Auto loan fraud targeted by new fintech company

A Toronto-based fintech company has developed a solution to help dealers and lending institutions battle the ever-growing problem of auto loan fraud in Canada, something that has been estimated to annually cost the industry $700 million to $1 billion.

Paays, a start-up company that provides digital identity, income verification and pre-qualification solutions to automotive dealers and finance sources, revealed on Thursday it has partnered with RouteOne. The Oakville-based company was formed by Ally Financial, Ford Motor Credit Company, TD Auto Finance and Toyota Financial Services in 2002 to improve the finance and insurance process for automobile dealers and their customers.

Paays Founder/Chief Executive Officer David Fry told Canadian auto dealer his company had been working on a customer identity program focusing on the travel market. He said when that industry was hit hard by COVID, his company thought about other places where the same types of identity problems may exist. In a conversation with a friend, Michael Carmichael, President/CEO of UpAuto, Fry found out how the automotive industry is moving toward digital transactions and how it’s become a target for fraud. Fry said a prototype was built and that was followed by conversations with dealers and lenders.

When that was finished, Fry began multiple conversations with various companies and formed a partnership with RouteOne to complete the integration.

“It’s really just the recognition of where this information needs to go and how it needs to get there,” said Fry. “Now we’ve got a seamless end-to-end solution that works a lot better for our customer. It’s got a lot more security for personal identifiable information. It works well for a dealer to fulfill that requirement either at a test drive or before a credit application goes in. We push the information into the credit app and any lender gets to see it Paays-ID verified.”

He said auto loan fraud is occurring with increasing regularity similar to other industries going more toward digital.

“RouteOne shared our ambition on that and identified that as a problem we could solve together and do it in a really integrated way,” said Fry.

RouteOne President Anthony Coulbourne said: “Auto finance is moving increasingly toward digitization and with that comes a heightened sense of risk of fraud. We’re pleased to integrate with Paays, who share our vision of creating better digital processes and outcomes for our customers while reducing fraud risks. The Paays ID verifier solution helps target auto loan fraud and solves problems from both the dealer and financial source perspectives.”

Carmichael said auto fraud has become an issue because of problems separating real identification from fraudulent ones.

“As the (auto) industry tries to push more and more on to online transactions, fraud is only going to grow,” said Carmichael. “It’s easier to hide behind a computer than it is in person, so it’s trying to find ways that we can intersect the customer with a low-friction piece of technology. No one wants to sell cars to fraudsters and banks don’t want to finance fraudsters, so how can we work together in a way that’s easy and achievable?”

Fry said about 500 transactions have been processed through the system with dealer stores and lease companies. He said an application programming interface has been built for lenders, and it costs between $2.50-$3.50 per transaction. He also said his company has an integration with TransUnion to do fraud checks to see if the applicant actually exists.

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