"Who are you?"
It’s a question that occurs to most of us every day, triggered usually by harmless events, like a surprise knock on the door or an unrecognized phone number appearing on our cellphones.
For financial institutions, it’s a question that demands an accurate answer. According to a recent study, identity fraud impacts nearly 17 million people each year, resulting in $16.8 billion in losses. These sobering statistics, combined with strict regulatory requirements to “know your customer,” give financial companies tremendous incentive to invest in the latest identity verification technologies. (Registration may be required to access the study.)
Historically, financial institutions have had no shortage of investment choices. Data brokers and credit-reporting agencies, to name just two, have for years offered tools to help minimize the chances that a would-be customer is a fraudster and not the retired teacher from Cleveland with a 770 FICO score their credit application claims them to be. However, the financial world for consumers is increasingly digital, and identity thieves are quick to show off their own innovations — leveraging personal information exposed by numerous data breaches and newer sources of publicly available information, like social media, to render what were once considered cutting-edge tools (such as knowledge-based authentication) obsolete and even changing tactics to be more patient to carry out synthetic identity fraud.
To protect customers, the financial industry must stay ahead of increasingly clever identity thieves by finding new ways to enhance its ability to solve the “who are you?” riddle. An increasingly important strategy involves data — not just more data, but data from more sources that are authoritative.
Who are the authoritative sources of identity? Based on current roles and responsibilities of the government, state and federal agencies are often the places that know us best. For example, state departments of motor vehicles — where most of us recall with little joy the identity-proofing process accompanying that first visit — are the one sure place a financial institution could go when seeking to validate driver’s license data.
It’s the difference between writing a graduate thesis based solely on the first few pages of Google search results or, instead, making the effort to follow the cascade of links and footnotes in all those pages back to the source material. In other words, you could probably form a constructive argument backed up by relevant facts based just on the first few search results, but the only way to be truly confident in your final product is to know that every conclusion in your paper derives from the original facts and observations.
This same maxim applies in financial services today. Identity and risk mitigation solutions are only as good as the quality of the data fed into their engines and algorithms. The more these solutions — and banks themselves — can factor data obtained from authoritative sources into decision-making processes, the more confident financial institutions can be in making those decisions, leading to fewer cases of identity fraud.
Policymakers are beginning to catch on. Last year, for example, bipartisan legislation was enacted to support and update the U.S. Social Security Administration’s role in verifying identity data. A bill directed the SSA — the well from which Social Security numbers spring — to build a real-time, consent-based service for the financial industry to verify whether an applicant’s SSN matches with what SSA has on file. Many of us in the financial services industry are now working closely with the agency and Congress to ensure the implementation of this law is a success.
Additional work is going on within the government to amplify its ability to support identity verification. Congress passed legislation in July 2019 directing the Internal Revenue Service to build a similar verification system that would allow lenders to validate certain tax data provided by applicants. Prior to that, in May 2019, the Office of Management and Budget endorsed the notion of federal agencies as key assets in the financial industry’s efforts to meet evolving digital identity challenges when it wrote, "Agencies that are authoritative sources for attributes (e.g., SSN) utilized in identity proofing events…shall establish privacy enhanced data validation (application programming interfaces) for public and private sector identity proofing services to consume, providing a mechanism to improve the assurance of digital identity verification transactions based on consumer consent."
A common thread woven through these examples of the opportunities that exist for governments is this: Despite being the authoritative sources of truth for so many vital pieces of identity information, government agencies generally don’t see themselves as purveyors of identity solutions and are reluctant to answer industry’s call to build or modernize systems to make more accurate data verification possible. Additional public attention, demonstration of the need and support through legislation for technology upgrades, staffing and clear direction may be the only ways to encourage state and federal governmental entities to be the partners in identity that many industries — not just financial services — will need moving forward.
Public-private collaboration is critical to unlocking the authoritative sources of data to meet the identity challenges presented by an increasingly digital financial world. Fostering that engagement should be a top priority for policymakers. State and federal government agencies must continue to evolve and embrace their roles in helping the financial industry secure consumers’ identities and combat identity fraud.
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