COLUMN: How will lenders meet identity verification challenges in 2018?
2017 was a challenging year for online bankers and lenders when it comes to identity verification.
While a few high profile data breaches dominated the headlines, there were literally thousands spanning retailers, government organizations, service providers and other businesses, most of which received little – if any – attention.
And, of course, there are very likely much more that were never uncovered. That means more personal data was made available for fraudsters to create fake identities or hijack the identities of real people.
So what’s likely to happen in 2018? How will online banks and lenders respond to the changing identity verification landscape? Here are a few predictions:
Online lenders will start to move away from the social security number (SSN) as a personal identifier. Widely adopted for a purpose it was never intended to fulfil, the SSN has now become so deeply compromised by data breaches that it has little value as even a weak tool for personal identification. In 2018 online financial institutions will (finally) begin phasing it out. Of course, they’ll need something else to replace it…
Big data and machine learning will take centre stage in the drive for better identity verification. There are a number of non-personally identifiable (non-PII) data elements that are hard to fake (for example, the age of an email address or the proximity of an IP address to the user’s mailing address). Those elements become even more useful and powerful when combined with other data elements. And when lenders use machine learning to analyze millions of transactions they can quickly see patterns between data elements that correlate to good (and bad) actors and transactions. The ability to do this in near real-time is essential for fast-moving markets like online lending, where consumers have become accustomed to getting approvals in minutes.
Larger online lenders will bring more of their fraud-fighting efforts in-house. Rather than relying on rules-only third-party platforms, in 2018 lenders will develop and adopt their own hybrid platforms that combine rules and custom models. These hybrid systems will give banks, lenders and payments providers a more dynamic tool to respond to the ever-changing tactics of fraudsters.
Online financial institutions will begin to adopt blockchain. With the exploding value of some cryptocurrencies, blockchain technology has gotten a lot of attention lately. Devised as a secure transaction mechanism for buyers and sellers of currencies like Bitcoin that eliminates the need for a financial institution to play middle man, blockchain has increasingly been seen as a way to provide a more fraud-proof basis for a universal digital identity system. In 2018, expect banks, lenders and payment providers to start experimenting more seriously with blockchain and even adopting it for certain high-value transactions.
There’s no doubt that the identity verification landscape is going to be more challenging in 2018. If the recent past is any guide, data breaches won’t stop (and may even get worse). Online banks and lenders will need to step up their identity verification game to stay ahead of fraudsters. Fortunately, new tools and technologies are adding more weapons to the fraud fighter’s playbook.