The report, titled “How FinTechs Are Fighting Identity Theft and Identity Fraud,” explores the growing fraud challenges confronting FinTech companies, examines the financial and compliance burdens they face, and highlights the emerging technologies and strategies being deployed to combat these threats. This study underscores the urgent need for FinTechs to bolster their fraud prevention and identity verification measures to protect both their operations and their customers.

The report paints a concerning picture of the current fraud environment for FinTechs. It highlights that about one-third of FinTechs have recently experienced fraud, a trend that mirrors an upward trajectory across the broader financial industry. In the United States alone, financial institutions witnessed a significant 65% increase in fraud losses, averaging $3.8 million last year. A particularly troubling aspect is the rising sophistication of fraudulent activities, making it difficult to distinguish them from legitimate transactions.

Notably, identity-related suspicious activity accounts for 42% of all suspicious banking activity, totaling $212 billion in 2021, with verification circumvention identified as the most reported type of fraud. This surge in identity-based fraud, fueled by dark web data and readily available AI tools, poses a significant risk to digital-first entities like FinTechs and their users.

Key findings from the report include:

• Identity-related issues comprise 42% of all suspicious activity encountered by financial institutions. This underscores the central role of identity in fraud attempts and the critical need for robust identity verification processes.
• Online and mobile banking channels account for 75% of the fraud attempts reported by FinTechs. This highlights the digital battleground where most fraud occurs, emphasizing the importance of securing these platforms.
• Ninety-three percent of FinTechs find it challenging to remain in compliance with regulations. This reveals a hurdle for the industry as it grapples with both escalating fraud and increasing regulatory scrutiny.

In response to these threats, FinTechs are actively exploring and implementing new fraud prevention tools. A significant 52% of financial institutions plan to implement or increase their use of AI or machine learning for fraud prevention.

Furthermore, FinTechs are showing interest in investing in anti-scam education tools (81%), document verification software (65%), and identity risk solutions (55%). The report also provides examples of recent FinTech innovations aimed at countering fraud, such as Fortress Payments using selfie biometrics for enhanced security, and Tiller Technologies offering digital identity verification for international banking customers. Additionally, Fintech360 and FUGU have recently launched tools leveraging transaction monitoring, pattern analysis, and AI to combat various forms of fraud, including stolen identities and account takeovers.

Ultimately, the report emphasizes that proactive investment in robust identity verification systems and fraud prevention technologies is crucial for FinTechs to safeguard their operations, protect consumers, and meet the expectations of regulators.

This collaborative effort between PYMNTS Intelligence and Intellicheck provides valuable insights for professionals navigating the complex and evolving landscape of fintech security.

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The new Plaid Beacon network is open to FinTechs, financial institutions of all sizes and Plaid-powered customers and allows them to share information about stolen identities and compromised accounts, Plaid Head of Identity Alain Meier said in a Thursday (June 22) blog post.

“Through a set of APIs [application programming interfaces], Beacon enables real-time, secure information sharing across the ecosystem to mitigate repeat fraud against businesses, protect consumers and create a safer digital finance ecosystem,” Meier said in the post.

By enabling the reporting of instances of fraud and facilitating identity screening, Plaid Beacon aims to counter three common forms of attack: stolen identity, synthetic and account takeover fraud, according to the post.

This solution aims to prevent the “chain reaction” that occurs when fraudsters use compromised identity information in multiple fraud attempts across apps and services, the post said.

Plaid Beacon is meant to provide greater visibility across digital finance services and deliver an industrywide anti-fraud solution that works for organizations of all sizes, per the post.

“There’s power in numbers, and together we can help stop the chain reaction of identity fraud,” Meier said in the post.

PYMNTS research has found that smaller financial institutions (FIs) tend to bear the brunt of fraud and other financial crime attacks.

While 62% of all FIs reported experiencing an increase in financial crime, an even greater share of smaller FIs — those with between $5 billion and $25 billion in assets — experienced such an increase, according to “The State of Fraud and Financial Crime in the U.S.,” a PYMNTS and Featurespace collaboration.

Similarly, the Federal Trade Commission (FTC) said in March that consumers reported an increase in losses to fraud schemes, with the total reported in 2022 being 30% higher than that in 2021.

The launch of Plaid Beacon comes about two weeks after Plaid launched a solution that allows consumers to verify their identity across all Plaid-powered apps and services.

The company’s Identity Verification product now lets previously verified users sign up for additional digital finance apps without repeating the entire identity verification process.

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This involves hackers making up new identities instead of impersonating a real person, although they will often stitch together IDs using information from actual people (Social Security numbers or email addresses, for example).

This type of fraud can be hard to spot, as there are no identity thefts to notify businesses of fraudulent applications made in their name.

One recent study found that synthetic identity fraud cost financial institutions $20 billion in 2020, with the average fraudster stealing $81,000 to $97,000 before the fraud was uncovered.

Another report found that online lenders lose $6 billion a year to synthetic identity fraud, with the Federal Reserve calling it the fastest-growing financial crime.

Brian Vitale, chief risk and compliance officer at Notre Dame Federal Credit Union, said this type of fraud cost his organization approximately $200,000 in unpaid loans before the CU suspected something was fishy. By the time they figured out that the borrowers did not exist, it was too late.

And lately, these bad actors have found a new target: children’s data. A November 2021 report found that child identity fraud costs families close to $1 billion a year, having victimized 1.25 million children in 2020.

Data breaches and phishing are among the most common sources of child ID fraud, with scammers hacking school district databases or social media accounts to swipe children’s data for use in synthetic and other identity fraud.

Research says 1 in 50 children have become identity fraud victims because of these tactics. And the damage caused to these children may take years to undiscover. Many of them will only learn their IDs were stolen as adults, when they first apply for credit. The average cost to fix a child’s stolen ID is more than $1,000.

To learn more about how businesses are combating this problem, download this month’s Monetizing Digital Intent Tracker, a PYMNTS and Neuro-ID collaboration.

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“A shared understanding of what constitutes synthetic identity fraud is expected to improve its detection, measurement and mitigation in the payments industry,” Jim Cunha, senior vice president, Federal Reserve Bank of Boston, said in a press release on Tuesday (April 6).

“Consistent use of this definition within and across organizations can enable us to discuss, identify and classify synthetic identity fraud in a similar manner,” he added.

The definition of SIF came from a focus group composed of fraud experts who reached a consensus. The panel was convened to streamline the numerous definitions of SIF into one that is official and makes sense. The variety of definitions used throughout the industry made it hard to detect and conquer this type of cyber fraud, according to the Fed.

SIF is now officially defined as “the use of a combination of personally identifiable information (PII) to fabricate a person or entity in order to commit a dishonest act for personal or financial gain.”

Industry experts included Lee Cookman, TransUnion; Jeffrey Feinstein, LexisNexis Risk Solutions; Toni Gillich, U.S. Government Accountability Office (U.S. GAO); Claire Le Gal, MasterCard; Jack Lynch, PSCU and others.

Applying this definition is voluntary. However, the usage will make for better data analysis about SIF, the Fed said.

SIF affects 60 percent of businesses, costing them more than $6 billion a year. In an interview with PYMNTS, Jose Caldera, chief product officer at Acuant, said that fraud can’t be beaten with a static approach. A layered approach includes having the right tech during the onboarding process and using that tech to monitor activities.

The Federal Reserve issued a report in July 2020 about how best to approach the increasing problem of SIF. The Federal Reserve reported that experts suggest a multilayered strategy that uses a cross section of manual and digital information analysis.

The post Fed Introduces Uniform Definition Of Synthetic Identity Fraud appeared first on PYMNTS.com.

No surprise, then, that identity theft is on the rise. But increasingly, the bad guys have trained their collective sights on the most vulnerable of populations — utterly defenseless, as some of them cannot even walk or talk.

Those victims are kids — in some cases, even infants. In the United States, according to some sources such as Javelin, more than one million children were victimized by identity theft — and the fraud costs their families more than $540 million.

At its most basic level, the key ingredients that are pilfered and then used to construct synthetic identities – where individuals’ personal information is stitched together to fabricate new identities — are tied to data that is given to us at birth: Social Security numbers.

In an interview with Karen Webster, Zac Cohen, general manager of Trulioo, said kids’ Social Security numbers represent a relatively easy target.

After all, no one checks whether their kids’ numbers are being used — and this points to common themes among fraudulent efforts.

“When we talk about fraud, whatever kind it is,” he told Webster, “we often talk about susceptibility.” Certain groups, such as the elderly, may lack familiarity with a certain process or technology, which leaves the door open for fraudsters. “But at the end of the day, it really boils down to the likelihood that the fraudulent attempt will be successful.”

In the past, Cohen said, children were unlikely to become targets in the first place, due to the simple fact that they lacked access to capital. And capital, of course, is always in the sights of the bad guys.

But with the convergence of smartphones, payments and eCommerce, digital conduits allow real goods to be sold for real money to and from just about anyone. There are now several different avenues by which fraudsters can take advantage of Social Security numbers — and children represent a greenfield opportunity.

And it’s relatively easy to find SSNs, Cohen added, noting that where scammers can uncover individuals’ birthdates, Social Security numbers are usually displayed nearby.

The fraud? Well, it can take years to discover. The bad actor who grabs a child’s SSN can leverage it for years, applying for loans that will never be repaid or signing onto credit cards that never are paid down.

Then, when the child becomes an adult and seeks access to the financial products that are stepping stones into adulthood, they find their credit profile irredeemably wrecked.

And, perhaps saddest of all, the fraudsters are sometimes the very people that should be the most trusted in the young person’s life: Cohen has seen an increasing incidence of parents and other relatives opening accounts with children’s SSNs and going on shopping sprees.

In other cases, money laundering gangs target kids across social media, and even through schools or video game platforms, to get access to a bank account and personally identifiable information (PII) data. They use children’s accounts to launder money. The victims themselves bear the consequences, as in later years they may be barred from opening bank accounts.

In many cases, false IDs are used to create accounts that lie dormant for years, which means the fraud is hard to track.

Proactivity And Positive Ripple Effects

The news seems bleak — but as Cohen noted, some simple, basic efforts can have long-lasting and positive ripple effects. “There are two principal actions for businesses that want to take preventative measures,” he said.

The first tool lies in communication, he told Webster. It’s a fitting subject for a conversation that took place during the month of October, which happens to be Cybersecurity Awareness Month.

Fraud prevention awareness programs are an underutilized and critical weapon to deploy against fraud, Cohen maintained, because awareness decreases susceptibility.

“If we do a better job of tackling the more commonly occurring fraud techniques, I think the outliers may, in fact, solve themselves.”

The second tool ties into the technology that is being used to facilitate, validate and monitor online activities — and especially financial transactions.

“Children are a difficult group to isolate in these areas, because they don’t have the same technology or financial footprint as adults,” Cohen pointed out.

In one example, he noted that Amazon has just released a line of Kindles for younger users. As major names in commerce are targeting younger users, there are new opportunities to protect them.

Companies can deploy testers and specialists (aka white hat hackers) through bounty programs, Cohen said, to stay one step ahead of hackers and other wrongdoers. Payment service providers also need to ensure that their technology infrastructure is flexible. It may be a difficult task, but it’s not impossible, he noted — and the effort becomes easier if technology teams and risk and compliance teams work together rather than operate in separate silos.

Clearing and Settling Digital IDs

In the effort to “clear and settle” digital identities — to make sure compromised data (such as that which belongs to kids) is not being used — machine learning and artificial intelligence (AI) can be layered into those joint efforts, said Cohen. As noted in this space, Trulioo recently raised funding to help speed its buildout of a global digital identity network.

Such advanced technologies can designate expected consumer behaviors tied to PII, devices or other identifiers and then flag inconsistencies.

“We should have that same level of intelligence regardless of where the user is, who they are or what their ages may be,” Cohen said.

That goal involves all stakeholders, including regulators and government agencies, where ID verification programs are stitched together so they are interoperable with all the different services individuals use every day.

“There’ll be more areas of fragility and more areas and populations that are susceptible to fraud,” Cohen told Webster. “That’s why this conversation will never end. But the strategy and the approach needs to evolve so that we’re better prepared for each new instance. For every new tool you create, there will be someone trying to take advantage of it.”

The post Protecting The Youngest — And Most Vulnerable — ID Theft Victims appeared first on PYMNTS.com.

The incident happened Tuesday (Aug. 22) at Washington Dulles International Airport, according to a statement from U.S. Customs and Border Protection. It involved a 26-year-old man “traveling from Sao Paulo, Brazil (who) presented a French passport to the CBP officer conducting primary inspections.” The agency’s new facial recognition authentication system determined that the man did not match the identity on the passport.

“The CBP officer referred the traveler to secondary for a comprehensive examination,” the statement said. “In secondary, CBP officers noted the traveler’s behavior changed and he became visibly nervous. A search revealed the man’s authentic Republic of Congo identification card concealed in his shoe.”

Dulles is one of 14 “early adopter” airports for the facial recognition technology. Biometric entry and exit technology uses facial comparison to provide additional security and to improve efficiency for international travelers, the agency said.

Using biometrics to authenticate airplane travelers is a focus of the latest Digital Identity Tracker from PYMNTS. Colleen Manaher of the U.S. Customs and Border Protection discussed how and why the agency has invested in biometric technology to secure select entry points to the United States.

The goal, Manaher said, is to change the way travelers enter and exit the country. In the future, she said, international travelers could board a flight bound for the U.S. in another country, arrive in the States, and clear Customs and Border checkpoints without ever displaying a passport or other travel document.

“This is something the government has worked on for a long time,” she said. “We want to change the face of air travel.”

Beyond that, portable biometric identity with a fingerprint or iris scan can help travelers board flights more efficiently —  or to even allow people to fast-track the entrance at sporting events and concerts, and complete transactions with a quick scan of something every consumer has on them at all times. Ken Cornick, co-founder and president of CLEAR, discussed that in depth with  Karen Webster for a recent Monday Conversation.

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That’s the plot of Trulioo’s latest pop music parody, “Verify You,” set to the tune of the hit single “Shape of You” by Ed Sheeran.

“Our goal with the parody music video is to drive home an important message,” Stephen Ufford, CEO at Trulioo. “As fraudsters continue to shift online with more sophisticated techniques, innovative identity verification technologies are being used to power high-tech solutions to prevent fraud in today’s mobile-first world.”

Eva could be any digitally savvy consumer, living in a mobile-first world where just about anything can be accomplished from the palm of her hand. She shops online for a new phone, hails and pays for a ride, meets up with a guy from a dating app (who turns out to be catfishing her) and rents out her apartment to a couple of travelers, receiving their payment via mobile app.

But at the same time, the fraudster who stole her ID is using her identity to buy goods on the Dark Web. He finds his way into her email account and resets her password – a classic move in the identity theft process, preventing victims from communicating with merchants or platforms tied to that address.

That way, the fraudster can do business freely on those accounts and the rightful user can do nothing about it, even if he or she requests a password reset – that message will just be intercepted by the fraudster.

Luckily, Eva has set up her accounts so that, if her password fails, she can choose to authenticate via another method, such as a thumbprint scan. Such biometric identifiers are not replicable by the fraudster, and enable the system to differentiate between two different people who are presenting the same set of legitimate-looking credentials.

It’s this layered approach that gives Trulioo the power to protect Eva from digital threats.

Trulioo, a global identity verification service, previously recorded a parody of “Down With OPP” by the group Naughty by Nature – rebranded as “Down with KYC” to emphasize the importance of knowing your customer.

“This was a really fun project for our team, but more importantly, our goal was to encourage dialogue about the importance of identity verification,” Kim Hong, VP of marketing at Trulioo, said at the time. “KYC rules are important to ensure safety and trust online, and to protect against nefarious criminal activities, such as money laundering, terrorist financing and fraud.”

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With more people shopping online and sharing their lives on social media, identity theft is at an all-time high. In a press release, Symantec said that more than one-third of Americans and more than 650 million people globally were victims of cybercrime in 2016 alone, making digital safety a top concern for consumers. In fact, it is an estimated $10 billion market.

Identity theft allows thieves to steal personal information (such as Social Security numbers) and use it to then take over or open new accounts, file fake tax returns, rent or buy properties and more. According to LifeLock, children are especially susceptible to identity theft because of their clean credit histories.

LifeLock protects its customers by scanning millions of transactions every second for threats to a person’s identity. In addition, if an identity has been stolen, there are specialists on hand to help the victim pinpoint the security breach, as well as give $25,000 to $1 million to replace stolen funds depending on the level of a client’s plan. Last year, consumers spent over 100 million hours resolving identity fraud.

“The combination of Symantec, the leader in consumer security, and LifeLock, with more than 4.5 million members, paves the way for us to deliver comprehensive digital safety solutions for consumers who face an onslaught of new risks every day,” said Symantec CEO Greg Clark. “With the addition of LifeLock, consumers will now have a single place to get the protection services they need for their entire digital lives — from two trusted, industry-leading brands.”

The post Symantec Completes LifeLock Buy To Counter Identity Theft appeared first on PYMNTS.com.

We all know the term, understand its significance and have seen plenty of examples across the industry of how businesses are utilizing massive amounts of data (and the applied analytics needed to make sense of it all) as a competitive edge in the market.

But what if the way companies are going about big data and analytics is all wrong?

Joe DeCosmo, Chief Analytics Officer of Enova Decisions, says that it’s clear that even with access to big data, not harnessing it in the most efficient way can lead to some major challenges in driving innovation.

In order to truly reap all the benefits of big data, while also keeping up with consumer demands and staying one step ahead of the competition, DeCosmo says the integration of real-time, scalable analytics decisions must be made.

Unfortunately, DeCosmo said, in many cases the lack of analytics expertise or an advanced technical infrastructure stand in the way of delivering instant answers to the tech-centric consumers who demand them.

BYPASSING THE REAL-TIME ROADBLOCKS

Real-time decisions come with many benefits – with enhanced customer experience and improved business functions among them – but getting there isn’t easy.

“As the speed of business steadily increases and automated processes and faster decisions change the game, more and more businesses will feel the crunch to make real-time, automated decisions a reality,” DeCosmo explained.

A key challenge in reaching real-time decisions is actually finding the analytics expertise needed to develop and monitor the necessary models and algorithms.

Basically, a good big data and analytics architect is hard to find.

With data scientists being one of the hardest analytics resources to recruit, DeCosmo noted that many businesses attempt to develop and implement advanced technical infrastructures internally.

However, it doesn’t take long for the complexities and enormous financial costs of taking the in-house path to become overwhelming.

DeCosmo pointed out that building the platforms needed to enable real-time decision-making with big data takes a significant amount of resources, adding that “it takes millions of dollars and multiple years to build a world-class technical infrastructure that produces real-time automated decisions — even with top-notch analytics experts at the ready.”

As the demand for analytics talent continues to grow (and the supply remains scarce), DeCosmo provides some important considerations businesses should keep in mind if they decide to cultivate analytics expertise in-house, such as understanding the right mix of talent to address the data challenge, dedicating to a strategy for expanding the search and understanding exactly what type of talent is needed.

But when access to the analytics expertise of data scientists isn’t there, businesses face a fork in the road.

TO BUY OR TO BUILD?

Here’s the dilemma: Should a business purchase or create its own real-time predictive analytics power?

The answer may actually fall somewhere in the middle – a combination of both buying and building.

Though analytics expertise and technical infrastructures are both significant, DeCosmo said it makes sense to build one and buy the other.

“Hire a small team of analytics experts that can build their own algorithms and work closely with the business units to determine their needs,” he explained. “Then, take advantage of existing technical infrastructures that have already been built and refined to run models and produce real-time results.”

In an effort to help businesses attain a scalable predictive analytics solution that meets their needs for real-time decisions, Enova Decisions created its Real-Time Analytics and Colossus Decisioning Platform.

The platform enables customizable, real-time scoring and evaluates thousands of transactions per hour in order to produce scores and decisions on fraud, credit, operations, and marketing in an instant and at scale via Web-based APIs.

“Businesses that outsource or supplement existing resources with analytics expertise, customized modeling, and a technical infrastructure, save time and capital versus building all solutions in-house,” DeCosmo explained. “Innovation through analytics drives business performance, growth, customer satisfaction and bottom-line results.”

For more details on the influence of real-time decision-making, please see “The Big Data Game Changer,” a white paper authored by Joe DeCosmo.

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