In 2002, 161,819 individuals in the US reported to the Federal
Trade Commission that their identity had been stolen. For lending
institutions, the problem is a nightmare that costs them more than
$1 billion annually, according to a report this week by
TowerGroup.
The financial services research group looked at how new
technologies and geopolitical forces will help US consumer lenders
justify greater investments in the infrastructures needed to combat
this complex type of fraud.
TowerGroup says the best way for financial institutions to
combat losses from identity theft is to prevent a stolen identity
from being used in an initial loan application process. Yet, the
patterns of identity theft are often random and unpredictable.
As a result, many lenders have been unable to justify the
expense of implementing sophisticated technologies to authenticate
a person's identity at point-of-sale-even with the much-publicised
rising exposure from compromised internal databases.
When it comes to identity theft, the internet and other
self-service channels can fuel both the problem and the solution,
says TowerGroup. These channels have markedly increased the
incidences of credit card fraud and the footprint of identity
theft. Yet the web, with its capability to link partners and move
information quickly and cost-effectively, has proven a strong ally
for technology vendors providing new identity verification
solutions.
Geopolitical forces are also playing an important role in
helping lenders take key steps in fraud prevention. While the
purpose of the USA Patriot Act is to prevent terrorist financing,
one by-product is the tightening of credential review for new and
existing accounts - particularly around establishing standards for
verifying customer identification when an account is opened.
TowerGroup says that technology solutions that provide
additional identity fraud coverage while conforming to the tenets
of the USA Patriot Act are logical choices for lenders to
explore.
