Banking customers want fast, they want safe and they want both available to them digitally.
Heidi Hunter, VP of product innovations at IDology, joins us to talk about digital identity verification and how it can help banks and credit unions deliver speed and security.
A few takeaways from our conversation:
Financial institutions faring best with digital onboarding and account opening are embracing a diverse data set to securely authenticate customers
Emerging technologies can make things tougher for fraudsters – this includes digital drivers licenses and advances focused on the blockchain
Digital ID verification can make banking more inclusive, with mobile phones providing a clear digital path to reach and verify the underbanked
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Below is a full transcript of my interview with Heidi Hunter.
So Heidi, the ID in your name offers a big hint that you’re focusing on identity. But can you tell us a little bit more about IDology and its business areas as they relate to financial services?
Yeah, absolutely. IDology is a provider of Know Your Customer and identity verification solutions that fit well in the financial services sector.
We’ve all heard a lot about how the pandemic has really ramped up the use of digital banking products and services. Some surveys show 50%-plus increases in usage. How is that carrying over to identity verification and authentication of banks?
It was a pretty climactic shift. We’ve always seen high growth in financial companies wanting to offer digital services, but we had holdouts – people that always wanted that relationship, that in-branch relationship. But as things happened with the pandemic, that wasn’t possible anymore. So if you needed to deposit a check, if you needed to get money for someone, if you needed to pay bills, you had to find a way to do these things online. It was the only option because everything was closed. And so those holdouts, they started utilizing these digital services for account opening, for check deposits, for money management. And I think the funny thing that came out of that is they realized the ease of utilizing these types of services, and they’re more comfortable and confident with them now, and I think it’s improved the way that they do banking. So it made a big shift in the mindset of the American consumer and their acceptance of things like this, and they’re wanting to utilize them to make their lives easier.
With regard to identity verification and authentication specifically, you’ve seen a big upswing in adoption of that as well?
We’ve got a really strong base in customers that are financial service providers today. And so many of them are coming to us now wanting to talk about how to create new journeys and workflows for onboarding – things like mobile app design, the browser development. And it’s just been a really big change because these are the types of products that the American consumer is looking for now. They’re wanting that easy onboarding process that they can leverage so that they don’t have to go above and beyond to open accounts anymore.
Because of the pandemic, or maybe just because of the steady march of technology as well, do you think we’ve reached the point where digital ID verification has become table stakes for banks and credit unions? Or is there still room for an institution embracing digital IDV to really differentiate themselves in the market?
I think it’s table stakes, meaning it should be something that you have as an option as part of your process. But I do believe that there are still ways to differentiate yourself within this from one institution to another in the ease that you do the process. So there’s opportunities to make that journey very friendly and usable, depending on who your target market is. And I think there are opportunities in leveraging different types of technologies to make that journey that someone has when they’re coming through your bank, to feel very comfortable and to feel very selective and special for them. And that’s the benefit that digital technologies bring to this new world that we’re living in – there are opportunities now to really tailor-make a process so that you can have an onboarding experience that feels like it was tailor-made for you.
When we talk about that upswing in digital banking, we’re primarily talking about existing customers. They used to rely more on the branch, for instance, but now they’ve shifted at least some of their banking activity to digital. Onboarding and account opening for new customers – that’s kind of a different thing. I would imagine it might be tougher. What are the key challenges involved in the digital onboarding and account opening side of it?
From the standpoint of your institution, you want to make a really positive first impression. And so the challenge that you’ve got is the American consumer – they’re used to that ease, that Amazon-like checkout, where it’s just swipe and you’re done. So how do you balance providing that experience but making sure that, from a compliance and regulatory standpoint, you’re hitting your checkboxes? And how do you make sure that, from a risk perspective, you feel confident that this is the consumer that is really opening the account and it’s not a fraudster? You have so many challenges now with things like synthetic ID, stolen identities, all the different types of fraud that happens. How do you encompass all of that while still meeting the expectation of this legitimate consumer and making sure only the good folks are the ones that are actually getting the account?
In light of these key challenges here, how are financial services doing with the transition to digital onboarding and account opening in terms of speed, in terms of scalability perhaps, and also in terms of meeting those high customer expectations that you’re talking about?
Well, I think the ones that are excelling, Terry, are the ones that are really embracing data diversity. There are so many different factors and informational pieces that you can pull in in the background or through the customer supplying them to you. And when you’re doing a very broad-stroke evaluation of the identity that you’re looking at, it’s not just what you need from a compliance standpoint – it’s beyond those criteria data points. You’re pulling in other pieces of information and you’re diving deep into the details. What do the records that you’re accessing say about this identity from different standpoints? What does the email address say? What is the phone number? You’re looking at these different attributes. What can we find out about the device? And when you’re pulling that back in and you’re looking at all these things together, it paints a really good picture of the identity. So I would say the people that are doing well at this are the ones that are really embracing data diversity. And I think the other opportunities that they have are to try to look for ways to give other verification methods to consumers to help them get approved – things like doing a digital document scan, as opposed to having them fax in paperwork, or giving them the opportunity to answer a series of questions about themselves to get approved, or do a one-time passcode. There are a lot of digital options that you have to get those added security levels, and they’re going to be a lot faster than having someone call into a call center or speak to someone online.
Coming hand-in-hand with the acceleration of digital banking has been an acceleration in digital fraud and scams. How are banks thinking about digital identity verification and authentication in the context of fighting fraud? And is that changing as digital becomes more prevalent in the marketplace?
Just as onboarding is easy for a good consumer, getting access to digital products is also easy for a fraudster as well. Really, the challenge there is getting that surety that it’s really that person transacting and not someone who has stolen their identity or taken composites of data to try to make a fake identity. It’s really challenging from that perspective to know that. You can’t rest on your laurels and just look at certain pieces of information. You’ve really got to do a deep evaluation of as many pieces of information as you can. And I think once you have that really strong look into everything, that’s really where the fraud is going to come out. Some of the things that we see from just a compliance standpoint, the core data points, name and address and so on, that everything is clean, everything checks out. But the problems come in when you start looking at, “Okay, well, this is an IP address from a foreign country.” So what’s the probability that somebody’s clocking in overseas to look at trying to open an account with us or bringing in information about the mobile account? There’s been a port or a SIM swap recently, which makes me think that a fraudster maybe did an account takeover of this device and is trying to open accounts in this person’s name. Those are really the challenges that you’re up against in that digital environment. But again, if you have proper orchestration, if you have proper data insights, you can transact comfortably because you’re checking many pieces of the identity and finding a lot of places where there can be issues.
The strong desire among customers for faster and easier, that “Amazon checkout experience” that you referred to – this often can create business opportunities for criminals. When you think about trying to strike that balance between ease of use and security in digital banking, do you see a natural limit that we may be approaching on just how fast and how friction-free that financial institutions can make transactions and still keep their customers safe?
I think that that’s really an evolving answer because there are other technologies at play that are coming. The concept of a tokenized identity. We know the states are making some of their identity pieces – like the driver’s license – digital. We know that people like Apple and Microsoft, they’re trying to come up with this concept of this key piece of the identity. It’s blockchain. These things are evolving. Eventually, they will be in use. Now, those things, what’s great about that is if you have surety from a third-party player – the state government is a pretty secure one. But as we all drive towards this concept of a digital identity, there will be fraudsters that will find a way to port, leverage, take that information. We do an annual consumer survey where we interview consumers and get their thoughts on things like privacy and security. A lot of them want these things, Terry, but they don’t quite feel confident that they know how to apply it in their life. So there will be breaks in that always. While I think we are moving towards that limit, it’s going to keep evolving. I don’t know that you can ever say that there will just be complete safety trust online. I just don’t think it’s possible because there always will be people that can break through that wall. So you just got to stay agile, keep evaluating things and try to figure out how you can leverage the information and the data that you have so that you can continue to keep those guys out of your system.
Account opening via digital has been targeted particularly aggressively by fraudsters. You mentioned synthetic ID fraud. Losses to synthetic ID fraud alone are estimated at $20 billion in the first year of the pandemic. It’s a huge number. If fixing this were easy, it would have been done already. What makes this particularly hard, and how our banking institutions doing in terms of addressing their digital account opening vulnerabilities?
So what makes this so challenging is that the ease that it is to do this. We actually had an employee at IDology make a synthetic ID – not for the purposes of committing fraud, let me advise, but for the purposes of understanding how they work. Because what we wanted to see is how does that translate on our side once we start evaluating data and try to get an understanding of how long it takes to do this. It was pretty alarming how simple it was for them to do this. It just took a few strategic applications of certain things and then it was in the system and that was it. And so I think we’re always going to struggle with being able to prevent that from happening because, going back to your point, if it was easy, it would have been done already. I think banking institutions, there’s obviously folks that are doing this really well. But given that you said the estimated losses are at $20 billion, not everybody has figured out how to plug that hole yet. It’s an evolving problem, and it’s something that just as an industry, everybody who’s operating in these spaces, we’re going to have to keep working on preventing these things.
Digital banking is frequently touted as being a way to promote more financial inclusion for underserved communities, underserved individuals as well. What role does digital ID verification play in broadening access to financial services?
So glad you asked this because this is probably one of my favorite things about the work that I get to do with IDology. I love fighting fraudsters. There’s nothing we love more than stopping bad guys. We feel like identity superheroes. But for me personally, the access that you can give to folks… If you think about whether it’s folks that are under-marginalized or people who are seniors who are not able to drive anymore, they’re not able to go do these different things. Digital banking is incredible because everybody has a mobile device. I think a recent statistic that I saw was that cell phones outnumber consumers two to one in North America. Don’t quote me on that, but I’m pretty sure that was what I saw. And so if you think about it that way, maybe not everybody has access to a car or they don’t have access to funding to make things happen, but they do have their mobile device. And if you can find a way to get that customer, give them access to your products in a way that maybe they couldn’t obtain through anybody else, it’s a way to make a really good customer out of them because you were the financial company that came through and worked with them when they were maybe working their way up in the world or when they didn’t have access to things that they needed. So this piece of this I really love because through digital identity verification, you’re able to give access to folks that might not be able to gain that access in a very traditional way. And in that way, it’s a higher goal and it serves a great purpose in being the tide that raises all boats in America, and I really love that.
Many of those underbanked individuals today, they’re the youngest millennials and the leading edge of Gen Z, people in their early to mid-20s. So as a subpopulation, we’re talking about millions of Americans just getting started in their working lives and their financial lives. What’s the opportunity that you see down the road for banks that get the digital ID processes done right today?
It’s pretty wild if you think about it, the millennials, the Gen Z… Now, while the end of millennials still grew up with dial-up – because I’m close to that myself, I can remember the big hardware PC in the room – you’re talking about people who really have not lived most of their life without technology to some extent. You’re talking about people who are very comfortable with it. They’re used to it. They’re very accepting of new technology. They’re very engaged with things. It’s a really good opportunity because acceptance of different processes and their willingness to transact with you digitally, it’s all there. And so securing them as a customer now, that could be a customer for life. And I think the other side of that that’s maybe a bit more challenging is maybe the negative side to always having access to technology is that you’re always going to expect technology, too. So there’s this possibility of missing the boat if you’re not adaptive and you don’t have those digital identity processes in place because that’s the type of experience that they’re going to be looking for. That’s what they’re going to want. Hitting that sweet spot and offering services that way and finding ways to approach that demographic – if you have that in your system, I think you’re setting yourself up for success for the future, and it’s only going to continue. The technology is going to get sleeker, more savvy, and so you’ve got to stay adaptive so that you’re presenting things and enticing people with products that they’ve grown up with.
If you can bring them in when they’re young, nothing’s guaranteed of course, but you could be setting yourself up for a valuable long-term banking relationship. So Heidi Hunter, VP of product innovations at IDology, we appreciate you making time to share your perspectives with us on the BAI Banking Strategies podcast.
Terry, thank you so much for having me. It was a blast to get to talk to you today. I really appreciate it.
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