FDIC launches digital identity-proofing initiative, LexisNexis reports even higher fraud costs
The U.S. Federal Deposit Insurance Corporation (FDIC) and the Financial Crimes Enforcement Network (FinCEN) have jointly announced a new initiative to support the development of digital identity proofing for the financial sector.
Dubbed Tech Sprint, the project will see FDIC’s tech lab (FDITECH) and FinCEN organize teams to collaborate on ways to increase efficiency and account security; reduce fraud and other forms of identity-related crime, as well as money laundering, and terrorist financing.
According to the institutions, digital identity proofing is a foundational element to enable digital financial services to function properly.
However, this element is often compromised by an increased amount of leaked personally identifiable information (PII) episodes, the increased use of synthetic identities, and the presence of multiple, varied approaches for identity proofing.
Through the Tech Sprint, FDITECH and FinCEN will receive applications from individuals interested in answering the question: “What is a scalable, cost-efficient, risk-based solution to measure the effectiveness of digital [ID] proofing to ensure that individuals who remotely […] present themselves for financial activities are who they claim to be?”
Following three weeks of reviews, a virtual “Demo Day” of short team presentations to a panel of experts will then be organized to recognize teams based on several criteria detailed in the forthcoming prize notice.
Report shows fraud costs increase further during pandemic
LexisNexis Risk Solutions has released the 2021 edition of its True Cost of Fraud Study: Financial Services & Lending.
Based on responses from more than 500 risk and fraud management executives in the U.S. and Canada, the report suggested cost of fraud for U.S. financial services and lending firms has increased between 6.7 percent and 9.9 percent compared with before the pandemic.
Mortgage lenders have been impacted the most by fraud, with mortgage lending fraud costs now 23.5 percent higher than early 2020.
In terms of the type of devices targeted, LexisNexis claimed the mobile channel continued to impact higher fraud costs and volumes. The firm has also noticed a significant percentage rise across financial services and lending firms for malicious bot transactions.
According to LexisNexis, identifying such bots and other types of fraudulent transactions involving synthetic identities was challenging without support from digital identity and transaction fraud detection solutions.
“Fraud prevention must assess both physical and digital identity attributes as well as the risk of the transaction,” explains LexisNexis Risk Solutions’ Director of Fraud and Identity Christopher Schnieper.
The same issues affected identity verification, including digital attributes, with digital identity fraud representing a significant percentage of fraud losses at the point of funds distribution as these losses continue to grow with new account openings.
“It is difficult for even the best trained professional to detect the increasingly sophisticated crime occurring in the remote digital channels without the aid of solutions that detect digital behaviors, anomalies, device risk, and synthetic identities,” Schnieper adds.
“According to the study, the financial services and lending firms doing this – along with fully integrating cybersecurity operations, the digital customer experience and fraud prevention – tend to have a lower cost of fraud and fewer challenges.”