How to Combat Financial Fraud with Identity Verification Solutions
Financial fraud skyrocketed last year, and the pandemic is making it worse. The latest Identity Fraud Report from Javelin Strategy & Research found that identity fraud totaled $16.9 billion in 2019, a 15 percent increase from 2018. This April, credit and debit card fraud rose 35 percent from a year ago. Technological advances have enabled fraudsters to steal more efficiently than ever before, and financial institutions are a prime target. To protect themselves and their clients, financial institutions must take action.
Fraud is a significant contributor to financial institution losses, but surprisingly, many banks use ineffective manual identity checks. It’s a sticky situation: FIs must thoroughly vet identities without making the process cumbersome for legitimate customers.
The way incumbent banks onboard and verify the identities of their customers online is inconvenient and insecure, resulting in lowered customer satisfaction and loyalty and security breaches leading to compensation payouts and legal costs.
The standard identity authentication process for a new account records and authenticates the following data: Given name, social security number, personal history, and address history. American financial institutions also need to comply with “Know Your Customer” (KYC), a policy for businesses verifying their clients’ identity to prevent crime. Often this process is performed manually, leading to inefficient processes and a considerable amount of error.
Opening new accounts is one of the leading methods of financial fraud. New account fraud is when fraudsters use stolen or synthetic identities to open new bank accounts and max out their credit limits before disappearing into thin air, usually within 90 days.
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To streamline authentication without compromising accuracy, many financial institutions are turning to identity verification solutions. This technology scans a government-issued ID and automates the entire intake and authentication process.
The return on investment for ID verification cannot be overstated. By streamlining workflows, you can increase operational efficiency and meet compliance for KYC and PII automatically. In turn, this efficiency will increase revenue for your FI.
However, the most significant benefit is protection against fraud. As we’ve discussed, fraud costs financial institutions billions of dollars each year. By investing a fraction of this in technology, you can minimize fraud losses for years to come.
What to Look For in a Solution
Issue Date Checks
When assessing identity authentication options, look for devices that verify government IDs based on the issue date. Many states are in the process of updating to the REAL ID and will have multiple current card styles at a time.
There are many different versions of identification cards across the country and world. A quality solution will perform forensic tests specific to the type of ID it classifies to truly test the authenticity.
Many identity verification solutions offer alerts for the user. These can be customized to professional role (such as branch manager or fraud department,) and send an email warning with flagged ID information and images.
Optical character recognition (OCR) technology is crucial for the intake portion of identity verification solutions. With OCR, these devices can extract, assess, read, and obtain biographic information on the ID card.
Look for devices that check watch lists in real-time. This feature will protect against fraud and help you meet OFAC compliance and other regulations. Furthermore, it provides an audit trail for documentation.
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When to Use ID Verification
Identity verification is crucial for new account openings, but when else can you deploy it? Many financial institutions opt to authenticate identity for certain transaction thresholds, such as activity frequency or dollar amount. ID verification is also useful for account changes, transferring funds, and high-risk transactions like wire transfers.
In the long term, ID verification can become a service that FIs offer. The financial services industry is already trusted to vouch for people’s identities. By scaling the process with automated workflows, this offering could help banks secure a spot in the digital economy.
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