Digital identity verification is being put through its paces during the pandemic as remote onboarding of consumers keeps skyrocketing, bringing a reenergized wave of financial crime with it.
As troubling as the rise in false identities and resulting consumer fraud were in 2020, this year is seeing another alarming trend on the rise: an uptick in the creation of fake businesses.
This is bringing about an evolution in digital anti-money laundering (AML) and know your customer (KYC) solutions as fraudsters continually switch tactics amid the chaos.
The sudden need to remotely identify consumers — as well as businesses — is sending companies scrambling for AML/KYC solutions, made more urgent by the June implementation of the sixth AML directive in the EU. Combined with stricter data regulations in the U.S., it’s been a struggle for many.
In a conversation with PYMNTS, Trulioo Vice President of Emerging Technology Rutherford Wilson said, “There’s always this tide of additional regulations. What’s more relevant here is the increase in fraud, and the different vectors of fraud that are associated, that are hitting different companies in different ways” during the pandemic’s remote onboarding free-for-all.
Citing a growing need for improved due diligence and insights into how to validate businesses, he said the sector is experiencing “a huge rise” of fraudsters impersonating businesses.
“Business information is a little different than personal information,” he said. “A lot of that information is available in the public domain. Just doing a simple amount of research, you can get to a lot of information, so you can impersonate a business and then create a business account on XYZ website.”
Getting this wrong doesn’t mean just having to contend with losses. PYMNTS’ October AML/KYC Tracker noted that “71% of financial institutions (FIs) worldwide felt subjected to stricter regulatory oversight in 2020. Eighty-one percent of these respondents said they expect this stepped-up scrutiny to continue in the years ahead.”
Get the report: The AML/KYC Tracker
Orchestrating Fraud Signals
With the increase in fake businesses, digital identity solution providers are responding by developing new ways of identifying telltale signs.
“One of the trends that we’re seeing is being able to do a very complete business verification, which is identifying that this business exists, making sure you know where it’s located, [getting] confirmation of the address … making sure you know the key business owners associated with that organization, and then verifying them,” Wilson said.
A multilayered mix of active and passive monitoring is one of the primary approaches that identity verification firms can employ to fight these fakes, be they businesses or people.
Other helpful tools include orchestrating different verification types and applying an appropriate use of friction.
“The idea of that multilayered or orchestrated verification is you leverage the technologies and the techniques that are most relevant at that particular moment,” Wilson said.
See also: AML/KYC: Obstacle or Opportunity for Banks and FinTechs
A New Level of Due Diligence
Wilson said that as more organizations go deeper into this, thoroughness is everything.
“As a compliance officer, there’s an increased level of due diligence associated with doing the identity verification for businesses, and … that’s where businesses have to rise to the challenge to combat fraud,” he said.
Removing friction is a worthy goal, but he said companies still need to know, “Are they good?”
“What risk details can you identify early in the onboarding process or early in that journey to determine, ‘Does the IP address make sense?’ ‘Are they holding their phone in a direct 90-degree angle?’” he said. “There’s all these pieces of information that you can gather to help determine, ‘Is this likely to be a good person, or is this likely to be a bad actor?’”
Using a multilayered orchestration approach to AML/KYC leveraging tons of data is “pertinent in order to make sure you get the right level of due diligence done. Once you have a solid idea of that person, that same collection of data gives you context about their behavior after it,” he explained.
Wilson added that doing so “makes it a lot easier for organizations to add in additional features and functionalities or capabilities to identify people without having to interrupt their internal system. That’s where a lot of the power is.”
Read also: Trulioo Debuts Match Rate Challenge for KYC Rates
We’re always on the lookout for opportunities to partner with innovators and disruptors.
Learn More