Banks and other financial institutions (FIs) are rightly concerned about fraud. Becoming a victim of fraud is bad news for individuals, but trusted organisations like banks suffer in a number of ways. As well as suffering direct financial losses, they are liable to fines and legal action. Plus, there is the biggest hit of all; reputational damage.
New account vulnerability
While FIs must be vigilant at all times, it is the setting up of new accounts which presents the greatest time of danger. A recent worldwide report showed that 57% of fraud hits businesses more at the time of account opening or takeover than at any other time. These figures are from those who have reported being victims of fraud, and so are particularly relevant.
This statistic points to the fact that generating a new account, or changing its owners, are times of maximum vulnerability to fraud. This being the case, verifying the identity of any new account’s owners is fast becoming a necessity for financial organisations; anyone who can provide foolproof ways of doing this will be very popular indeed.
Financial regulators’ concern
In many countries, financial regulators are aware of the problem of new account fraud, and have taken steps to try to counter it. For example, in the UK, the Financial Conduct Authority (FCA) has brought in a law whereby any FI setting up a new account for a customer must ensure they produce two separate documents; one proving identification and another a valid address.
In wider terms, fraud regulators have identified an impressive 15 “red flag” factors, any of which should be a warning to a FI when approving a new account holder. In an age of hackers and identity theft, the number 15 is perhaps not surprising, although a reminder of how many ways fraudsters have devised to gain access to other people’s money.
Ways of identifying fraudsters
Many FIs, or the companies they hire to carry out ID verification for them, are now insisting on multiple levels of checks. Any individual should have some form of documentation issued by a state institution, be it a passport, driving licence or some other form of official ID. On top of this, verifiers are asking for the applicant to provide a recent selfie, to compare with the photo on the ID card.
Verification of address is the other main way to spot fraudsters. Firstly, an address can be checked for its actual existence; then, whether the applicant actually lives there, or has done recently. Even mis-matched addresses can point to a potential fraud; someone has tried to copy out an address, but (because they’re not familiar with it), makes a typo or inserts a town where a street should be.
Small mistakes like these are one of the 15 red flags which verifiers look out for; any one of them can be a sign that a new account holder is not who they say they are. Spotting fraudsters early can save institutions and individuals a whole lot of time, trouble and money.