As banks and credit unions make the switch to digital customer onboarding, they face increasingly sophisticated online security threats.
Balancing the risks with the need to provide a user-friendly customer experience requires an enhanced identity verification and authentication solution that can be fine-tuned to each unique customer journey.
In the recent webinar, “Leveraging Data Identity to Secure Trust & Deliver Frictionless Consumer Experiences,” executives from MeridianLink and TransUnion explain how integrating TransUnion’s TruValidate solution with MeridianLink Consumer loan origination software can safeguard the customer experience while also offering the security you need.
Traditionally, financial institutions have only thought about ID verification and authentication when customers open new accounts, said MeridianLink Vice President Strategic Partnerships Doug Glagola.
However, given the scale and impact of fraud in recent years, it’s equally as important for banks and credit unions to authenticate the identities of customers applying for loans.
Preventing Fraud in an Era of Increasing Identity Theft
COVID-era market factors have elevated ID theft, also known as third-party fraud, but limited first-party and synthetic fraud rates in consumer credit in 2020. The trend is contrary to the expectations of experts who anticipated growth in synthetic fraud as more financial institutions adopted digital technologies, said Lee Cookman, Director Product Strategy, TransUnion, in the webinar. Synthetic fraud, a newer type of fraud, occurs when a fraudster creates a false identity with a false credit history and credit scores.
ID theft, by contrast, uses information stolen from a real person via phishing, data breaches, and other digital attacks to open a new account. First-party fraud is when an individual receives a loan, for example, with no intention of repayment.
In 2020, there were nearly 1.4 million reports of identity theft, about twice as many as in 2019, according to the Federal Trade Commission.
“Concentrated loss mitigation efforts tempered first-party and synthetic fraud levels, as businesses braced for a recession-like environment while new fraud targets outside of consumer credit drew in credit abusers,” according to Cookman.
In the webinar, Cookman offered an example of an identity theft attack that occurred in a financial institution’s consumer lending unit during the pandemic.
The bank received dozens of loan applications – not unusual during a time when consumers were increasingly turning to personal loans and other credit as they ran out of stimulus funds and were no longer able to borrow from family and friends.
Multimillion Dollar Loan Fraud Averted
“We saw dozens of unique IDs being used online for personal loan applications,” Cookman said. “On the personal identity side of things, names, Social Security numbers, dates of birth, etc., everything looked pretty good on the surface. They may have had different addresses but that really isn’t the strongest indicator of fraud during a pandemic. Because of shelter-in-place requirements, people may have been moving around for various reasons. So these were all real people and their information looked pretty good.”
Digging deeper, TransUnion uncovered a pattern with the email addresses of the “customers.” Many of the addresses were from the Los Angeles area and did not match the consumers’ primary addresses. In addition, many of the customers’ applications were coming from the same IP address, Cookman said.
“Once we put all these things together, we were able to target these specific transactions. which would have been a multimillion dollar loss for the lender as well as for the consumers,” he said.
Financial institutions must prepare for evolving fraud and credit abuse tactics that could increase significantly, Cookman warns.
Balancing Fraud Prevention and Banking Customer Experience
The challenge is in navigating the tradeoffs between tightening controls to prevent fraud and turning away good customers, said TransUnion Senior Product Marketing Manager Matt Johnson.
“If you loosen things up, you’ll get a lot more fraud,” Johnson said in the webinar. “So neither one of those are really ideal scenarios. But with what we’re able to help bring to the table and partnering with MeridianLink, (financial institutions) won’t have to make that tradeoff,” he said. “You can deliver a really good user experience, reduce fraud and increase the number of customers you’re able to successfully onboard, thus increasing your revenue and growing your business without making that tradeoff.”
TransUnion delivers an accurate and comprehensive view of each consumer by linking proprietary data, personal data, device identifiers, and online behaviors. The company’s advanced insights and global network of fraud reporting help banks and credit unions discover anomalies, assess risk, and confidently identify good consumers.
Fraud Prevention Tailored for Maintaining Consumer Experience
“We are able to bring the data and actionable insights that we have at TransUnion to allow you [to protect your business and focus on] offering this frictionless consumer experience, delivering an experience that is tailored to the risk of a transaction,” Johnson said.
TransUnion then returns a configurable identity risk score and a detailed summary of inaccurate customer-provided information. The service uses sophisticated algorithms and behavioral analytics to identify suspicious activity.
Built-in integration with the MeridianLink platform will enable mutual customers to leverage the power of both companies to protect their businesses with effective, personalized, and frictionless experiences.
Beta testing of the integrated solution will take place in October, with general availability in November.
Contact us to learn more about our newest solution for balancing fraud protection with high-quality customer experience.
