COMMENTARY: The hidden cost of fraud in expanding access to credit

Fraud is often treated as a security problem, but I believe its real cost goes beyond financial losses, affecting access to credit and borrowing costs. According to the Bangko Sentral ng Pilipinas’ (BSP) 2025 Consumer Finance and Inclusion Survey, only about one in six Filipino adults borrowed from a formal lender last year. While access to formal financial services has improved, many Filipinos remain outside the system.

Filipinos regularly borrow from relatives, employers, pawnshops and informal lenders. A 2025 Boston Consulting Group (BCG) survey found that low-income households take roughly half their loans from informal sources. The demand exists, but the formal system is not reaching most of it.

The obvious fix would be for lenders to say yes more often, but that comes with a price. A first-time borrower with no credit history and no verified income looks remarkably similar on an application screen to a fraudster using someone else’s identity. In a market where fraud is widespread, data is fragmented and rarely verified by official sources, telling the two apart becomes the hardest and most expensive part of lending.

Fraud in the Philippines has also changed. According to BSP data, social engineering, account takeovers and identity theft accounted for 76% of fraud losses in the first half of 2025. Increasingly, criminals exploit people's trust rather than technological weaknesses. A “helper” offers to cash out your loan for a small fee and keeps the money, or someone offers you P1,000 for your ID, only for you to discover months later that a P20,000 loan has been taken out in your name.

The 2026 State of Scams Philippines report by the Global Anti-Scam Alliance, Mastercard, and Gogolook found that 84% of Filipino adults surveyed encountered scam attempts in the past year. The study also estimated annual scam losses at P121.8 billion.

When a lender cannot tell an honest borrower from a fraudster, there are only two tools left, rejecting more applications or pricing the risk into every loan, and neither is good for anyone. BCG estimates that a median-wage Filipino can face interest rates up to double those in Malaysia, India and Indonesia. Part of that difference may reflect the cost of lending in a system where data is scarce and expensive while losses are hard to recover. In effect, fraud works like a tax on financial inclusion, paid by honest borrowers through higher rates or rejections they did nothing to deserve.

Fraudsters, meanwhile, work as a network. Syndicates share methods and reuse the same identities and schemes against multiple lenders, while institutions often detect and respond to threats separately.

Credit bureaus show how people repay, but not necessarily which identities are compromised, which accounts are used for fraudulent transactions, or which new schemes are spreading.

Closing that gap requires cooperation among financial institutions, government, and consumers.

Lenders need trusted, lawful ways to share fraud intelligence, so that patterns detected by one institution can help protect others. The government has provided important tools, including the Anti-Financial Account Scamming Act of 2024, but that is only a first step. What matters now is consistent enforcement and judicial practice, so that organizers are held accountable, legitimate loan collections can be enforced, the rights of lenders and borrowers are protected and the promise that “nobody will ever collect this loan” stops sounding believable.

Consumers also have a role. Protecting identification documents, verifying financial offers, and being cautious about who they authorize to act on their behalf can help reduce opportunities for fraud.

Every fraudulent loan stopped through shared intelligence represents risk that no longer has to be priced into the next honest borrower’s rate. Every reduction in fraud losses gives lenders room to approve people they might otherwise reject. That is why I see reducing fraud as one of the most direct ways to make credit more affordable and reach the millions of Filipinos still outside the formal system.

About the Author: Serhii Shelest is the Deputy Chief Risk Officer at Skyro, a digital-first fintech company in the Philippines. He oversees antifraud and operational risk management, helping strengthen the company's approach to fraud prevention and risk management.

Editors Note: This commentary for Skyro is not covered by Philstar.com's editorial guidelines.