In 2020, FTC (Federal Trade Commission) received over 2 million fraud reports that caused losses of more than $3.3 billion. Fraud has evolved as fraudsters utilize the latest technologies to bypass the strict onboarding procedures to gain access to a business’s internal systems. Bad actors use fake and stolen documents for completing the document verification process.
An efficient customer onboarding process means having to verify the customers without any error. It is crucial for businesses to ensure that the customers are who they claim to be. Successfully verifying customer identities using documents or any other method is vital for preventing fraudsters from entering your systems.
Preventing Risk of Fraud with ID & Business Verification
Identity theft is one of the most common fraud types and it is evolving. Out of all the complaints FTC receives about fraud in a year, identity theft reports rank on top. The sudden surge in identity theft cases in recent years is mostly because of huge data breaches in the last 5 years. Any data breach provides fraudsters with the means and opportunity to trick any business entity by assuming the identity of someone else. Data breaches usually contain personal identifiable information of the customers, which are then sold on the dark web.
Building and using Know Your Customer verification methods for the customer onboarding process helps businesses prevent fraudsters from getting into their systems. Traditional methods of document and KYC verification take up too much time, and it is almost impossible to distinguish between fake and real documents. Using online document verification technology, it becomes easier to verify customer data and implement KYC.
Document verification is the oldest and most common method of verifying the identity of customers. Solutions that can verify documents instantly with 100% proof of authentication are the one’s banks and other entities need to rely on.
Most Common Types of Online Fraud
One of the best ways to protect your business is by understanding how businesses operate. There is a number of online frauds that institutions have to vary to build a fraud risk management program.
- Synthetic Identity Fraud
Synthetic Identity fraud is the most common type of ID theft where a fraudster combines fake and real information to create a completely new identity. This newly created identity can then be used for a series of fraudulent activities. The real information that’s embedded in this identity is stolen. According to a report, synthetic identity fraud contains 80% of all identity fraud. Being able to detect fake customer identities can secure your business without hurting the customer experience during onboarding.
Synthetic identity fraud is done by fraudsters to get around the conventional customer verification methods. The large-scale data breaches have increased the number of synthetic identities used by fraudsters.
- Account Takeover Fraud
Account takeover fraud is another type of online identity theft that happens whenever a fraudster takes over a person’s account to complete fraudulent transactions. Account takeover fraud is the most complicated one to detect as legitimate customer credentials are used for the transactions. Companies can lose a lot of money if they don’t find a solution to detect account takeover fraud.
- Card-Not-Present and Chargeback Fraud
Card-not-present (CNP) fraud is a term for fraudulent transactions where a cardholder doesn’t present a card while making a purchase. CNP usually happens with mobile payment which makes this type of fraud difficult to detect.
Chargebacks are a type of fraud that happens when someone orders products and services and then requests a chargeback from the issuing bank instead of the merchant. Businesses that now rely on multi-factor authentication are able to shift the liability of chargeback to the issuer.
What is a Fraud Risk Management Program?
A fraud risk management program provides your business with a procedure that helps in identifying, assessing, preventing, mitigating, monitoring, and reporting fraudulent activities to the regulatory bodies. Preventing fraud isn’t about just protecting business revenues and brand reputation. Businesses also need to build customer trust and reduce friction by improving the customer experience.
Having a strong risk management program can help businesses improve the overall cost of fraud that companies have to face. Assessing the risk profile of customers also provides an insight into which customers can hurt the businesses most.
How to Implement a Fraud Risk Management Program?
Establishing a fraud management process increases a business’s chances against common fraud types. Your strategy should be comprehensive and proactive that can enhance the customer experience and the fight against fraud.
- Assess the Specific Fraud Risk
Each business and industry has different types of risks to deal with. Consider the requirements and particular regulatory compliances to build your risk management program. You should also be aware of the kind of techniques fraudsters use against your business type. Once you complete the assessment of your business, you can lay the groundwork for the procedures for detecting and preventing fraud.
- Fraud Awareness Training Programs
It is vital for businesses to teach employees about various fraud risks. Fraud training programs help employees to understand what red flags to look for during the customer onboarding process.
- Adopt a Coordinated Approach for Fraud Reporting
An effective fraud management process includes an approach to investigation and corrective action. As you start monitoring the fraud risk management process, your team can report the results and make improvements in the onboarding process for reducing fraud.
- Utilize Fraud Detection Tools
Fraud detection tools like online document verification, online ID verification solutions, etc can help fight financial fraud. According to the FTC, most fraud types happen with credit, debit cards, and mobile payment solutions.
- Fraud Management Software can Help
Tons of automated fraud management software systems use machine learning and AI, and data analysis. Using machine learning to authenticate transactions can help businesses in reducing fraud. A deeper understanding of customer behavioral data will help in understanding if they’re likely to engage in fraudulent activities.
Online Customer Onboarding & Fraud Risk Management
Customer onboarding is the first step in a business’s relationship with a customer. Strong digital onboarding solutions can make the online account opening process easier and efficient for real customers. Companies that have optimized the customer onboarding process as a part of the risk management program have offered great feats in reducing fraud. Relying on the ever-changing world of digital identity needs a solution that can limit fraud while enhancing customer experience during onboarding.