The financial services research group looked at how new technologies and geopolitical forces will help US consumer lenders justify greater investments in the infrastructures needed to combat this complex type of fraud.
TowerGroup says the best way for financial institutions to combat losses from identity theft is to prevent a stolen identity from being used in an initial loan application process. Yet, the patterns of identity theft are often random and unpredictable.
As a result, many lenders have been unable to justify the expense of implementing sophisticated technologies to authenticate a person's identity at point-of-sale-even with the much-publicised rising exposure from compromised internal databases.
When it comes to identity theft, the internet and other self-service channels can fuel both the problem and the solution, says TowerGroup. These channels have markedly increased the incidences of credit card fraud and the footprint of identity theft. Yet the web, with its capability to link partners and move information quickly and cost-effectively, has proven a strong ally for technology vendors providing new identity verification solutions.
Geopolitical forces are also playing an important role in helping lenders take key steps in fraud prevention. While the purpose of the USA Patriot Act is to prevent terrorist financing, one by-product is the tightening of credential review for new and existing accounts - particularly around establishing standards for verifying customer identification when an account is opened.
TowerGroup says that technology solutions that provide additional identity fraud coverage while conforming to the tenets of the USA Patriot Act are logical choices for lenders to explore.