Five Frauds That Can Be Avoided Through Customer Identity Verification

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In today’s digital-first world, businesses face the recurring problem of identity and financial fraud. And while companies make numerous attempts to minimize these threats, overcoming this challenge is like fighting fire with fire. This is because the very technology that enables fraudulent activities, is also used in combating them. To win the battle against fraud, companies are equipping themselves with artificially intelligent technologies. These technologies enable rapid customer identity verification – the only effective method that weeds out fraudsters and their illicit schemes.

That being said, let’s take a look at how customer identity verification is allowing companies to stay vigilant against five prevalent frauds.

1.    Identity Theft

Identity theft, the fastest-growing crime worldwide, has taken the world by storm. In a recent event, an individual from New Jersey stole hundreds of identities to create fraudulent online gambling accounts. The accounts were then used by the criminal to gain monetary benefits. On top of this, stolen identities are also used to commit other frauds, such as filing for false unemployment schemes, gaining access to medical benefits, and much more.

To avoid this from happening, hospitals, banks, and other data-sensitive institutions arm themselves with AI-powered customer identity verification systems. These AI-backed solutions have the ability to verify every customer during the account opening stage, allowing businesses to filter out legitimate users from a sea of fraudsters.

2.    Account Takeover

Account takeover fraud, abbreviated as ATO, occurs when a perpetrator illegally gains access to another person’s account, changes its credentials such as the password, and then uses the account to make unauthorized transactions under the victim’s name.

Because of a compromised account, numerous damages can be done. Thankfully, customer identity verification can easily subside this threat. Biometric identity verification systems are being utilized by numerous industry sectors to ensure that the person logging in to an account is actually who they claim to be. By verifying not only the end-user’s document but their facial features as well, online customer identity verification systems such as facial recognition leave no room for any fraudulent attacks.

3.    Money Laundering

From traditional banks to cryptocurrency platforms, the act of money laundering has infiltrated every financial system. The main goal behind committing this fraud is to make illegally obtained cash as untraceable as possible. To make this happen, sophisticated transactions are carried out in banks to hide the money trail.

Money laundering not only harms the integrity of a business but also the financial system on the whole. For instance, Binance, the world’s largest cryptocurrency platform, is facing massive reputational damage as it is currently under investigation for facilitating money launderers. Banks and other financial institutions utilize AML screening solutions to minimize this threat.

The AML screening software is backed by AI algorithms, which can rapidly scan the identity of every customer against global databases. These databases include criminal watch lists, Politically Exposed Person (PEP) lists, global sanctions, and even adverse media news.

4.    Spoof Attacks

In a spoof attack, criminals use various techniques to gain access to someone else’s confidential information. These schemes include deepfake audio and videos, replayed video attacks, 3-D face masks, and much more. What makes these attacks more disastrous is that successful spoofing attacks often lead to identity fraud.

To combat these attacks, customer identity verification services are utilized. To streamline the identity verification process, biometric technology has proven to be the right way to go forward. For instance, face recognition systems use a “liveness detection” feature, enabled by AI technology,  to verify whether the end-user is presenting their real identity in real-time. AI has the ability to complete face verification within milliseconds and detect complex fraud patterns that might have been left undetected by human fraud analysts.

5.    Fraudulent Insurance Claims

When filing for insurance claims, customers are generally required to submit official ID documents. These documents are then matched against their facial biometrics to ensure that the ID actually belongs to the document holder. At times, criminals submit fake documents and identities to gain insurance benefits.

In the U.S., 29% of insurers admitted that they lied about their documents to gain car insurance. By using AI-powered analytics and text analysis tools, fraudulent claims can be detected in mere seconds based on the captured data and the claimant’s story.

To detect this type of fraud, manual customer identity verification methods no longer suffice. Instead, automated verification of identity can mitigate this type of fraud with much more accuracy. Given that customer identity verification takes place during the initial stage of registration, false insurance claims can be easily detected with the help of Optical character Recognition (OCR) technology and biometric verification.

Key Takeaways

  • AI technology has transformed fraud prevention methods
  • Customer identity verification has become crucial for minimizing losses and mitigating risks
  • Using automated customer identity verification systems has proven to be a much safer fraud prevention tactic than traditional methods