Global Banking & Finance: Financial Foursight for 2022

The current fraud climate should be a major signal to brands in every industry that identity verification is imperative. As more activities were carried out online in the pandemic, a flurry of fraud was committed. For example, the Federal Trade Commission’s (FTC) Consumer Sentinel Network received approximately 1.4 million reports of identity theft alone last year, more than double the amount of incidents reported in 2019. The reality is that poor or nonexistent identity checks in online retail or financial services can wreak havoc on people’s lives. 

While it may seem counterintuitive to introduce friction in the form of identity checks, consumers have high expectations when it comes to their online safety. Findings from a FICO report exploring COVID-induced digital transformation in financial services reveal that 62 percent of U.S. respondents expect to have to prove their identity when opening an account digitally, and 42 percent said they would expect the need to set up biometric identification

The combination of which is going to see four major trends emerge in 2022.

Cryptocurrency sophistication

Many banks still view crypto exchanges like the “wild west”, a stark difference from the financial institutions and banks that are using identity verification technology that employs artificial intelligence, machine learning, and large data sets to manage increasingly strict regulations. Cryptocurrency will continue to grow and we’ll begin to see more sophistication across the crypto space in terms of how these companies can interact with legacy financial institutions-interoperability will be key as crypto organisations need to increasingly operate in these highly regulated industries seamlessly. Effective digital identity verification will be paramount as these new companies continue to carve their own path. 

As the Treasury Department and OFAC enforce sanctions designed to curb illicit use, proper digital identity verification ensures cryptocurrency organizations have a method to protect against bad actors and comply with the regulations that govern all financial institutions today.

The tightening ring of regulation

An unexpected consequence of the pandemic has been its impact on physical cash transactions and traditional banking. There has been a global trend towards electronic forms of payment, spurred by public health concerns over cash handling. Consequently, traditional money-laundering supply chains have been disrupted. This has caused money launderers to innovate and exploit electronic payment methods. Peer-to-peer platforms are a viable target for bad actors to transfer money that has been acquired through ill-gotten means. 

We continue to witness the fallout from bad actors perpetrating financial crimes, as evidenced by the Pandora Papers leak several months ago. The compliance measures currently in place are not able to staunch the flow of laundered money and bad actors are still able to exploit loopholes to commit fraud and avoid taxation. Regulations around Know Your Customer (KYC) and Anti-Money Laundering (AML) will continue to evolve to meet technological advances. For the first time the 6th Anti-Money Laundering Directive (6AMLD) tackles cyber-crime and names it as a predicate offense.

Fighting fraudsters online

Online shoppers should be mindful that bad actors are employing a variety of methods to steal personally identifiable information (PII) -- including but not limited to setting up fake domains that look like real brands and posting scams on social media that in turn request sensitive data and payment info that is exploited to create synthetic identities or make fraudulent purchases, respectively. Additionally, there are fraudsters posing as courier services or border control agents demanding money in exchange for clearing packages for delivery. On average there has been double the number of new shoppers online during the pandemic than there was before. These less savvy consumers use weaker passwords, follow fewer security steps, and are vulnerable to Account Takeover attacks.

For online brands, the past 20 months or so have presented myriad opportunities for customer acquisition and growth, unfortunately, juxtaposed against new and increased threats of fraud and identity theft. The surge in online activity has certainly emboldened and inspired creativity among bad actors online. The eCommerce industry must deploy strong identity verification measures to establish the root of trust that’s critical for our digital transactions. What’s more, 80% of people state that online sites have a responsibility to help reduce cyber-crime through effective identity verification methods. Doing this will not only help keep the fraudsters at bay, but it will be the basis for trusted customer relationships in the future. 

Securing the customer journey

We know from our own research that people expect their online experience to be both secure and convenient, and they recognize how advancements in technology have a big part to play in this. Indeed, 84% of consumers believe businesses need to use AI and automation to protect against sophisticated fraudsters, 72% feel secure when behavioural analytics, such as AI-enabled analysis of their voice and typing speed, is used and over half (52%) of people are more likely to trust a brand that delivers high-quality fraud protection. Put simply, if a consumer doubts the integrity of an identity verification process, they may abandon the account creation and not choose to transact with the brand. 

Onboarding users or transacting requires a layered approach to compliance and AML requirements. Essentially, a layered approach combines a multitude of verification services that increases acceptance rates for legitimate customers and susses out bad actors or perpetrators of fraud. Using a layered and risk-based approach and tapping into diverse data sources enables organizations to have complete flexibility in their AML and KYC checks dependent on the type of business or service and at each stage of the customer journey.

About the author: Garient Evans is the SVP of Identity Solutions for Trulioo - a leading global identity verification service that provides instant online identity, document & business verification coverage of five billion people.  Evans was formerly with Deloitte Consulting, concentrating on global financial services clients with a particular specialty in credit, collections, and pay­ments. Evans has 15 years of experience within the financial services industry. He holds a BA in communications and Spanish from the University of San Diego, and an MBA in finance from Duke University.