SME Lending on the Rise, Data Shows

Fraud in small business lending grew by more than 14% during 2022, according to research by LexisNexis.

The research and data company found that almost half (46%) of this increase was driven by the increase in remote and online activity since the onset of the Covid-19 pandemic.

Financial technology companies and digital lenders experienced the highest year-on-year increase, with fraud instances increasing by 16.5%. Larger banks and credit unions experienced a 15% increase, while smaller banks and credit unions experienced an increase of 13.2% during 2022.

While fraud-related losses at banks and credit unions averaged 5.2-5.4% of annual revenue, for fintechs and digital lenders this figure was 7%, LexisNexis’ research showed.

Nearly three quarters (72%) of the 147 lenders surveyed said they expected fraud to continue to increase over the next 12 months.

“Lenders should strive to be proactive in preventing [small business lending] fraud, taking action before any damage is done,” LexisNexis’ report stated. “But that’s not easy. Fraud has become more complex. Often, a variety of fraud risks can occur at the same time. And no one solution is effective at identifying and blocking all fraud.”

The rise in online and mobile business has led to this channel accounting for 70% of all loans originated in 2022, the research showed. However, it also accounted for 72% of all fraud losses.

As a result, nearly two thirds (64%) of lenders told LexisNexis they had changed their approach to how they detected and mitigated fraud and fraud risks.

Banks, credit unions and other lenders are investing in new fraud detection technologies and hiring more staff to monitor for and handle fraud cases, the research found.

LexisNexis recommended a “multi-layered” approach, combining different technologies and practices to give lenders “their best chance at identifying and preventing… fraud”.