. If you personally check your report with bureaus, this is not counted as an enquiry and will not impact your score.
3. Budget for credit. Avoid taking out credit unless you can afford the monthly instalment. When applying for credit ask the lender to explain the repayment terms and interest rates and understand exactly how much you have to pay back with each instalment. Also, ensure you understand any other costs, such as credit life insurance. Having too much credit could lead you to miss payments, which would affect your score.

As you understand the effect that your credit behaviour has on your credit profile and score, you will be able to manage and maintain the quality of your financial reputation more effectively. It’s worth understanding how credit profile disputes work, how to check your information is correct and how to budget effectively to ensure that you are in control of your financial future.