Assessing the identity of an individual behind any online transaction or onboarding process is a difficult task, especially in today’s digitally powered world where cybercrime and data breaches have made personal data and credentials even easier for fraudsters to get their hands on. Evaluating the digital identities of the people they do business with is a complicated task that businesses simply can’t afford to take lightly.
But IdentityMind has created a series of questions that can help identify and address the risk an individual may pose to a financial institution or business with which they are trying to transact.
Through its white paper, titled The Digital Identity Evaluation Guide, IdentityMind provides a framework that enables businesses to better understand how digital identities can be used in the context of validating financial actions such as onboarding a customer, transferring money or making a payment.
“This is not a new concept in general. It’s just that when you’re dealing with online individuals, activities and financial services, the issue of understanding who you deal with and what risk they pose to your business is exacerbated,” Jose Caldera, VP of marketing and product for IdentityMind, explained.
As Caldera pointed out, there’s a much greater risk of fraud losses, brand reputation damage or money laundering in general if a company offers financial services. In order to assess the real risk facing their business, it’s imperative that these financial organizations understand who they are really dealing with.
Catching The Shortfalls
While the process of evaluating digital identities continues to evolve, Caldera pointed out that many financial institutions are still unaware of the breadth of technology that is available to help them mitigate the risk of dealing with risky individuals.
Financial organizations (both traditional and FinTech) are also challenged by the fact that asking an individual or business for more information to verify their identity can create a friction-filled process that eventually leads them to abandon the process all together.
In online onboarding, the more friction there is, the more likely buyers will abandon signing up for a specific service.
Caldera said that many financial institutions are falling short in effectively evaluating digital identities due to a lack of education about the fact that there are streamlined methods of verification. They also typically have processes with too much friction and need help addressing the fact that in order to change processes there also has to be a change in mindset.
“There’s so much more that you can glean from working together and bridging the gap between the different silos within the financial institution that I think organizationally it’s a challenge as well because some of these functions will start shifting and start merging into different roles,” he explained.
The Digital Identity Evaluation Map
The evaluation map presented in IdentityMind’s white paper, provides a process for verifying digital identities during the onboarding process. It is based on four necessary questions:
- Is the identity real?
- Is the applicant the owner of the identity?
- Can you do business with the identity?
- What is the risk posed by the identity?
While all of the questions are equally important to a financial organization building a strategy for evaluating digital identities, Caldera said businesses are more inclined to focus on the first and second questions.
“The problem is that with the explosion and growth of data compromises, then you can very easily find masses of those attributes in the dark web for purchase,” Caldera said, noting how harder it is to trust legitimate data today.
Not only are businesses required to make sure data is consistent, but they also must verify that the person using that data is authorized to use it.
From a regulatory perspective, Caldera said the third question underpins the importance of ensuring that a company is abiding by the law when it comes to onboarding. The consequences of not complying are the risk of being hit with heavy regulatory fines or even being shut down.
Finally, while the last question is just as important as the previous ones, it can also be the most difficult to answer. Caldera said this is because it requires assessing the risk to an organization’s brand.
Doing business with the wrong people can wreak major havoc on a business’ image and reputation, making it critical to categorize the risk an identity may represent within the context of a risk assessment.
“The strategy isn’t necessarily about tackling each question separately, but it’s a strategy that, especially if you’re operating online, has to do with how you bring to bear the different aspects of the business,” Caldera said.
Putting Principles To Work
Caldera said that leveraging the evaluation map for digital identities is an exercise that will cause financial institutions to sit down with the key components of their onboarding process and to try to understand what they want the impact to their business to be and which level of risk and tolerance they can apply.
“It’s a good framework thinking about these questions, and it provides an understanding of which technologies are available to answer these four questions,” he noted.
Though financial institutions typically have a wide range of tools and technologies at their disposal to help address these questions, Caldera explained that understanding the application of those technologies within this framework can change composition of the teams operating it.
The evaluation map should serve as a conversation enabler that can potentially bring together groups within a financial organization in terms of processes and technologies that may not have needed to interact previously.
Caldera said that biggest takeaway from the white paper is that there is a framework as well as technologies and processes that can help to verify digital identities in a more effective way.
“It’s about understanding the value of digital identities and the power of looking at the overall issue of onboarding customers online. This is a good and demonstrable framework to help onboard more online clients safely and complying with applicable regulations,” he explained.