User Identity Verification: How Your Business Can Avoid Losing MoneyOctober 27, 2023
A major online retailer once fell victim to a fraud scheme when hackers used stolen customer accounts to make large purchases and redirected the shipments to their own addresses. Since the company didn’t have strong user identity verification measures in place, it couldn’t distinguish between legitimate customers and fraudsters.
The business suffered financial losses, in addition to experiencing an erosion of customer trust. Just one example of many; there is a critical need in the current digital landscape for online companies to implement a vigorous identity verification process to protect both their bottom line and reputation.
In this article, we’ll discuss why there’s a growing need for identity verification, what the costs are when businesses dismiss this precaution, and what we see as future trends in this area. Furthermore, we’ll delve into several real-world examples to show the full impact of identity verification on a company’s financial well-being. There’s a lot on the docket, so sit back, relax, and let’s get started.
The growing need for identity verification
Every day, we log on to the internet to make purchases. As these online transactions become more prevalent, there emerges an ever-increasing need for companies to verify the identities of the folks buying their goods and services (in addition to engaging in other types of transactions with them). They open themselves to fraud, legal liability, and reputational harm if they don’t.
Below are some reasons why the need for identity verification continues to intensify.
The rise of online transactions and digital services
In the past, business was mostly conducted in person—in stores, banks, and the mall. Nowadays, people are increasingly shopping and interacting with service providers online because it’s more convenient and accessible than ever before.
This rise in online transactions has accelerated the need for companies to use ID document verification and other forms of identity verification to combat fraud, protect personal information, and ensure the security and trustworthiness of digital interactions in an increasingly interconnected world.
Increasing instances of fraud and identity theft
The growth of fraudulent activities and identity theft across various industries has been alarming. For example, according to a report by Deloitte, the fastest-growing financial crime in the US in 2023 is identity fraud.
Similarly, the healthcare industry has witnessed a surge in fraudulent insurance claims, costing an estimated $308 billion annually, reflecting the widespread impact of these criminal activities.
The regulatory environment surrounding identity verification
Another significant reason companies mustn’t ignore identity verification is compliance. Regulations like GDPR (General Data Protection Regulation) require businesses to put stringent data protection measures in place, impacting how they collect, store, and process personal data. Meanwhile, KYC (know your customer) and AML (anti-money laundering) regulations demand that companies, particularly those in financial services, verify and monitor customer identities and transactions to prevent fraud and money laundering.
Understanding the costs of inadequate identity verification
If you’re currently on the fence about whether or not your company should implement some type of digital identity verification (and wondering how to choose the right one), consider the following costs of not doing so.
Financial losses due to fraudulent transactions
Inadequate ID verification can have severe financial consequences for individuals and financial institutions. For instance, well-known financial services company Wells Fargo recently had to pay billions of dollars in fines to regulators after it was discovered that fraudsters had erroneously created 16 million new accounts under its name. The bank didn’t have proper identity verification processes in place, which led to imposters using stolen personal information combined with fake details to create the accounts.
Reputational damage and customer trust erosion
The ramifications of not implementing online verification aren’t just financial in nature. Security breaches and the like typically leave a bad taste in customers’ mouths.
When this happens, they lose trust in the company’s ability to protect sensitive information and are more apt to go elsewhere. This erosion in trust inevitably harms the business’s reputation and financial standing.
Regulatory fines and legal consequences
Businesses that fail to verify a user’s identity may be exposed to various legal consequences and regulatory fines. These consequences can include legal action from users whose identities have been compromised and penalties imposed by regulatory authorities tasked with safeguarding data and privacy. In addition, such businesses may be subject to criminal charges in cases of gross negligence or intentional misconduct in handling user identity data.
Clearly, the need for ID verification continues to grow as our reliance on the internet increases. Moreover, companies not verifying customer identities face more substantial financial, legal, and reputational risks. In this section, we’ll look at several examples to see exactly how this can play out in real life.
Example 1: eCommerce and online retail
One example of a company that has achieved remarkable success with identity verification is Amazon. The online retailer has successfully reduced fraud on its platform by implementing various identity verification processes.
Beyond two-step, address, phone number, and credit card verifications, the company also employs robust processes that help ensure the legitimacy of its sellers and their products. Additionally, it uses machine learning algorithms to detect unusual or potentially fraudulent activities.
Amazon’s choices regarding ID verification have bolstered customer trust and attracted more buyers and sellers to its marketplace. The company’s commitment to secure and verified transactions has helped solidify its position as one of the world’s largest and most trusted online retailers.
Example 2: Banking and financial services providers
In 2019, The First American Corporation, a prominent financial services provider, made the costly mistake of failing to verify user access to a webpage containing 885 million customer records. The incident raised serious concerns about the financial institution’s commitment to AML measures. Without rigorous identity checks in place, First American inadvertently allowed unauthorized access by cybercriminals to sensitive consumer data, exposing it to potential anti-money laundering violations and substantial financial losses.
This incident serves as a stark reminder of the critical importance of identity verification processes in safeguarding the integrity of financial services.
Future trends in identity verification
So, what will the future of identity verification look like? Unsurprisingly, AI and machine learning technologies will likely heavily influence it. These technological advancements are expected to facilitate and strengthen the verification process for various organizations, including healthcare and financial institutions.
AI is improving the accuracy and security of ID verification by incorporating multi-factor authentication processes like voice recognition and facial recognition. These recognition technologies are becoming more sophisticated, making it increasingly difficult for fraudsters to impersonate individuals.
Additionally, emerging technologies like blockchain and biometrics are gaining prominence in identity verification—offering more secure and tamper-resistant methods to build trust in digital interactions. As time goes on, these innovations will likely help shape the future of identity verification, making it even more convenient, effective, and secure.
Identity verification reduces risk for online companies
The competition online is fierce. To achieve success, companies must consistently juggle a lot of moving parts.
One that is becoming more critical with each passing day is identity verification. If your business doesn’t try to verify that customers are who they say they are, it opens the door to being deceived by cybercriminals.
This carries significant risks of various kinds—financial, legal, and social. No matter your industry, if your organization does business online, it simply cannot afford to ignore identity verification.
It must find an ID verification provider it trusts and implement cutting-edge processes to protect its customers and safeguard itself from financial losses. Choosing not to utilize high-quality identity verification software now will likely become a big mistake in the future.
How Microblink can help
Thankfully, companies like Microblink exist to make the implementation of identity verification easier for busy yet concerned executives and developers. Driven by a mission to bring the benefits of AI to every person, Microblink helps businesses like yours streamline their digital onboarding, minimize fraud, and create the perfect customer experience.
Microblink’s solutions are flexible, scalable, and easily integrated into existing infrastructures, offering various SDKs and APIs built by and for developers. Its AI-powered ID document scanning software is fast, easy, and secure. Let’s start protecting your bottom line today. Try Microblink free for 30 days!