Integrating Identity Verification into Risk Management

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Financial institutions face constant pressure to comply with regulatory mandates designed to prevent identity fraud and money laundering while still delivering excellent customer service, watching bottom-line results, and meeting business objectives. In today’s complex business environment, this seems like an almost impossible task. However, those regulatory mandates also create many opportunities to increase efficiencies and save money. By integrating ID verification into the overall risk management strategy, financial institutions can expect to see substantial benefits to their bottom lines, customer service levels, and employee productivity.

What is identity verification?

Identity verification is defined as “the process of using claimed or observed attributes of an individual to infer who the individual is.”(1)

For today’s financial institution, identity verification is a critical aspect of establishing a new relationship. True identity verification means reviewing the truthfulness of what a prospective customer discloses by screening the data against multiple sources, then analyzing the facts to determine whether a new relationship should be started. “Know your customer” has long been promoted within institutions as a sign of personalized customer service; however, with the enactment of the USA PATRIOT Act regulations, identity verification is now the difference between success and failure in the ever-changing financial services market.

Why is identity verification important to financial institutions?

The increased role of the country’s financial institutions in securing the home front must not be undervalued. The purpose behind the USA PATRIOT Act is national security. No one will disagree that having a better understanding of the customer doing business at an institution provides increased security for the institution, its customers and the public in general.

The danger for banks is more than just monetary loss. Damage to a financial institution’s reputation created by noncompliance and the publicity surrounding terrorists opening accounts can lead to lost confidence in the institution and significant loss of customers, sales, and revenue. Recovering from negative publicity is a long, difficult, costly process.

Compliance cannot be ignored because penalties for noncompliance are severe. Regulatory penalties for the USA PATRIOT Act and OFAC regulations can range from $10,000 to $1 million per infraction.

Protecting Against Identity Fraud

Institutions need to prevent identity fraud while balancing the need to protect customer information with a customer’s requirement for quick, efficient service. Identity verification is clearly a first step in reducing the opportunities for fraud and taking action. Stopping the “bad guys” from opening a new account at an institution is the easiest and most cost-effective way to reduce a bank’s burden. That’s how “knowing your customer” can help–if identity verification becomes part of the defensive measures within the overall risk strategy, it can be a significant factor in preventing fraud.

Increasing Operational Efficiencies

The PATRIOT Act has driven financial institutions to review corporate policies and perform lengthy risk analyses. Identity verification technology helps integrate policies into normal routines by allowing frontline workers to gather needed information very quickly and efficiently instead of manually researching identity information by calling references and checking websites.

Improving Customer Service

The consummate benefit from integrating identity verification into an institution’s risk management strategy is a higher level of customer service.

From airline travel to school registration to doctor visits, society is accustomed to trading some privacy for the security of each individual and the country. However, customers do expect their financial institutions to protect their identity information and their fiscal assets. Identity verification programs allow new accounts to be opened quickly, creating a positive experience for the consumer while showcasing the methodology the institution has in place to protect its customers.