Identity Fraud is Preventable

By | August 11, 2005

With the continued advancement of technology in personal computers and scanners, the creation of false identification documents has become as commonplace as golf on a beautiful Sunday afternoon. False documents are an easy way for fraudsters to enter financial institutions and access personal information.

According to a Better Business Bureau January 2005 survey, 9.3 million Americans were victims of identity fraud in the previous 12 months – a number greater than the entire population of Georgia. To the dismay of financial institutions and the rest of the American business community, identity fraud has become a serious problem.

Financial institutions have the responsibility of protecting customer’s personal information and finances, prompting a key question to surface: What are the best and most reliable methods to preventing identity fraud? How a bank focuses its efforts on prevention and security can directly affect its competitiveness in the financial industry. Customers need the security of knowing their information and finances are being safely monitored and require financial institutions to be proactive when dealing with identity fraud. Fortunately for banks, proven technology is currently in use that can help to remedy fraud.

What is identity fraud and who is affected?

A 2005 report by the Aite Group, an independent research and advisory firm, states that identity fraud consists of three different categories: synthetic identity fraud, identity misuse and identity theft. Synthetic identity fraud occurs with the use information of a fictive person. The exploitation of another person’s information or payment instruction is described as information misuse. Identity theft is described as the general takeover of another person’s identity.

Monetarily, banks are affected the most by identity fraud. The Identity Theft Resource Center reports, in a 2003 study, that the business community loses between $40,000 and $92,000 per name in fraudulent charges – money that could be used to attract more customers. As stated before, if 9.3 million Americans reported identity fraud in 2004, that is $372 billion, on the low end, lost by the banking community.

A 2004 study by the Federal Trade Commission found that the United States is the most susceptible of developed countries to be affected by identity fraud, reporting that 1.5 percent of the population had been victimized by identity theft. To break this down even further, if a bank has 10,000 customers with individual accounts, that results in 150 customers as potential identity fraud victims. Now if we multiply 150 by $40,000 (again using the low number), that is $6 million a bank risks losing per year. That number is large enough to invest in another branch. Using technology to prevent theft of one name can save a substantial amount of money.

Be proactive – focus on prevention

Financial institutions have an obligation to their customers: protect personal information and finances. To keep a competitive advantage in the marketplace, a bank needs to focus its efforts on prevention. If a potential customer finds out that a bank is not taking a proactive approach to preventing identity fraud, they would take their business one that has a defined plan for battling fraud. This also applies to current bank members.

The Identity Theft Resource Center reports that only 15 percent of identity fraud victims find out about their identity being stolen due to a proactive action taken by a business. Proactive initiatives provide customers with the peace of mind that their personal information finances are not easily accessible for theft. Luckily, banks now have the option of implementing new identity fraud technology, which could propel them to the forefront of prevention in the banking community.

What options do banks have?

U.S. banks can look toward other venues for identity fraud prevention. Proven technology battling the identity fraud epidemic is currently in use at country borders, the Division of Motor Vehicles (DMV) and airports. For instance, a proven method can be found along the borders of Chile. The Chilean border control is currently using identification technology that reads and verifies the authenticity of identification documents.

Banks are faced with many of the same challenges in dealing with document fraud that occur at the Chilean border: (1) the sheer volume of transactions per day, (2) the thousands of valid document types issued by various countries and individual states and (3) security features embedded within the documents that are nearly impossible to detect with the naked eye. Unfortunately, banks are not using the same equipment to battle this epidemic as the Chilean border patrols.

An immediate thought is that this technology will not translate into the United States, because identification is different between our two countries. This technology is not only used abroad, it is also used in the United States. The same process of identity verification is currently working at the Division of Motor Vehicles (DMV) and several airports around the country.

The Massachusetts DMV will require license applicants to submit standard or non-standard identification documents to be validated by a document-authentication system. The system must read the document and analyzes various security features, such as holograms and state-seals. This information will be compared to the issuing state’s security features to prove authentication. If the authentication fails, the operator is notified of potential fraud and is encouraged to better evaluate the applicant. This new technology provides the operator an answer in less than 5 seconds.

Document verification is the answer to taking a proactive approach to identity fraud. Even for skilled and veteran-banking professionals, the naked human eye can only see so much. Little shifts in ink, slight color changes and holograms can be very hard for the human eye to discern. In addition, the United States does not have one standard form of identification – passports, social security cards, green cards and 50 different state drivers licenses. No one person is able to memorize every little aspect of every form of identification used in the United States. Fortunately, computerized verification provides financial institutions with every security aspect found on an identification document. Flipping through books with pictures and descriptions of all the different forms of identification can take a long time. Computers are able to store all of that information in one database, making verification quick and easy. The process can take as little as five seconds to complete and is able to verify documentation better than comparing it to a picture in a book.

No time to waste

With regulations such as USA PATRIOT Act, Customer Identification Program and Bank Security Act (BSA), detecting fraudulent documents is a top priority, not only to stop loss, but as also to maintain compliance. So, with a proven technology working in the United States, why have banks not integrated this into their systems?

On the whole, banks are slow to change or move toward incorporating new technologies. Unfortunately, today’s technologically advanced world does not allow for banks to sit on their heels and wait for something to happen – thefts are happening and customers are being victimized. In order for banks to win the war against identity fraud, a more proactive approach needs to be taken. Technology solutions to help win the fight against identity fraud are available. Imagine the safety a bank could provide in verifying someone’s identity in five seconds and the customers they could gain. Time equals money, so its time for banks to get off their heels and build a good defense system.

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