Leveraging artificial intelligence and machine learning to improve consumer authentication processes is likely the key to combating rising levels of fraud risk, according to a Feb. 4 report by Experian.
More than half of businesses surveyed experienced an increase in fraud, with 57% reporting year-over-year rises in fraud losses, according to the 2020 Global Identity and Fraud Report, which collected data from more than 6,500 consumers and 650 companies worldwide. The report found businesses are using outdated authentication methods in an increasingly digital world.
“The challenge businesses are facing in this area is that traditional credentials or methods used to identify or ‘recognize’ consumers in digital channels are considered strong, but they’re rigid and brittle,” Experian said in the report. Relying on passwords and one-time passcodes makes companies vulnerable to identity theft.
Synthetic identity theft is one of the largest fraud facing the auto finance industry today, Todd Wolf, chairman of the Auto Finance Coalition, previously told AFE. In fact, synthetic fraud balances reached nearly $2 billion through midyear 2019, according to TransUnion.
Additionally, there is misplaced confidence in the ability of businesses to identify customers accurately. While 95% of businesses surveyed claimed to have “high confidence” in their ability to identify customers, only 45% of consumers feel accurately identified by businesses, the report noted.
“This significant disparity raises several questions regarding the ways in which businesses understand ‘customer recognition,’” Experian said in the report. “This is an even bigger issue, as the sizable increase in fraud incidence suggests that businesses’ confidence is misplaced, but also hints that they may in fact be recognizing fraudsters impersonating legitimate customers.”
In addition to leveraging AI and machine learning, increased transparency about the use of data and personal information can also help, as it encourages “bilateral trust,” Experian said. In fact, 72% of consumers said they would be willing to provide additional personal information if it led to easier access to accounts later, meaning more accurate customer identification and less friction in the customer experience.