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How to Keep Customers Safe from Synthetic Identity Fraud and Application Fraud

More than 16 million consumers had their identity stolen in 2017, resulting in $16.8 billion in losses, according to Javelin Strategy & Research.[1] And there’s no relief in sight. Thanks to huge data breaches in recent years, such as Yahoo!, Equifax, and countless others, cyber criminals have access to mountains of personally identifiable information (PII) on the dark web, including Social Security numbers.

At the same time, consumers are increasingly shifting their banking interactions to online and mobile channels. This shift to the digital world makes it easier for fraudsters to hijack identities while making it imperative that banks and credit unions stay one step ahead.

Here are three ways financial institutions (FIs) can keep their customers safe and mitigate losses.

1. Identity Verification from Multiple Sources

Thanks to the plethora of exposed PII, cyber criminals have become particularly adept at combining real and fake data gathered from multiple sources to create synthetic identities. They use these phony identities to open accounts, take out credit cards, and apply for loans, bilking consumers and FIs out of billions of dollars every year.

A 2018 report from Aite Group estimated losses from credit card accounts opened with fabricated identities at $820 million in 2017, up almost 17% from the previous year.[2] Those losses are expected to climb a staggering 53% to almost $1.3 billion by 2020, according to Aite.

FIs have started fighting back by leveraging data collected from a wide variety of sources to confirm customer identities, says Robin Love, Vice President of Product Management at Early Warning Services, a financial technology company that delivers payment and risk solutions to financial institutions nationwide. “You need to ensure you are using predictive analytics and accurate data versus only checking someone’s Social Security number against one data source,” she says. “Using data from a number of trusted sources and applying analytical intelligence, FIs can validate a customer’s identity in seconds before the application is even approved.”

2. Mobile Device Intelligence

Mobile banking apps are among the most popular apps used today, according to Citigroup's 2018 Mobile Banking Study.[3] In fact, only social media and weather apps ranked higher than banking apps among smartphone users.

Consumers love banking apps and trust their banks are protecting them. Only half of smartphone owners use a basic screen lock, and even fewer regularly change their password, PIN, or pattern.[4]

“That means it’s up to FIs to protect their customers while they are using their banking apps,” Love says. “Using the right authentication solutions, coupled together with the appropriate identity solutions, is paramount in verifying the person and validating the device.”

By combining predictive risk indicators and behavioral and device data, FIs can have much better insight into fraud indicators. For example, data from the Mobile Network Operators can provide details such as whether the device is in session with your customer; whether the mobile account has been changed since its last interaction with the FI; and whether the person using the mobile device is authorized to use the mobile account.

3. Leverage Data to Make More Informed Decisions

FIs face a dual challenge of rapidly rising fraud and fierce competition in acquiring new customers. “The right data—and the right analysis of that data—can help FIs meet both objectives,” Love says. “That’s where predictive analytics come in.”

Once you have verified a potential customer’s identity, understanding how they have managed banking relationships in the past and how they are managing current bank relationships, you can help predict the likelihood of account mismanagement or first-party fraud. The ability to understand the consumer’s potential behavior before the account is opened, allows the FI to offer the consumer the appropriate account privileges and services.

Consider an applicant who had an account closed for excessive overdrafts two years ago, but since then has a solid track record with her current FI. The FI could decide to accept her application for a new account, but apply some limitations on it. For example, she might not be a good candidate for unlimited account overdraft protection, but you can still provide her with access to an account with tailored privileges. “You can always expand the customer’s privileges down the road,” Love adds.

FIs need to make these complex decisions quickly because customers expect seamless, frictionless interactions with their FIs. “With the right data, you can determine the likelihood of a valid identity fast, as well as determine the likelihood of potential losses within the first nine months of a new account being opened,” Love says.

These are just a few of the ways that FIs can leverage today’s technology to better protect themselves and their customers.

For more information on mitigating new account fraud, click here to watch a webinar.

[1] “2018 Identity Fraud: Fraud Enters a New Era of Complexity,” Javelin Strategy & Research, Feb. 6, 2018.
[2] “Credit Card Losses from Synthetic Identity Fraud Jump,” Aite Group, May 16, 2018.
[3] “Mobile Banking One of Top Three Most Used Apps by Americans, 2018 Citi Mobile Banking Study Reveals,”
Citigroup Inc., April 26, 2018.
[4] “Securing the Mobile Wallet Experience,” Early Warning White Paper, June 2016.

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