Identity Verification and Fraud Prevention in 2020: Closing the Trust Gap

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As we enter the third decade of the 21st century, it’s becoming increasingly apparent that fraud and identity theft are not going anywhere. Fraudsters adapt their techniques and shift their focus as quickly as the good guys can develop new technology, and a thriving dark web simply makes the whole underground process easier and cheaper.

The collateral damage of hacks and data breaches has a wide reach. Data thefts and leaks happen all the time, and the big ones make national (if not international) news. Hundreds of thousands of people at a time can be impacted, so it’s not surprising that consumers are generally cautious of companies that request personal information for actions like setting up an online account or making a purchase.

Consumers are somewhat confident that businesses are able to adequately protect the privacy of their personal data, but this confidence level isn’t as high as businesses think it is (or would like it to be). My team at IDology conducts two separate annual studies to discover emerging trends in the fraud landscape and to take the pulse of American consumers’ perception of digital privacy and identity.

IDology’s 2019 research showed a clear misalignment in the trust that exists between consumers and businesses when it comes to privacy and digital identity protection. This so-called “trust gap” had wide-reaching impacts for both organizations and individuals.
Consumer Trust and Digital Privacy Protection

IDology’s Second Annual Consumer Digital Identity Study found that American consumers consider their Social Security number, driver’s license number, and date of birth to be the top three most important parts of their identity. These pieces of personally identifiable information (PII) are some of the most common ways companies verify and authenticate an individual’s identity.

Photo Credit: 2019 IDology Consumer Digital Identity Study

Also important to note, however, is that survey respondents indicated that they increasingly consider their mobile phone numbers and email addresses to be integral to their identity—a clear sign that Americans’ identities are quickly becoming more and more digital.

Because our identities increasingly live in binary code, basic (and subpar) and static identity verification standards are no longer acceptable. Americans overwhelmingly agree (68%) that protecting their personal information is their responsibility, but an even higher percentage (78%) place that responsibility on businesses. The key data point here is that consumers prefer companies that have advanced identity verification systems. In fact, 71% of consumers would be more likely to choose a financial institution if they knew it was using particularly more advanced identity verification methods—a 58% increase in this area compared to last year.

This means that the American public is aware of the importance and value of identity verification (IDV) systems and processes, and they expect the organizations they patronize to follow data protection best practices and implement IDV systems that work.

Companies shouldn’t hide these efforts; rather, they should consider promoting them to increase customer awareness. With a customer base that simultaneously expects businesses to protect personal data but is also highly aware of the possibility of hacks and data breaches, robust IDV is a strategic differentiator.

Closing the Trust Gap

With IDV protections now an important piece of the average American’s decision-making process when selecting a company to patronize (particularly financial institutions), businesses that implement advanced IDV methods will be positioned far ahead of their competitors in capturing additional customers and revenue—and in closing the trust gap.

Knowing that a company uses state-of-the-art identity verification tools provides extra incentive for a consumer to trust a business and choose it over another. In fact, nearly three-quarters of respondents to IDology’s second annual consumer digital identity survey reported that they would be more likely to use a company that employed advanced IDV methods.

The bottom line is that consumers want the best of both worlds: They expect companies to protect their data, but they don’t want to jump through unnecessary or complex hoops to have their identity verified or authenticated.

This puts organizations in a tough spot.

Providing security without adding unnecessary friction is a tall order; in fact, respondents to IDology’s Seventh Annual Fraud Study report that balancing fraud prevention and customer friction is their top challenge when it comes to fraud deterrence. In the interest of minimizing customer frustration and maximizing revenue, many businesses opt for frictionless experiences, even in the face of an increased risk of fraud.

Photo credit: 2019 IDology Seventh Annual Fraud Study

Taking the frictionless way out, however, isn’t necessarily the right answer.

Consumers in today’s digital age expect identity verification at some level, but escalation or “step up” verification procedures must be seamless and treated as an integral part of the entire process. Interrupting the verification process or redirecting the consumer away from their device creates a negative user experience and increases the likelihood that the individual will end the engagement and seek out a competitor.

In fact, lengthy or overly complex IDV processes resulted in 37% of respondents to IDology’s Second Annual Consumer Digital Identity Study reporting that they had declined to open a new account with an online retailer or other business.

The solution to this problem and the overall lack of consumer trust is a robust, dynamic IDV system that seamlessly, intelligently, and quickly directs the user through the identity verification process without impacting the overall customer experience.

The Bottom Line

With Edelman reporting in its 2019 Trust Barometer that consumer distrust is at its highest level since 2016, a streamlined, dynamic, and responsive IDV process is an essential part of a business protecting its customers and their privacy, retaining those customers, and increasing consumer trust at the same time.

Hacks and data breaches are unlikely to stop (though trends are starting to show a slow decline), and fraud industry professionals are well aware that consumer trust is the first casualty of these often public disasters.

Organizations can no longer view IDV solutions and fraud deterring technology as a luxury or a “nice to have.” In fact, subpar or nonexistent IDV and data protection solutions are likely to be seen as negligent by Americans. These essential tools are integral to the success of a business in today’s digital world.

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