Six Predictions for Identity Verification and Anti-fraud Protection

During the pandemic, the world witnessed a dramatic conflation of technology-driven trends. Digital adoption across industries, online business operations and tech-enabled communications shifted into high gear. People and companies adapted. Fast. We now shop, meet, work, play and learn on the digital screen. In such a landscape, threats have increased manifold as well. Andrew Sever, co-founder and CEO of Sumsub, shares six key predictions to be aware of to improve identity verification and anti-fraud protection in our dynamic, digital, vulnerable world.

Heading into 2023, it’s become increasingly clear that this is the new normal. Despite traditional mindsets or rumblings about hardcore returns to the office, forward-looking generational behaviors are here to stay.

But alongside all the considerable benefits of our new and next-level digital interconnectedness is a serious escalation of fraud. Crimes involving digital transactions and identity have become more frequent and sophisticated. McKinseyOpens a new window recently pointed out that FBI and FTC data show fraud losses in 2021 in the U.S. jumped to $5.9 billion and internet crime losses to $6.9 billion, “increases of approximately 436 and 392 percent, respectively, compared with 2017.”

Businesses are facing a critical need for powerful, customizable verification and monitoring tools in their KYC (Know Your Customer), KYB (Know Your Business), transaction monitoring, and AML (Anti-money laundering) efforts. Indeed, a 2022 Sumsub Identity Fraud ReportOpens a new window analyzing 500,000+ fraud cases and millions of verifications from 21 industries estimates that fraudsters have stolen 3.6% of all e-commerce revenue in 2022, 40% of payment merchants now prioritize the prevention of illegal chargebacks, and 46% growth in payment fraud occurred from 2021 to 2022, significantly increasing the share of this type of fraud worldwide.

In this context of unprecedented challenges that accelerated digital adoption has created, at least six trends around improving verification and combating fraud will impact businesses worldwide in 2023. Let’s take a look.

See More: DevSecOps Accelerates Incident Detection, Response Efforts

1. A Shift Towards Full Automation

The utilization of advanced technology in business processes – from delivering products and services to paying bills and managing workers – with minimal human intervention will continue to rise. For example, in user onboarding for a fintech app or even for employee onboarding in a new position, a workflow system can trigger a set of predefined steps to send out a welcome email, configure security credentials and set up financial details in payments or compensation systems. Automating workflow can improve the efficiency and accuracy of each step, but those gains must be balanced with different kinds of verification. Validating email addresses and phone numbers, examining user risk profiles, running extra checks based on applicant actions and setting up triggers in the verification logic for rare manual case reviews should all be part of the automated process and increasingly will be.

2. Document-free Onboarding Will Emerge as the New Norm

Document-free onboarding is increasingly being implemented in the fintech, trading, crypto, marketplace and transportation industries and for online businesses globally – enabling verification of a user with a liveness check and cross-checking their facial biometrics with their ID and image from an official state database. This type of verification is proving to be convenient for users across mature and emerging markets. They don’t need to scan their documents, and the verification is exceptionally secure since it leverages government databases directly. Users often know their ID numbers by heart in emerging markets like India, Indonesia, Brazil and Nigeria.

For travelers, document-free onboarding can involve presenting a QR code on their mobile device to share their ID and looking into a camera at a TSA checkpoint. TSA’s computer system will match the traveler’s encrypted image against the airline’s mobile ID, a process that usually takes less than five seconds.

3. The Tension Between Hyper-customization and Privacy Concerns Will Increase

Hyper-customization of products and services is one of the most advantageous ways for businesses to connect to customers, making them feel known and understood. It leads to better customer satisfaction, loyalty rates and business results. As a data-driven approach, to be successful, it requires a conversion to customized identity and transaction verification processes as well as the accumulation and use of customer behavioral data. 

But, while many customers enjoy feeling connected to brands, they also want assurances their privacy is protected. When hyper-customization is done wrong, it risks violating customers’ trust. With cases like the class action suitOpens a new window against Apple’s mobile app tracking being sorted in 2023, the tension between personalized experiences and privacy will be in the limelight.

4. Anonymity Will Be Increasingly Difficult to Achieve

Unsurprisingly, as hyper-customization and privacy concerns face-off, questions around the practicality and possibility of anonymity will continue. A seminal Pew Research studyOpens a new window found “59% of American internet users believe it’s impossible to completely hide your identity online.” As digital presence has only expanded, that skepticism is more prevalent than ever. More than at any time in modern history, advertisers track digital habits across the internet and across devices—phone, tablets, and laptops—to know where we habitually go, shop, and what websites we visit. Governments track additional data. 

There’s no question it’s complicated to control the data collection and traction by all the apps and devices we own and use. Even with limited usage, our personally identifiable footprint is forever in the ether. 

5. Tough Crypto regulations and Anti-money-laundering Protections Will Rise

One of the reasons blockchain technology and cryptocurrency usage have been so attractive is that anonymity was initially a core concept built into the technologies. Cutting out big bank control, fighting back against unapproved data collection, and conducting transactions in a democratized—and anonymous—fashion across a worldwide, decentralized ledger system backed by thousands of peer computers is ideologically appealing to many. 

But it’s well documented that criminals have flocked to crypto and its often hard-to-trace origins to launder money gained from nefarious activity. ResearchOpens a new window documents an approximately twofold increase in crypto fraud—from 0.7% of all cases to 1.5%. Into 2023, crypto exchanges and providers are being pushed to prohibit operations for Russian users, as well as other nation-state and individual actors. We can expect to see more crypto regulations across the globe. Switzerland has already introduced a new ruleOpens a new window for identity verification for any crypto transactions exceeding USD 1,005. In our new digital reality, the AML responsibilities banks have will eventually extend to all kinds of fintech institutions. 

6. Combating AI-generated Deepfakes Will Become Essential

Fraudsters continue to build increasingly sophisticated, AI-driven deepfake technology and the proliferation of fake profile creation leveraging this on social platforms likely means those platforms will look to KYC technologies in the near future to protect the users from social engineering. Depending on the input data, some deepfakes are so difficult to distinguish from reality that only sophisticated anti-fraud algorithms can detect them reliably. By using verification platforms built to combat deepfake advances, individual identity and businesses alike are better protected. 

In the wake of the changes we’ve seen in the past few years, GartnerOpens a new window recommends that “risk leaders recognize organizational resilience as a strategic imperative and build an organization-wide resilience strategy that also engages staff, stakeholders, customers and suppliers.” Verification in KYC, KYB, transaction monitoring, and AML efforts must play a key role in those strategies in 2023 and well beyond. 

How are you strengthening your anti-fraud stance and improving identity verification? Share with us on FacebookOpens a new window , TwitterOpens a new window , and LinkedInOpens a new window .

Image Source: Shutterstock

MORE ON ANTI-FRAUD PROTECTION 

• What Is Fraud Prevention Orchestration Technology and Why Is It Needed?
• How to Gain Fraud Intelligence by Re-examining Relationship with Data
• The Surprising Reason that Fraud Execs are More Influential Now than Ever