3 ways to curb trending fraud in finance
IDology’s Fifth Annual Consumer Digital Identity Study finds that 57% of consumers created an online account in 2022, up from 50% in 2021, indicating continued growth in digital adoption. In a recent webinar with BAI, our Chief Product Officer, Heidi Hunter, mentions that while higher adoption of digitization has made it easier for consumers and businesses to interact with each other, it also creates more opportunity for threats like synthetic identity fraud (SIF).
These threats are the cause of major financial loss with data from the Federal Trade Commission showing that consumers reported losing more than $5.8 billion to fraud in 2021, an increase of more than 70% over the previous year. Additionally, consumers also show apprehension toward the future, with 56% expecting fraud attempts to increase over the next 12 months, up from 36% of over the previous year. So, institutions face financial loss and consumer concern in the wake of surging massive digital adoption.
To better prevent fraud, protect their customers and truly master the digital landscape, financial institutions should consider these essential components of a smarter, multi-layered approach to identity verification:
1. Automate Know Your Customer (KYC) and Know Your Business (KYB) checks
Unlike Know Your Customer (KYC), which focuses on verifying individuals, Know Your Business (KYB) focuses on identifying companies and suppliers. KYB is a verification standard that confirms the legal status of a company and its compliance with Anti-Money Laundering (AML) and other regulations. However, there is still an individual being verified through KYB—the Primary User, or the person responsible as a legal representative of a business, also known as the Ultimate Beneficial Ownership (UBO).
Heidi cites the fastest growing area of fraud is in the identity theft space, which suggests institutions need to embrace automation to handle a potential influx of illegitimate identities. An automated solution for KYB provides actionable intelligence needed to streamline onboarding workflows for legitimate businesses, while dynamically escalating higher-risk customers with enhanced layers of authentication for additional assurance. Receive verification results data in real time, including any risk conditions detected and associated with the business and ownership.
2. Take advantage of cross-industry consortia data
Fraud, especially synthetic identity fraud (SIF), moves between industries indiscriminately, making effective prevention a group effort. Aite-Novarica Group projects losses due to SIF to reach more than $4.1 billion this year, which means fighting this threat needs to be a top priority. In her conversation with BAI, Heidi shares the unfortunate process fraudster use for laundering stolen money during tax season, “We see the typical types of behaviors where…a fraudulent refund has been sent, it’s been dropped into new accounts that were created or accounts that were taken over. We’ll watch it move through money management, they [fraudsters] will do a P2P transfer or some type of payment to ‘wash’ it and get it out then the money is gone.” Heidi goes on to say those companies in the tax space have gotten very good at tracking trends and responding accordingly and that financial institutions can take advantage of that level of awareness.
This is where data shared between an extensive network of cross-industry parties becomes critical. A consortium fraud network enables different institutions to benefit from fraud data and learnings elsewhere in the ecosystem, securing the whole network more effectively. Utilizing consortia data amplifies real-time fraud intelligence between companies in the network anonymously, giving institutions insight into fraud threats trending in other industries.
3. Provide better flexible, low-friction, customer journeys
With the shift to digital, consumers now have more options than ever and set the bar high for the quality they expect from digital experiences. A flexible customer journey means delivering the right verification journey to the right customer at the right time, fast-tracking trusted identities while taking higher-risk ones on a more secure path.
While onboarding is the starting point for customer relationship building, it is also the most effective place to stop fraud. Organizations must prioritize mitigating potential fraud losses and keeping identity verification costs in check. Flexible, low-code tech allows institutions to customize and evolve their identity verification programs to meet the unique requirements of their industry, use case and business need, while defending against regulatory risks and novel fraud schemes.
Financial institutions are in a unique position to protect the consumer and build trust while preventing fraud from entering their enterprise. Achieving this balance offers a true competitive advantage, especially considering that 70% of consumers surveyed are considering signing up for or switching financial service providers.
Institutions can win consumers over in an increasingly competitive marketplace by being better prepared to strike a balance between convenience and security. With intelligent IDV as a strategic focus, financial institutions are empowered to deter more fraud, streamline workflows and apply friction only when needed.
Watch the full webinar here How Financial Institutions Can Overcome Fraud to Master the Digital Environment.