ID Verification: In Quest of a New Paradigm
With identity theft 7 times higher in the U.S. than in other developed countries, Aite Group urges financial institutions to shift the ID verification paradigm-rely less on credit bureaus and information brokers, and rely more on third parties that provid
Boston, MA, April 4, 2005 – In a new report, ID Verification: In Quest of a New Paradigm, Aite Group discusses the current level of identity theft in the U.S., provides an overview of the regulatory framework, defines key market participants, details challenges facing financial institutions, and profiles vendors that provide ID verification services without trading consumer data.
The U.S. stands among developed countries as the most vulnerable to the pernicious phenomenon of identity theft. Identity theft occurs seven times more frequently in the U.S. than in other developed countries such as the U.K. In many other countries, identity theft is a non-event.
There is, however, a great deal of confusion around the concept of identity theft in the U.S. today. Aite Group suggests using the all-encompassing term identity fraud that includes synthetic identity fraud (fictive person), identity misuse (misappropriation of another person's information or payment instrument), and identity theft (wholesale takeover of another person's identity).
Aite Group argues that the bulk of the problem around identity theft is tied to businesses and financial institutions' reliance on tradable consumer data. Financial institutions' use of credit bureaus and information brokers is a built-in incentive for fraudsters to steal data from those providers.
To reduce the current level of identity theft, financial institutions need to shift the ID verification paradigm-rely less on credit bureaus and information brokers, and rely more on third parties whose core business is fraud management and ID verification and who do not trade consumer data. In the meantime, since ID verification is a cross-industry phenomenon, financial institutions should encourage their vendors to expand across product lines and across industries.
"With exceptions, such as when banks open demand deposit accounts, ID verification is still largely a by-product of the data purchased for other purposes such as credit decisioning. This paradigm is no longer sustainable," comments Gwenn Bézard, a Research Director with Aite Group and co-author of the report.
This is a 49-page Impact Report. Clients of Aite Group's Fraud & AML service can download the report.