Businesses failing to identify customers amidst synthetic ID concerns

Businesses have a “false sense of confidence” around their ability to identify and re-identify customers says David Bernard, senior vice president, global decision analytics at Experian.

“They think someone’s used a username and password and it was correct, and therefore it is that particular individual and everything is fine. It isn’t; we see a lot of fraud that happens where people have authenticated, based on the variety of fraud types. People may have been hacked, their credentials may have been stolen, they may have a genuine account but it’s not an actual person, it might mean at some point a mobile device had been left unattended – so a variety of things.”

An Experian report published last week points to a disparity between businesses and their customers’ perception of identification. The study reported that 95 percent of businesses claimed to have a high degree of confidence in their ability to “identify and re-recognise” customers at every interaction. Meanwhile 55 percent of customers do not feel recognised, having to re-identify themselves to a business on multiple occasions and increasing friction in the payments process.

“We see that businesses feel on average too safe around their ability to identify people, and what we see on the other side is that customers feel like they’re giving away a lot of data, and don’t feel like it’s used particularly well. Also, consumers feel a bit bothered around security measures that come quite often at the wrong time … That’s the dichotomy between those two worlds.”

Data collected from Experian’s survey indicates that businesses tend to prioritise personalisation over security, whereas customers prioritise security. According to Bernard this suggests customers do not understand how their identity data is being used.

“I don’t think customers fully understand data flows. They think for instance if they give data to one party, that’s it. But if they were to really read the privacy notices or understand the ad ecosystem, they would probably realise that their identity is then resold. So very few people really understand the complexity of the ecosystem behind personal data and they trust companies in many cultures to be a good guardian of that data.”

The survey reports that 88 percent of customers globally would like an increased customer experience as a result of the data collected on them. The ability to accurately identify customers demonstrates transparency in data usage, which Bernard believes hasn’t been properly afforded by the General Data Protection Regulation (GDPR).

“I think the focus on GDPR for both governments and companies is very much on implementing it fully, and understanding how it’s being used and whether people really use different clauses that exist in terms of the right to privacy, the right to be forgotten etc. And so we haven’t yet seen massive fines …. I would imagine that if there isn’t a strong general push by companies operating online to really get their act together significantly, I wouldn’t be surprised if there’s a second round of regulation coming in the next few years.”

The rise of synthetic identity fraud in payments adds to transparency concerns. In January 2019, McKinsey & Company reported that synthetic identity fraud was the “fastest growing type of financial crime in the United States.” Synthetic IDs are often created using a combination of real and fake information, but sometimes the information is entirely fake. They are notoriously difficult to detect. In 2018 the US Federal Reserve launched an initiative to encourage action against synthetic identity payments fraud.

“In general I think beyond the sort of information privacy that comes to identity, the race that companies go through is to fight fraud. The age of usernames and passwords is gone; not many companies should rely on that now. You need to over time be leading in your identity and verification and fraud detection efforts if you don’t want your business to suffer, and there’s already a sizable portion of their profits going down the drain because you lose money,” says Bernard.

According to the report, 57 percent of businesses experience year-on-year fraud losses, with nearly three in five businesses reporting an increase in fraud incidents in the past year.

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