As parts of the world begin to reopen after the pandemic, it’s amazing to reflect on how much the past year impacted almost every aspect of our lives. To say that it uprooted people’s lives on a personal level and flipped businesses and industries on their heads would be an understatement. And organisations around the world are still feeling the effects, and will for years to come.
The financial services industry is no exception. With the mass move to remote work and lockdowns in place, organisations scrambled to quickly adopt and roll out digital solutions to meet growing customer demands as they increased their online activity. This forced many financial services organisations to fundamentally change the way they operate online, while also leaving more room for scammers to take advantage of this transition and increase the frequency and sophistication of their fraudulent activities.
Scammers on the rise
So, how have scammers adapted to this accelerated digitisation of financial institutions? Let’s look at some numbers. We’ve seen an increase in fraud rates globally, with fintech fraud more than tripling as customers switched to online banking in spring 2020. In fact, Veriff’s 2020 Fraud Report found that over the course of 2020, the most prevalent type of fintech fraud was identity fraud - or people pretending to be someone else (70%), followed by document fraud (23%) and recurring fraud (6%). Looking at fintech identity fraud specifically, we saw a 7% identity fraud rate increase compared to the first half of 2020, and early 2021 numbers indicate an increase in recurring fraud from 6% in 2020 to 26-45% in Q1 2021, partially due to several of our fintech clients adding extra fraud prevention features to better detect and catch fraudsters.
Fraudsters have been advancing their techniques, relying on a variety of digital fraud strategies such as creating ‘synthetic identities’, or fake identities that use real information about victims such as their social security numbers. We’re also seeing an increase in the creation and use of ‘deepfakes’ – or synthetic media – where an image or video of a person is replaced with the likeness of someone else. While businesses and consumers worked remotely and increased online activity over the past year, fraudsters became more creative and took advantage of the digital-first world. We expect fraud techniques to only become more sophisticated over the next year, putting more pressure on our fraud detection technology to be a couple of steps ahead of the fraudsters.
The growing need for secure, reliable, and trusted digital identity verification processes
As digital fraud rates increase, so are the digital-first needs of businesses. It has never been more important for businesses to be able to trust that their customers are who they claim to be, and this is where identity verification solutions come into play. Not only do businesses need to create a trustworthy process, but customers also expect a seamless, secure online experience as well.
Artificial intelligence (AI) is enabling companies like Veriff to fight fraud by analysing thousands of technological and behavioural data points in a matter of seconds to identify fraudulent transitions and strange behaviours. Further, AI technology is continuing to advance, which in turn is enabling fraud detection tools to become faster and more intelligent. In fact, as more verifications are processed, this improves analytics and detection, helping to advance the AI algorithms used to scan identity data, continuously improving them to stay ahead of fraudsters. Essentially, the more fraud that’s detected, the better we become at preventing it from occurring.
Another method that is helping advance fraud detection is data cross linking and the merging of different vectors and data points. This approach is effective as scammers find it more challenging and expensive to fake more than one identity parameter, rather than changing a single parameter such as a photo in a document. Thus, technology that can leverage a combination of device, network, video, document, behavioural, and biometric information is more effective in providing quick and accurate fraud prevention and ultimately valuable, real-time identification. The speed and accuracy help to create a great experience for consumers to verify their identity online too.
When it comes down to it, organisations that have access to real-time identity verification processes can make the difference between fraud detection (detecting fraudulent behaviour after it occurs) and fraud prevention. By enabling fraud to be stopped before it begins, organisations save valuable time and money.
What to expect in the year to come
Our preliminary 2021 data shows that fraud rates are continuing to grow this year, already rising from 5.84% to 6.48% rejected identifications. We will likely continue to see this fraud rate increase as more businesses move online and go digital. Trust must be prioritised for businesses to succeed, whether it's business to business or business to consumer, and this will not be possible without secure and reliable identity verification technology. As the world begins to reopen over the course of the next year, this will be a challenge as we navigate our ‘new normal,’ but having the right technology and processes in place will set organisations up for success.
About Janer Gorohhov
Janer Gorohhov, CPO & Co-Founder of Veriff, leads the company's product and innovation to ensure that our verification engine is a trend-setter and outperforms every other solution on the market. He is a tech-savvy innovation enthusiast who started his career as a full-stack developer. Before Veriff, he worked in project management, as well as fundraising and finance.
About Veriff
Veriff is a global online identity verification company that enables organisations to build trust with their customers through accurate and automated online IDV. Veriff’s intelligent decision engine can analyse thousands of technological and behavioural variables in seconds, matching people to more than 9,000 government-issued IDs from over 190 countries.
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