Business Stuff

How Account Verification Prevents Fraud

Fraud can be prevented with account verification in the banking industry. In 2020, the Aite report anticipated that US banks would lose close to $600 million as a result of fraudulent activities. This was compounded by the actual theft of 13 billion data records from 2013.

We describe bank account application fraud, look at the risks to banks, and consider what changes banks have made to their procedures to mitigate fraud while dealing with the consumer demand for new online applications. The process of account verification is integral to these procedures.

What Is Bank Account Application Fraud?

There are two key ways in which fraudsters operate to provide false records when applying for a new bank account. One of these is to obtain false identity documents and pass them off as legitimate. The second method is to steal personal identifiable information (PII) from unsuspecting or vulnerable people and pretend to be these persons.

This highlights the importance of all individuals adhering to top-notch security advice on their personal and work systems when operating online. Guidelines for the protection of PII should be assimilated by individuals and business personnel that have access to employees’ information.

Some of the Risks of Fraudulent Activities

More than half of all millennials, and over a third of consumers in general, stated a preference for online applications for new bank accounts. This presents a challenge to banks when needing to confirm applicants’ identities one hundred percent. This risk is the highest of the three contributors to fraud when opening accounts as it makes it easier for individuals to provide false information that is hard to detect. The risk is an intentional misrepresentation of identity.

The second top risk occurs from data breaches that enabled fraudsters to gain access to PII and use it to falsify applications and hide their true identities. This, again, points to the need for a data security protocol for individuals and companies.

The account verification process must continuously be upgraded to deal with new threats. Financial institutions have to balance what customers want with the security risks involved.

How Banks Are Mitigating Potential Fraud

The account verification process on a mobile phone acts in real time to prevent many fraud strategies. For example, if the customers are new, they are asked to use their cell to copy and send both sides of their driver’s licenses.

Artificial intelligence is now used to verify the legitimacy of photos. Customers would then be asked to take a selfie and upload that, in real-time. Passive liveness detection confirms if the photo corresponds to a living person at that moment.

How Businesses Are Being Affected

Nacha compliance legislation affects businesses when they transact online, for example, to establish a repeated debit or in the process of accepting an online payment from a customer. These transactions are problematic with first-time customers whose identities must be vetted. Failure to comply can lead to being fined. The account verification process need not stress businesses out as they can hire a company to handle this for them.

Fraudsters are always finding new ways to circumvent the latest procedures to detect fraud and businesses, individuals, and financial institutions must stay abreast of current events in this regard to protect themselves.  

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