Dear Gini,

Our management believes we are open to potential fraud by not verifying customers’ statements on their applications, such as their employment and address. What is your recommendation? for data verification




Dear Phil,

The issue of verification is a difficult one. On the surface it seems only reasonable to verify everything customers have told you about themselves. The challenge is that you need to manage the cost and the time required to do so, versus the verification failure rate you would experience.

Let’s define verification failure first. “No, Joe has not worked here for 2 years. He started just 16 months ago”. This is not a failure; everyone exaggerates a little bit on an application. For example, my understanding is that most human beings underestimate their weight by 5 lbs. Shhhh!

A true verification failure is “No, Joe does not work here, we have never even heard of him!” Or, the heaviest guy in the Guinness Book of World records claiming he is 200 lbs. Based on this definition, actual verification failure rates tend to be less than 0.5%. If you are primarily worried about your pride, it might seem reasonable to attempt to catch out those applicants, but this is not about your pride, it’s about efficient and effective lending.

The cost to do full verification runs upward of $15.00 per application and can delay the approval process by over a month. In some high fraud markets, creditors charge their customers an application fee to cover these costs and everyone accepts the delays inherent in the process. Indeed, the creditors actually hire investigators to perform the verification tasks. Does this eliminate application fraud? No! In one case it was determined that the investigators were running a scam themselves! In other cases professional fraudsters had set up phone lines to “verify” their phoney applicants’ histories and got through the process anyway. It’s even been revealed in post process audits that a high percentage of verification declines were in fact valid customers, lost to the competition.

A better approach would be to understand that verification is NOT a credit process, but a fraud prevention process and best handled by your fraud department. In addition, there are ways to flag a small percentage of your application volume using algorithms designed to highlight more suspect applications and have the professionals deal with them.

Remember, the key here is materiality. Gini is happy to let anyone slide who underestimates their weight by a few pounds. However, there are limits, and it’s your job to constantly test and design new verification processes to catch them!

Good luck,


Have a question for Gini?

Please send your question by using the form below:

[contact-form-7 404 "Not Found"]

Ask Gini Terms
Content provided in this blog is for entertainment purposes only. Ask Gini blogs do not reflect the opinion of BankersLab. BankersLab makes no representations as to the accuracy or completeness of information in this blog. BankersLab is not liable for any errors or omissions in this information nor for the availability of this information. These terms and conditions of use are subject to change at anytime and without notice.

FOLLOW BankersLab on Linkedin…