The financial services industry faces unprecedented challenges in protecting customers from increasingly sophisticated scams. With three in five Brits concerned about falling victim to fraudulent activities and fraud losses in the UK reaching over £570 million in the first half of 2024 alone, according to UK Finance, fraud vulnerability is at an all-time high for both customers and institutions.
Buying a house is one of the biggest financial decisions that most people will make in their lifetime. Market volatility and complexities in the home buying process are attracting an increasing number of fraudsters, leaving consumers and lenders vulnerable. Data from UK Finance last year found mortgage fraud in England & Wales had increased by 32.8 per cent.
The introduction of mandatory APP fraud reimbursement requirements in 2024 marks a crucial step forward in consumer protection. However, legislation that only acts as a reactive measure to fraud loss does not prevent fraudsters from exploiting the complexities of the home-buying process, targeting both customers and mortgage lenders through elaborate schemes.
True fraud prevention in the mortgage sector requires two things: cutting-edge technology with high quality data inputs combined with streamlined, transparent policies and processes. While digital innovation across banking and lending is advancing, with the rise of digital mortgage applications and remote verifications processes, 75% of banks are still struggling to address the vulnerabilities and implement new solutions due to their legacy infrastructure.
The outdated systems of yesteryear are not agile or robust enough to keep pace with modern data demands. They hinder efficiency by making it difficult for teams to generate meaningful data insights. As time goes on, these antiquated systems will become less capable of providing acceptable levels of protection against threats or support lenders and brokers from preventing and detecting fraud.
Leveraging cloud technology that can integrate real-time fraud detection, behavioural analytics, and automated verification will strengthen the UK’s ability to combat fraud in 2025. Over the next few years the use of AI to fight fraud may become more pronounced. Implementing AI can improve fraud detection in mortgage applications with machine learning, enhancing security for both advisors and customers.
While there are benefits to be gained from AI being able to spot threats more quickly, the systems are only as good as the data inputted. The best systems can still make bad decisions if they don’t have the highest quality data. That is why I believe AI in relation to fraud should be implemented to complement the human interactions.
It is also worth noting that as AI becomes more developed, there’s also the risk of scammers creating algorithms that can infiltrate the mortgage application process and so data protection and data back-up systems must be watertight.
The mortgage industry must make the mortgage application process more transparent from the outset. Fraudsters like to linger in the shadows. With a joined-up approach and data sharing between lenders, advisers and brokers, the industry will make sure the actual application process acts as a guardian to stop fraud, reducing the number of vulnerabilities that fraudsters can exploit.
If fraud vulnerability remains high, the UK could surpass its £1.17bn in losses (reported by UK Finance) last year. Protecting customers isn't just about implementing new regulations – it's about fundamentally transforming these reactive measures into proactive measures. Approaching financial security in this light will help keep more people safe from fraud in 2025.
