If you started reading this post but are thoroughly confused by the title, I admire your inquisitiveness and vow to do my best to clarify the point. Some of you might not recognize the term “address discrepancy”, so let’s start there. In consumer lending when a credit report is pulled, an address discrepancy describes the situation where the credit applicant provides an application address that is different than the address maintained at the credit bureau. This is very common, with 10% to 40% of all credit worthy applications having an address discrepancy (depending on the product and target clientele). So why should any of this matter to you? It matters because address discrepancy applicants happen to be highly profitable yet are the most likely to be declined for non-credit related reasons. That’s right; you may be unnecessarily declining a highly desired segment of perfectly legitimate applicants for no other reason than they moved to a new address. How you treat applications with an address discrepancy can have a profound impact on your top and bottom line.
So what makes applicants with an address discrepancy so good?
New movers have always been a highly sought after group amongst marketers. Why? Because they spend money—and lots of it. In the first 120 days after a move, the average new mover spends between $7,000 and $10,000 in non-discretionary income for items like appliances, home decor, paint or electronics. They are also in the process of re-evaluating all of their services from their local pizza place to their primary banking and lending relationships. Being able to identify their behavior can lead to more effective cross-selling at a time when they are begging to be sold. At a minimum, declining this group simply because of the address discrepancy is a huge missed opportunity.
Then why can’t we just approve all address discrepancies?
The realities of increased identity fraud risk and stringent compliance requirements make address discrepancies an especially tricky segment to deal with. ID Insight was founded in early 2003 to address the burgeoning problem of identity theft and the associated fraud. As we began looking at the data, we realized that the primary way in which criminals were committing identity fraud was to fill out a credit application in the victim’s name. The criminal would use all of the correct victim’s credentials except one—the address. This would ensure that any cards, statements and other correspondence were sent to the application (criminal’s) address, not the victim.
At the time, few banks and issuers were doing much to scrutinize address discrepancies for identity fraud. The Fair and Accurate Transactions Act (FACTA) changed this. Since 2008, when banks and issuers pull a credit bureau report and the application address differs from the bureau address, they are required to resolve the address discrepancy.
To comply with FACTA, most banks and issuers simply deployed their standard ID Verification systems to form a reasonable proof of identity. While compliant, it is by no means optimal. When consumers are legitimately moving and an address discrepancy occurs, we typically see that banks are only able to verify the consumer at the new address around 50% of the time. The question is what about the remaining, unverified 50%? When you consider that this population constitutes between 5% and 20% of all of your credit worthy applicants and that the vast majority are legitimate consumers—the answer is pretty important.
Some issuers do little or nothing with the unverified discrepancies. That is, if they cannot verify, they decline resulting in the loss of many new customers. Many others will take this large population and send them through various manual processes to form a reasonable proof of identity. Unfortunately, this can result in high costs due to manual intervention.
So what should we do with address discrepancies?
It’s not a matter of if you should “do more” or “do less” by way of conventional authentication controls on address discrepancies, the real solution is to do it “smarter”. By using non-traditional data and analytics, it is possible to increase your approval rates to 90% and greater, while reducing fraud and expense. ID Insight was founded nearly ten years ago to solve for this problem. By going beyond verification to holistically understand the pattern of the address change and the associated risk, we can then make a much more timely and accurate assessment of the relative risk of an address discrepancy. Clients are able to confidently meet their Red Flag and CIP compliance requirements, approve more worthy applicants, and prevent more application fraud.
And yes, in this case, it is possible to put the cork back in the bottle. If you have any questions or would like to discuss this topic in more detail, please contact me at firstname.lastname@example.org.