The world of identity management is fluid. Consumers are disclosing their identities across digital platforms, fraudsters are keeping up with technology and finding lucrative ways to obtain these identities, and organizations are racing to plug the gaps.
Legacy systems may no longer be adequate for detecting potential fraud and processes for weeding out bad actors are often burdensome on good customers. Anne-Marie Kelly, Executive Director of Identity Management and Fraud Solutions at TransUnion Canada, introduces a new way of thinking about identity verification and addressing this ever-growing risk.
Growth in online transactions increases fraud risk
The growth of the digital economy and increasing volumes of online transactions means the risk of fraud is an almost constant hazard of doing business. The results of a commissioned study conducted by Forrester Consulting on behalf of TransUnion 1, showed that 68% of financial services companies across Canada, the US and India say their customers are increasingly interacting with them through digital channels rather than face-to-face, and 62% say this growth in online interactions increases the risk of fraud and identity theft.
In the study, 94% of companies said they had experienced some kind of fraud in the last two years. The most common types of fraud were identity theft, where stolen identities were used to perpetrate new account fraud, and account takeover fraud (using someone else’s personal information to access and use the account). Account takeover fraud, in particular, has increased, with 34% of respondents saying they had seen ‘significantly more’ instances of this type of fraud in the last year (this figure was 26% for identity theft/new account fraud).
Online fraud isn’t just growing, it’s changing
The Forrester study found that 69% of organizations surveyed agree that fraudsters are constantly evolving their tactics to be one step ahead. A significant problem now is that social media and online platforms are awash with information that can be used to commit identity-related crimes.
Today’s connected consumers expect instant responses. To get access to information and services on-demand, consumers share their identity attributes online, many times almost without question. Consumers may expect and believe that their personal information will be safeguarded, yet some consumers may also tend to disconnect or get frustrated when they face security hoops and have to remember multiple, different passwords in order to transact online.
The impact of fraud is felt across the business
Fraud can have a severe impact on a company’s bottom line and reputation. Victim remediation, legal defense or public relations services costs, revenue loss and write-offs are some of the direct financial costs associated with fraud.
Negative publicity and damage to the company’s brand are serious ramifications, too, as the study showed*:
- 90% of organizations surveyed say that fraud reduces future customer engagement
- 85% agree that customers lose trust in their company
- 88% say they have greater difficulty attracting new customers
Source: A commissioned study conducted by Forrester Consulting on behalf of TransUnion
*Percentages above show combined data for significant impact, substantial impact, and some impact.
Getting in front of the fraud event
Following up on fraud after it’s been committed is an expensive exercise, and one that doesn’t necessarily have a high return on investment. It’s far more economical to limit potential damage by being able to verify ‘good identities’ at the very start of the customer lifecycle.
Companies aiming to stay ahead of the fraud curve need a robust identity management system in place from the very beginning of the customer interaction. The question is: how do businesses do this effectively — and cost effectively — without negatively affecting the customer experience? Legacy systems are usually missing key capabilities, like real-time insights, blockchain technology and multichannel deployment. The study found that data may also be an issue: 92% of companies say they struggle with data sources for fraud detection. Security, accuracy, completeness and standardization are other challenges.
All companies in the study believe there are benefits to having an integrated solution for fraud detection and identity verification: one that contributes to a better end customer experience, improves their ability to detect and prevent fraud, and integrates easily with other systems.
The power of an identity management strategy
Our view is that we need a more comprehensive approach to identity verification that helps organizations to:
- Assess whether the person actually exists
- Verify that they are who they say they are
- Check if there is any fraudulent activity associated with the identity
- Authenticate the behaviour of the identity at that point in time
That means thinking about identity management differently. We’re looking at ways to use all the tools we have at our disposal — broad-based traditional and alternative data, advanced analytics, and insights into the latest trends in consumer behaviour and identity fraud — to help organizations be more confident about the legitimacy of the person they’re engaging with.
Information intelligence can put companies in a better position to identify and address potential fraud from the moment the customer starts interacting with them, so they can take action up front. Identity management strategies can also assist businesses with increasing efficiencies for ‘good’ customers through the transaction, so there’s minimal impact on the customer experience.
For information about our current identity management solutions, please visit transunion.ca/IDVision