An Insider on Why Banks Must Collaborate to Stay Ahead of Fraud

Lisa Zeimetz, senior vice president of risk/compliance and Community Reinvestment Act officer at First National Bank and Trust, tells PYMNTS about the ways her bank and others are working to protect their customers.

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The rise of synthetic identity fraud, which involves bad actors fabricating a user’s identity, is the leading concern for many financial institutions (FIs). According to Lisa Zeimetz of First National Bank and Trust, the real threat is that with a single fake identity, bad actors can wreak havoc going from bank to bank and exploiting the identity for all they can get. Meanwhile, since synthetic identity fraud eliminates the possibility of unknowing customers reporting it, FIs have very little recourse to stop the chain of deceit. This lack of power illustrates the enormity of the challenge currently before banks in trying to thwart fraud before it occurs. 

Collaboration is key for FIs to have a fighting chance against synthetic identity fraud and other forms of online fraud. Like many in the industry, Zeimetz said she believes banks need a collection of indicators to better identify fraud, particularly during account onboarding, as well as help from regulators to enable better information sharing among banks. Improved data strategy approaches can provide greater visibility into fraud trends, according to the Federal Reserve Bank of Boston. The Fed created a FraudClassifier Model that uses the industry-recommended definition of synthetic identity fraud and advocates moving toward possession-based factors for authentication. In particular, regulators can help banks fight collaboration with collaboration by expanding Section 314(b) of the Patriot Act, which allows FIs to share financial information and report certain activities to the federal government. 

When it comes to approaching online fraud, larger banks typically use in-house resources, while smaller banks are more often using third-party tools and providers, said Zeimetz. For those smaller FIs, it is important to understand the end-to-end customer life cycle, as there is usually a string of vendors employed, starting with the account opening process. Zeimetz took part in the FDIC’s tech sprint, an effort to identify scalable, cost-effective, risk-based solutions to measure the effectiveness of digital identity proofing. This specific project aimed to ensure that individuals who remotely present themselves for financial activities are who they claim to be at any step of the customer’s journey. The tech sprint is part of an FDIC-led effort and its FDITECH initiative to promote the adoption of the kinds of innovative technologies that can stem the tide of synthetic identity fraud and other types of pervasive online fraud.