Article 5 min

Mitigating risk through a network of trust and fraud signals

Fraud and Risk mitigation

September 2, 2020  

Fraud and Risk mitigation

When a business is onboarding customers using a risk-based approach, some identifications require enhanced due diligence. Perhaps the value of the transactions is high. Perhaps there is a fraud flag that points to a potential problem. For situations that require further investigation, adding layers of identity verification to onboarding workflows helps provide more robust fraud prevention measures without substantially more friction or effort.

For example, digital identity verification, ID document verification and bank account verification offer a few reliable ways to verify and authenticate an identity. By cross-referencing multiple networks, businesses can implement an even more robust fraud and risk mitigation system. Corroborating information from different identity streams creates a higher barrier for any would-be fraudster to overcome.

Custom workflows for various use cases and risk profiles

While fraud prevention and compliance measures are necessary, requiring every customer to go through the highest level of scrutiny is often unnecessary and can lead to customer abandonment. The individual, use case and numerous other factors will affect the risk profile, and thus the rulesets and workflows should also vary. Workflows may be customized to offer the most appropriate onboarding experience based on risk associated with the digital identity.

Workflows that allow lower risk accounts to onboard seamlessly, while requiring higher risk accounts to go through more robust measures, helping to provide a balanced, risk-based approach.

Validating personal identification information as a first step can provide insight into what further verifications should be deployed. Beyond the information provided by the consumer, the simultaneous collection of significant metadata presents numerous signals that are useful for fraud prevention. For the consumer, it’s just a few simple questions, but for a sophisticated identity verification system, it’s a multitude of data points and signals to determine the risk profile and the associated workflow.

If during the initial analysis, a need for enhanced due diligence is required, a secondary ID document verification might be in order. For these cases, the consumer is asked for images of their identity documents. These images can then be analyzed for any forgery, alteration and other security-based checks.

To pass this additional workflow step would require the bad actor to not only know the correct identity information but also have government-issued ID for that identity.

This process could also require a selfie — a picture of the consumer to send along with the picture of the ID. This selfie incorporates a liveness check and biometric comparison between that image and the ID photo. Using facial recognition technology, the image comparison is done quickly and with a high degree of accuracy, providing yet another layer of identity verification.

Strong fraud signal: bank verification for increased security

If documents are unavailable or an even further due diligence layer is called for, a bank account verification may be requested. Bank verification is a mechanism to confirm that the person entering identity information into a form is authorized to use the identity they have supplied.

As banks have strict regulations around proper KYC and security measures, using banks as a verification layer helps provide assurance that the prospect has passed other strict identity verification procedures and that the identity information matches a defined bank account.

As with any verification procedure, there’s always an amount of healthy friction for the consumer when adding security measures. Studies show consumers appreciate the trade-off, as they understand the need for security and how those measures protect them when they open accounts. Ensuring the onboarding process prioritizes data privacy, and is not complicated or slow in comparison to the value they receive, consumers will willingly proceed.

Balancing security and speed

Understanding the needs of the consumer is critical to creating successful onboarding experiences. As mentioned, the consumer will accept friction to gain security; in the Consumer Account Opening Report 2020 it was found that all consumer groups feel that security is the number one factor in an optimal account creation process.

Whatever verification level is warranted, the process needs to be relatively seamless. If the request to the consumer seems out of place, confusing or otherwise questionable, the consumer could very well abandon the onboarding altogether.

Note that consumers are not security experts, so building trust makes a substantial difference in abandonment rates. Does the consumer know what to do and why? Are the necessary signals in place to provide the level of comfort required to submit confidential information? Onboarding workflows need to consider both the back-end security requirements and the user experience to optimize account openings.

The right verification at the right time

With the smart implementation of a digital identity network, an effective risk-based approach is technologically almost effortless. Absolutely, compliance teams need to consider various risks and what appropriate measures should be in place to safeguard their operations. Undoubtably, adjustments, reviews and manual investigations are necessary.

However, effective identity verification workflows make remote onboarding safe, convenient and seamless — for both operational teams and consumers. Establishing the right level of due diligence without causing unnecessary friction is both feasible and desirable, and paves the way to improving onboarding operations.