Spike in Identity Fraud Forces Banks to Embrace Innovation

To the hammer of a bad actor, everything vulnerable looks like a nail.

And with the rise of sophisticated fraud techniques, organizations like financial institutions that are operating within security-critical sectors are increasingly faced with the daunting task of safeguarding against a shifting mix of fraudulent attack strategies from adversaries and criminals — both online and off.

This, as on Monday (April 15) the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a notice highlighting a “concerning increase” in U.S. passport cards being used to impersonate and defraud individuals at financial institutions across the country.

“The passport puts banks between a rock and a hard place. To truly authenticate a passport or a passport card, institutions need to invest in expensive equipment to read the chip inside or to detect anti-counterfeiting measures embedded in the plastic,” Bryan Lewis, CEO at Intellicheck, told PYMNTS.

This makes stopping U.S. passport card fraud a challenge for many banks unable to invest in costly equipment or expensive system overhauls. Beyond passport fraud, financial institutions are increasingly encountering a whole host of challenges in protecting against illicit behavior.

Per the FinCEN notice, fraudsters are counterfeiting U.S. passport cards because U.S. passport cards are a less familiar form of U.S. government-issued identification, thereby potentially decreasing the likelihood of detection by financial institutions. U.S. passport cards are also significantly cheaper to counterfeit compared to U.S. passport books.

As Lewis explained, traditional methods of ID verification, such as visual inspection or black light scanning, are no longer sufficient in detecting sophisticated forgeries. Today’s fraudsters are continually adapting their techniques to better exploit vulnerabilities in existing verification processes.

The Ongoing Challenge of Identity Verification

The broader challenges of identity verification for banks and other financial services providers extend beyond fake and illicitly obtained passports. 

“They all face the problem of how to truly identify [an ID],” said Lewis, noting that Intellicheck’s own solution is being used by over two dozen state-level law enforcement agencies to validate driver’s licenses in the field.

“They get an answer in less than a second,” he said.

Investing in cutting-edge technologies, such as artificial intelligence (AI)-driven fraud detection systems and identity verification solutions can strengthen the defense against identity fraud. However, identity fraud tactics are constantly evolving, requiring banks to either stay ahead of emerging threats or fall victim to the inadequacies of traditional methods. 

“AI and machine learning are powerful in detecting anomalies in holograms and other security features, but the same technology is also being used by fraudsters to create sophisticated fakes. Part of the reason the fakes are getting so good is because the bad guys are using the same AI technology,” Lewis said.

“We’re looking at where are they having success, asking why are they having success, and then making sure that we’re building for the future to get around that,” he added.

By analyzing vast datasets and detecting patterns of fraud, AI-driven algorithms can also be leveraged to identify anomalies that may elude human scrutiny. 

As Lewis noted, this proactive approach enables financial institutions to stay ahead of evolving fraud tactics and protect customer identities effectively.

Embracing Consortiums to Navigate the Complex Threat Landscape

Addressing future trends, Lewis expressed concern over the continuous evolution of fraudster tactics and highlighted the importance of monitoring areas like the dark web for emerging threats.

He advocated for the development of consortiums, or secure ecosystems where multiple entities collaborate to verify individual identities, as well as data sharing as a means to bolster identity verificatio. By pooling resources and sharing verified data, he said, consortiums can establish a robust framework for identity validation, bolstering trust and confidence in financial transactions.

“If I am dealing with someone in a consortium, I know that they’ve received a stamp of approval,” Lewis said, stressing that security of information and personal data should be a paramount consideration.

And while the threat landscape may be full of uncertainties for financial institutions, by leveraging advanced technologies, embracing data sharing initiatives and prioritizing customer security, the industry can effectively mitigate external risks by controlling for what is controllable.