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Legal Challenges of Blockchain Technology: What Are the Most Common Problems?

legal challenges of blockchain

In all honesty, Blockchain technology is powerful, exciting, and has multiple uses. The first use case of blockchain was with cryptocurrency, other use cases range from online transactions to decentralized apps and common supply chain processes. As good as blockchain technology is, there are some legal challenges. 

Before institutions begin to utilize blockchain technology for their needs, they need to understand the legal challenges that blockchain has to overcome. Let’s dive a bit deeper into how blockchain works and what legal challenges of blockchain.

How does Blockchain Works?

Blockchain technology is a ledger, a decentralized ledger of information that is publicly owned. The information stored on the ledger can be shared and viewed by anyone. Once any information has been added to the ledger, it can’t be changed, that’s what makes blockchain so secure. That’s why blockchain is used in online document verification, online ID verification, and data management.

The immutability and the transparency of the blockchain make it extremely crucial for decentralization, privacy, security, and eliminating the need for ledgers. Cryptocurrency is supported by blockchain technology, as it offers a huge level of privacy and anonymity that centralized currency can’t compete with. But because of the uncertainty and lack of education around blockchain technology, not all the top institutions want to rely on it. Thus, causing numerous blockchain legal challenges.

Legal Challenges Faced by Blockchain

KYC and AML compliance regulators make sure that criminals don’t exploit blockchain and cryptocurrency for money laundering. The extreme level of privacy offered by blockchain-based cryptocurrency makes it easier for fraudsters to exchange money anonymously. This feature can be exploited by criminals who want to hide their fraudulent activities from governments and regulatory bodies. legal challenges of blockchain

This is one of the major reasons why a lot of countries don’t allow cryptocurrency transactions. Countries that do allow it is trying to make cryptocurrency transactions less private. Companies that offer blockchain services may be pressured to find a balance between privacy and anonymity. They also have to follow a strict level of regulations to reduce or eliminate the risk of crime. Some of the most common legal challenges of blockchain technology are:

1. Privacy Issues

The fight around blockchain privacy and the legality of this don’t seem to settle down anytime soon. As lawmakers are trying their best to prevent crime by removing the tools that can assist fraudsters in moving money from one place to another without being caught. While the cryptocurrency companies are pointing out that every individual has the right to privacy. The cryptocurrency community makes a fair point, but unfortunately, this also works in the favor of money launderers and other criminals. 

2. Regulatory Challenges

One of the biggest regulatory issues revolving around blockchain technologies is if the cryptocurrencies are considered securities, they’ll be bound by the SEC regulatory rules. That’s not an ideal situation for cryptocurrency companies as they will need to follow a wide range of legal obligations that they currently don’t.

The biggest example of this situation is Telegram. In 2019, they launched an ICO, which was shut down by the SEC because they claimed the tokens were sold unlawfully. In June 2020, Telegram finally settled with the SEC and had to return more than $1.2 Billion to investors. 

3. Federal Laws

When it comes to federal laws, a lot of organizations govern how cryptocurrency is regulated. These organizations include:

  • The Securities and Exchange Commission (SEC)
  • The Commodities and Futures Trading Commission (CFTC)
  • The Federal Trade Commission (FTC)
  • The Department of Treasury
  • Internal Revenue Service (IRS)
  • The Financial Crimes Enforcement Network (FinCEN)

Although, regardless of this spade of organizations, there’s very little federal lawmaking on this issue. State laws on the other hand are a completely different deal.

4. State Laws

While there aren’t a lot of federal laws regarding cryptocurrencies, there are a lot of state laws. There’s a big difference in how the technology is treated on a state level as opposed to a federal level. Some states have a favorable stance and others are much tougher. 

Wyoming is one such example of a crypto-friendly state. Just recently, Wyoming passed a law where cryptocurrencies are exempted from property taxation. Arizona and Georgia have also legalized Bitcoin as a type of payment method for taxes. State laws are one of the biggest blockchain legal challenges.

However, there are more than a dozen states that have issued warnings for investors regarding cryptocurrencies. New York is probably the biggest example of a state that’s highly restrictive with its crypto laws. 

5. Anti-Money Laundering and KYC 

One huge legal challenge for crypto and blockchain companies is following anti-money laundering laws. There are other laws that crypto companies and blockchain companies have to vary as well. American residents aren’t allowed to do business with foreign nationals who are on the blocked entities list.

And of course, companies that fail to follow the regulation laws can suffer from huge penalties. The new AML directive 5 included some laws regarding cryptocurrency that some cryptocurrency exchanges have to follow. 

How to Fix Blockchain Legal Issues?

Solving the legal challenges around blockchain and crypto isn’t easy at all. In upcoming years, a lot of changes will be made which will probably change the environment around crypto. Cryptocurrency exchange and blockchain companies are trying hard to find a way around the legal complications.

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Is Online Document Verification for Digital Services More Important Than Ever?

why do need online document verification

The process of digitization is growing widely. Even the global smartphone users have reached up to 2.9 billion, and the number is rapidly growing. More and more customers are demanding faster digital services like online banking.

Nearly 40% of all customers are more likely to obtain a particular digital service from businesses they are associated with. Regardless of the industry type, most businesses are trying to provide digital solutions for a better customer experience. The new customer needs and digital services demand businesses to have strong KYC solutions in place to reduce fraud. This is more than just a demand for companies operating in the financial industry. One way to achieve it is by leveraging technologies like online document verification, AI, machine learning, or RPA.

Document verification is an integral tool in the verification of a customer’s identity. Online document verification is needed whether it is for complying with KYC regulations, or it is for account opening. 

In the old days, documents were verified using manual methods, which involved manual cross-checking of document data with other sources. Digital document verification reduces that hassle by verifying customer documents instantly.

Basics of ID Verification

In order to verify customer ID during account opening, a variety of documents are to be verified. There are a number of steps to be followed involved in ID verification.

Here are all the basics of ID verification that you need to know.

  1. Document Verification Stage 1

In this stage of document verification, the account opener is a regulated entity. These include banks, NBFCs, Insurers, security firms, etc. The user then submits documents to the account opener entity. These credentials are then confirmed to reduce the risk of fraud as much as possible. Once the information is verified, the customer is granted access to a certain service or account.

  1. Document Verification Stage 2

The first step is completed when documents are verified, and customers are granted access to services. The first stage of document verification is simple, but the second stage is tough. Most document verification processes leave their customer data vulnerable to stealing of information. Online document verification is the most common method of conducting identity fraud by fraudsters.

How Big of a Threat is Identity Theft?

Identity fraud happens when a person gains access to crucial identity information about a particular person. That information is then used by fraudsters to verify themselves as someone else and commit several frauds. 

The main goal of fraudsters is to use someone else’s identity as theirs and once the verification processes clear them as the person they claim to be, the fraud begins. By assuming someone else’s identity, they can take loans, apply for a credit card or open new accounts and do so much more. But how do fraudsters and criminals get access to confidential information? This information should only be accessible by one person by logic right? So how do fraudsters gain access to them? The answer is simple, large-scale data breaches.

In previous years, there have been a number of large-scale data breaches. A number of big businesses with huge customer records, like T-Mobile, Pfizer, Warner Music Group, Twitter, Zoom, GoDaddy, and others have experienced data breaches in 2020.

To put these data breaches into context, the volume of records exposed online increased by 141%. With more and more companies taking part in the digitization wave due to the Covid-19 pandemic, more customer information online is available. To make matters worse, digital literacy is low and not a lot of people don’t understand how to secure their information. 

The threat of identity fraud is a major concern for the financial industry. Fraud losses are up by 13% in 2020 over $16 billion has been lost to Identity theft in just the last year. In other parts of the world, online fraud consists mostly of cases of identity theft. 

Financial institutions must take preventive measures to protect every step of the information collection process. To fight ID fraud, organizations need to learn more about it and be prepared for it by leveraging strong online document verification technology.

Types of Fraudulent IDs

The rise of technology has led to different methods of generating fake IDs. Fake IDs come in all types of shapes and sizes. The most common types of fraud ID documents are:

  1. Forged IDs

There are IDs on which some information has been changed illegally, to modify the ID document to match the person who’s holding the ID. This could involve:

  • Changing the variable information
  • Inserting real pages from other IDs
  • Removing pages or information
  • Applying false stamps or watermarks
  • Using technology to alter information on an image of an original ID.
  1. Counterfeit IDs

Counterfeit IDs are total reproductions of an entire ID, in which the fraudsters will use a template of an ID document and add fake information to commit fraud. 

  1. Stolen Bank IDs

These are non-personalized bank IDs that fraudsters steal from the supply chain. Fraudsters then add their information to the ID to commit fraud.

  1. Illegally Obtained Real IDs

These IDs are obtained after supplying authorities with fake information. This information could be photos of someone else, fake personal details, or fake verifying documents.

  1. Compromised or Sample IDs

These are legally valid IDs that are available online either as sample IDs or doctored IDs. These IDs are usually obtained by hackers. The most common types of these compromised IDs have been created using information illegally obtained using data breaches or using sellers on the dark web.

Real-Time Document Verification: How it Works?

Real-time document verification uses a number of techniques to authenticate documents for accuracy and user-friendliness. With online document verification, banks and financial institutions can fix their weak points. Banks need to search for the best technological solutions like DIRO’s online document verification. 

DIRO’s online document verification technology captures document data from the original web source. The verification solution offers instant document verification for less friction and a better customer experience during onboarding.

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KYC: How Does KYC Complement ID Verification Process?

id verification process

It is crucial for businesses to know their employees and it is even more crucial to know who their customers and clients are. KYC (Know-Your-Customer) is a vital regulation component for any business to reduce fraud. It is a process that helps to identify and verify customers and who they claim to be. 

Especially for organizations that offer their services worldwide and the number of fraud is ever increasing. To mitigate fraud and improve the customer onboarding process, Know Your Customer becomes an important parameter. Out of all online types of fraud, identity fraud is the most common type of fraud. In 2020 itself, FTC received over 150,000 complaints of identity fraud. The number is huge and is on a constant rise, but with the implementation of strict KYC regulations, this can be taken into control. Now that everything is becoming digital, organizations need to rely on online KYC solutions.

KYC Solutions in the Modern Economy

Regardless of the industry type, KYC compliance is essential. The utilization of effective KYC solutions can assist in verifying whether the claims made by customers or clients are legit or not. Verifying the identity of customers is the foundation of all positive and successful business relations. 

KYC compliance helps businesses tackle customer risk, thereby companies can save themselves from potential fraud that can lead to hundreds and thousands of dollars worth of fraud. It also helps in complying with anti-money laundering policies. Moreover, it also helps in maintaining a positive brand image, a better brand image leads to a better user experience. Constant fraud and bad debt records can damage an organization’s reputation. 

KYC compliances are essential for financial institutions, as they can be employed before any kind of lending or online transactions. If we talk about mortgage lending etc, then KYC solutions can help the lenders learn new information about the customer’s job and his/her ability to pay off the loan.

Need for Partnering With Professionals for KYC Solutions

To reduce fraud, financial industries need to tie up with third-party KYC solution providers. It also helps to make sure that companies don’t compromise the safety and security of their business. Third-party KYC solutions providers have ideal solutions that individuals and businesses can employ to comply with the KYC solutions. 

KYC solutions all over the globe utilize national government-issued IDs, advanced technologies, and solutions to scan through and analyze large chunks of data. In the case of B2B services, companies have to ensure that the businesses they are dealing with don’t have a known history of money laundering. Documents provided by customers during the time of onboarding are cross-checked with a variety of databases like government and private databases. 

How does DIRO’s Solution help in Online KYC Compliance?

DIRO’s online document verification API verifies online documents instantly. The technology captures original documents online directly from the source. Verifying online documents using DIRO’s solution is much more secure than sharing and verifying original copies in person and uploading copies of documents online. 

It can help in KYC compliance, reduce onboarding friction, and improve a positive customer experience. The technology can access all banks, utility companies, and government portals with automated user consent and multi-factor impersonation checks.

The utilization of an online document solution from DIRO ensures 100% proof of authentication and the output is a court-admissible document with forensic data. KYC compliance for the financial industry can be completed easily using DIRO’s unique online document verification technology. 

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Customer Verification: Why Do Online Businesses Need to Know Their Customers?

what is customer verification

The online landscape is rapidly changing how businesses interact with their customers and vice-versa. Businesses have been realizing quickly how important digital methods of connectivity are. Digital space providers are ever-growing in industries like e-commerce, finance, and social media. Customer needs are evolving and they utilize the newfound convenience of digital methods like online shopping or online banking.

Before the pandemic, not a lot of businesses offered digital services, but the global pandemic shifted their interest toward setting up digital services. Proper customer verification can help reduce fraud and prevent young people from accessing age-sensitive products and services.

Businesses and online merchants have a number of options for addressing the issue to reduce risk, liability, and costs due to fraud and underage purchases.

What is Customer Verification?

Customer verification is a process that’s used by businesses with online products, services, or content to make sure the information provided by the customers is correct. Businesses offering online services also need to verify that the customers are really not using fraudulent documents as a part of identity theft.

A major benefit of customer verification is that it allows businesses to follow through with government laws and regulations. Moreover, customer verification processes help in reducing risks of fraud and costs incurred from fraud arising from incorrect information provided by customers.

At the same time, customer verification also protects users from fraudulent activities that are committed by other users. It also helps in keeping the business’s customer base secure from the risk of identity theft. The customer verification process also allows businesses to make sure that the customer doesn’t pose any risks to the business. Customer verification allows businesses with age-restricted products or services to make sure their customers are old enough for buying the products or services.

This part of customer verification saves businesses against fraud losses, but it also eliminates the costs of delivering products and services to the wrong address. 

Customer verification also helps businesses to comply with KYC and AML regulations to avoid being fined by regulatory bodies.

Why Do Companies Use Customer Verification?

The customer verification process is crucial for businesses that offer online services. If a company doesn’t know who they are dealing with, they can sell products and services, or share confidential information with fraudsters. Doing business with unknown parties is a stepping stone to the risk of fraud. 

Apart from monetary losses and expenses, potential liability to customers, or even regulatory fines, the damage to the reputation of the brand can be extreme. Companies operating in the finance and banking industry have switched to digital methods. With the right digital solutions, users can create a bank account, apply for loans and transfer funds online, and much more. Because of this, governments require banks to comply with strict regulations to prevent fraudsters from exploiting the weak points of online financial systems. 

Banks and other financial institutions are legally obligated to follow through with the KYC guidelines. These guidelines ask businesses to collect vital information about their customers and verify if the information is correct. This prevents cases of identity theft and money laundering.

Businesses that sell online products and services are also required by regulatory bodies and governments to comply with a variety of verification processes. This helps in safeguarding customers from online fraudsters stealing their data and using it for identity theft.

Types of Customer Verification

Government bodies such as the United States and the European Union promote the usage of multi-factor authentication. There are a variety of customer verification methods that businesses use for the verification of customers. 

  1. Multi-Factor Authentication 

Multi-Factor Authentication identifies the identity of the person by using two or more factors regarding who the person is. These two factors are knowledge (something only a customer knows) and possession (something a user has). 

Usually, a business with a chance of higher risks would want to use at least 2 factors to identify its customers. The businesses could ask the users to provide their email or mailing address and age and they’d receive a code while trying to log in to digital services. 

Most customer verification applications only allow one method for customer verification. This allows low-risk businesses to verify their customers easily.

  1. Age Verification

Age verification helps businesses to verify a customer’s age before a shipment or a product is delivered to them. There are third-party solutions that utilize global databases to verify customer age.

  1. KnowKnowledge Based Authentication (KBA)

Knowledge-Based Authentication is a very old method of customer verification and it requires customers and users to submit vital information like their name, mailing address, home address, phone number, age, or email.

Then customers are asked certain questions that they have submitted during account creation for logging in. While KBA is a common method, it’s not the most sophisticated and fraud-proof solution. 

  1. Online Document Verification

Online document verification is one of the most common methods of customer verification. Third-party solutions like DIRO’s online document verification technology help in verifying customers. The technology verifies online documents instantly and offers 100% proof of authentication for documents globally.

Conclusion: How to Verify a Customer Identity

Identity theft is one major problem faced by countless businesses and customers. This is why the need for strict KYC solutions is growing. To reduce online fraud, KYC compliance is needed to verify customer verification.

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5 Trends that Ensure Digital Identity Verification is Crucial in Digital Age

digital identity verification trends

Organizations have been making their switch to digital services for a long time, the pandemic brought a drastic change in the trend. One common change is how we access our financial services online. As most people are looking forward to returning their lives to the pre-pandemic era, digital channels and services are necessary. It is evident that the financial services industry and consumers and businesses alike must now open bank accounts, apply for loans and make payments using online and banking channels.

To make the remote banking processes successful, banks and financial industries need a high level of trust between digital services and consumers. Banks interacting with new and old customers need to verify who the customers are they are in a relationship. Financial industries need to follow through with the KYC (Know-Your-Customer) processes. The compliance has to be met with the local regulations and financial industry’s regulations. KYC verification is the process of verifying an individual’s identity online or in real-time during the customer onboarding process. Here are some of the most common digital identity verification trends that show that digital ID verification is vital in the digital age.

Trend 1: Digital ID Verification Offers Incredible Incentives

Since the rise of technology, Identity verification has always been a key focus for businesses that need to comply with KYC regulations and reduces the risk of application fraud. Typically, ID verification happens when a customer offers a valid ID document during the onboarding process. To complete the remote onboarding process, financial institutions have switched to digital ID verification to enable them to complete the onboarding process securely. It is the first digital identity verification trend that enables online ID verification. 

Since the pandemic hit the world, the investments made in digital account opening have doubled globally. So the desire to digitize has always existed, though strict changes had never been made. 

While the basic needs for digitization remain the same, financial institutions now have a much higher need for digital services. Before the pandemic, a lot of Financial Institutions had partially designed digital ID verification methods.

Trend 2: Enabling Digital Identity Verification Requires Secure and Compliance Regulations

Financial services customers have to be able to open an account or access their banking services, but they also want to feel reassured that they have an ideal level of security to protect customer data. Any service that banks and financial institutions choose will have to ensure the solutions contain security, anti-fraud, data privacy, and compliance requirements. 

When choosing the Digital ID verification solutions, the following requirements have to be met:

  • Cross channel ID verification 
  • Does the solution support document ID in countries, states, and provinces that you want to target.
  • Quality Assurance and Due Diligence.
  • Elimination of paper processes and manual verification.
  • Infrastructure, device, and app security

Not all digital ID verification methods are built equal, and different solutions offer different verification results. Solutions like DIRO’s online document verification verifies online documents instantly for verifying customer data. This reduces friction and improves customer onboarding processes. 

Trend 3: Financial Institutions with Already Enabled Digital ID Offers Better Experience

It is obvious that financial institutions that already have perfect digital ID verification solutions are set up to provide a seamless remote customer onboarding process.

Banks and financial institutions that have a proper digital onboarding channel will definitely onboard more customers as opposed to institutions that don’t have the right digital ID solutions. Banks and other institutions need to pick up the pace to set up ideal solutions in place. Covid-19 has exposed the shortcomings of digital banking services and it has created an urgent need for them to put the right solutions in place. 

Trend 4: Digital Identities Will Become More Common In Various Industries

Not just financial institutions, but other industries also need to verify identities. Governments and healthcare providers are trying hard to set up digital identity solutions to reduce the rate of fraud. In the US, The Coronavirus Aid, Relief, and Economic Security Act allocated $349B in aid to small businesses as a part of the Paycheck protection program. It utilized e-signature technology, which enabled its clients to access relief funds easily and securely while protecting the lenders from fraud. 

In the digital age, there is a constant need for individuals and businesses to access crucial financial relief quickly and without the need for face-to-face interactions. Governments and healthcare institutions are expected to set up solutions that can support the needs of the customers. 

Trend 5: The Pandemic Has Seen a Dramatic Rise in Volume of Online Transactions

Since most people have switched to online services after the pandemic, there has been a huge rise in the overall volume of online and cashless transactions. A variety of fraudsters are taking advantage of the chaos and lack of ideal security solutions for increasing the number of frauds. 

There are reports that in the unsecured lending space, both banks and FinTechs lenders saw a huge surge in lending fraud when Covid-19 was declared a pandemic. Almost all kinds of frauds were done as first-party application fraud, third-party application fraud, and synthetic ID fraud. Financial institutions onboarding remote customers need to be vigilant in their onboarding and online ID verification methods. This is needed to reduce phishing scams and fake websites. This is the last digital identity verification trend that suggests the need for digital ID verification.

Conclusion: Digital Identity Verification Trends

The rules and customer behaviors have changed over time. Companies that can fully digitize their account opening, loan application, and financial product sign-up processes are sure to improve the customer base and a frictionless customer onboarding process. As fraud attacks are ever-increasing, there is a high need of establishing trust between remote consumers and financial institutions becoming more important.

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What is Synthetic Identity Fraud? How does it impact businesses?

what is synthetic identity fraud

Out of all the online frauds, synthetic identity fraud is one of the fastest-growing threats in the U.S. Traditional methods of detection and prevention of fraud are failing when it comes to synthetic ID fraud. Synthetic identity fraud is a type of fraud where fraudsters combine fake and real information such as real stolen social security numbers and fake names to create a whole new persona. Fraudsters then use this new identity to complete a number of fraudulent activities. This new identity can affect financial institutions, government agencies, or individuals by opening a new fake account. 

Synthetic identities are a growing threat in the US. This is because identity verification in the US leverages personally identifiable information (PII) like SSNs. According to a report by the FTC, synthetic identity fraud is the fastest-growing type of financial crime in the US.

One of the biggest reasons why synthetic identity fraud is growing is because it is hard to detect. Victims of these frauds are typically individuals who are less likely to access their credit information regularly, such as children or the elderly. Plus, fraudsters often nurture these identities over time, and then they apply for more and more credit and build up a positive online payment history.

Synthetic identities often go years without being detected. This is one of the reasons why identity fraud is so attractive to fraudsters. Synthetic ID fraud is a fraud committed by expert fraudsters.

What Exactly Is Synthetic Identity Theft? 

Synthetic identity theft involves stealing an individual’s Social Security number (SSN) and combining it with invented personal data—name, date of birth, address, email, and phone number—to form a new identity.

It’s Hard to Spot Conventional fraud detection struggles to identify synthetic identity theft. Children, seniors, and homeless individuals are commonly targeted due to limited credit usage and monitoring.

The Creation Process Fraudsters can create synthetic identities through several methods:

  • SSN Theft: Stolen SSNs are combined with fabricated information in identity compilation.
  • Manipulated Data: Genuine personal data is slightly altered to establish a new persona using identity manipulation.
  • Fabricated Identity: Bogus personal information is used to craft an entirely false identity via identity fabrication.

Difference Between Synthetic ID Fraud & Traditional Fraud Methods

Traditional fraud usually involves a fraudster impersonating someone else. They will use stolen identity documents or information to commit fraud. These types of fraudsters tend to max out the credit limit as soon as possible before the victim notices the fraud. Most financial institutions send alerts to the victims about suspicious activities and that’s why this type of identity fraud is detected easily. 

Synthetic ID fraud in comparison combines real stolen information and fake information to create a completely new identity. There are several ways this can be achieved:

  • IdeIdentity fabrication- creating a completely fictitious identity without any real personally identifiable information. 
  • Identity manipulation- fraudsters create a modified real PII for building a new identity. 
  • Identity compilation- a combination of fake and real PII, such as a false driver’s license to build a new identity.

By combining real and fake information, detecting synthetic ID fraud becomes much more difficult. Especially when the real information is stolen from those who are less likely to keep their eye on their credit files. In a lot of cases, synthetic identity fraud can go undetected for a long time.

Purpose of Synthetic Identities 

Synthetic identities are mainly employed for financial fraud. Identity thieves use these to acquire loans, credit cards, bank accounts, and more. They can even file taxes, access medical care, and apply for unemployment benefits with fake identities.

This process can be prolonged, spanning years to build a credible synthetic profile, complete with a substantial credit history and reliable credit scores.

Fraud Avenues Synthetic identities enable various fraudulent activities:

  • Organized Crime: Crime rings use synthetic identities to access or store illegally obtained funds.
  • Loan Scams: Fraudsters secure personal loans, default, and abscond with the money.
  • Evasion: Criminals evade prosecution by assuming synthetic identities.

Repercussions of Victimhood Detection prove challenging due to the legitimacy of synthetic identities. Lenders and banks struggle to identify these fraudulent accounts, targeting individuals with infrequent credit access.

Fraudulent SSN use results in fragmented credit files, mixing your legitimate data with synthetic identity details. Negative judgments stemming from this mix can harm your credit scores and untangling the records can be arduous.

How Synthetic Identity Fraudsters Commit Crime?

  1. They Create a New Fake Identity

The process usually starts on the dark web. A fraudster can easily purchase stolen PII that is obtained with data breaches or other methods. Or sometimes they’ll use a completely fake identity for fraud. 

  1. They Apply for Credit

Using the new synthetic identity, a fraudster applies for credit online. The financial institution the fraudsters apply to sends their query to the bureaus for checking. This initial application is often as the new synthetic identity doesn’t have a credit history. Although, the application is enough to start a new credit record. 

  1. Fraudsters Keep on Trying Till They’re Successful

The fraudsters keep on applying at various financial institutions until they’re approved by anyone. Most of the time, it’s a high-risk lender who approves. They continue to build this line of credit making timely repayments and building up a good credit reputation. With a good enough credit history, fraudsters can gain access to lower-risk lenders and higher credit limits. Building this reputation takes months or even years and on paper, fraudsters look like any other credit users. 

  1. They Accelerate a Positive Credit History

Some fraudsters accelerate their credit history process by piggybacking. Fraudsters are added as authorized users to an account with a good credit history. Authorized users are compensated for this process. The fraudsters will use several tactics to make the synthetic identities even more real. Thus making it harder to detect with traditional methods.

  1. They Take Advantage of Their Efforts

Eventually, the fraudsters will take advantage of the reputation they’ve built up over time. Once they secure a large line of credit, they will max out the credit line before vanishing forever. It’s also possible for the fraudsters to double their profits by claiming identity theft on their accounts and get the charges removed. Or they can even use fake cheques to pay off the balance before maxing out the credit limit. 

Protecting Against Synthetic Identity Theft 

Following these fraud prevention strategies are crucial to ensure a fraudster doesn’t steal your identity information.

  • Secure Your SSN: Safeguard your SSN. Store your Social Security card safely at home, and avoid disclosing it in public. Dispose of documents containing personal data securely.
  • Digital Security: Utilize comprehensive digital security software to guard against hacking and malware.
  • Phishing Awareness: Beware of phishing scams through emails, texts, and calls. Scrutinize sources, avoiding unexpected requests for personal data.
  • Monitor Credit: Regularly review credit reports and scores for discrepancies. Place fraud alerts or security freezes to guard against unauthorized credit activity.

Safeguarding your SSN and practicing digital security can help mitigate the risks of synthetic identity theft. Stay vigilant and take preventive measures to protect your financial well-being.

Impact of Synthetic ID Fraud on Businesses

Due to its hard-to-detect nature, there’s no way to tell how this type of fraud impacts businesses. In the US, lost credit-card accounts lost $820 million to synthetic identity fraud in 2018 and the losses are expected to cross $2 billion by the end of 2021. However, this data doesn’t account for the loss of personal time and aggravation for the victims.

Synthetic identity fraud is costing businesses billions of dollars. Plus the amount of time financial institutions spend chasing down people who don’t exist. Clearly, synthetic ID fraud is a growing threat, so businesses need a more efficient process to verify if the users are authentic or not. Traditional tools that are meant to reduce identity fraud can’t keep up with synthetic identity fraud. 

Businesses need to invest in the latest and more sophisticated methods like DIRO’s original document verification technology. It verifies documents instantly and verifies customer data from original sources to reduce the use of fake and stolen information.

FAQs

  1. What is synthetic identity theft fraud?

Synthetic identity theft fraud occurs when criminals create fictitious identities by combining real and fake information, often involving social security numbers, names, addresses, and other data. 

They then use these synthetic identities to open fraudulent accounts or apply for credit, aiming to build a credit history and obtain financial benefits.

  1. How does synthetic identity theft differ from traditional identity theft?

In traditional identity theft, a criminal uses another person’s legitimate identity information. In synthetic identity theft, the criminal creates a new identity that may not correspond to any real individual, making it harder to detect.

  1. How do fraudsters create synthetic identities?

Fraudsters often combine real and fake information to create a synthetic identity. They might use a real social security number with a fabricated name, address, and other details. Alternatively, they might use various fabricated elements to build a seemingly authentic identity.

  1. Why is synthetic identity theft difficult to detect?

Synthetic identities often involve a mix of real and fake information, making them appear genuine to many fraud detection systems. Additionally, since these identities don’t have a true individual associated with them, the fraud may go unnoticed until it’s well-established.

  1. What impact does synthetic identity theft have on individuals and organizations?

For individuals, it can lead to financial harm, damaged credit scores, and difficulty resolving the issue due to the complex nature of synthetic identities. Organizations can face financial losses, regulatory penalties, and reputational damage.

  1. How can organizations detect synthetic identity theft?

Detecting synthetic identity theft requires advanced fraud detection tools that can analyze patterns and inconsistencies in data. 

This might involve monitoring unusual application behaviors, identifying duplicate identities, and validating identity elements against authoritative sources.

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5 Must-Know Anti-Fraud Strategies To Reduce the Risk of Fraud

anti fraud strategies

Online fraud poses enormous risks, many financial institutions don’t have the procedures and effective systems in place to tackle fraud. No anti-fraud procedure is 100% foolproof. Regardless of that, there are some anti-fraud strategies including 5 key steps that can help in fighting multiple cases of fraud.

Fraud is Growing in Quality and Quantity

Customers all across the financial industries are now using services that operate completely in the online environment. When the entire world went into lockdown because of the pandemic, financial institutions had to rely on digital methods. Even as the world returns to normal after the pandemic, customers wouldn’t want to go back to traditional, slow, and inefficient methods. That’s why it is imperative to learn how to prevent fraud in the business.

But one of the major flaws in digital processes is that increased presence means an increase in fraud. According to a report by the FTC, the rate of identity fraud increased by 45% in the last year. Increased online transactions, payments, and personal banking provide new opportunities for fraudsters. The rate of fraud isn’t just growing, online fraud is evolving beyond normal measures. To control this, creative and unique anti-fraud best practices have to be followed.

Businesses have to fight a series of different financial attacks. Some of the most common types of online fraud are synthetic identity fraud, from replay attacks to advanced biometric fraud. To get around the common fraud, businesses set up fraud-fighting procedures, and fraudsters keep on trying new methods of fraud.

To mitigate/eliminate the threat, businesses need to keep relying on the best fraud prevention tips. But are the businesses doing enough to eliminate fraud?

Impact of Fraud on the Global Economy

According to reports, the global losses from online payment fraud alone were around $32.89 billion in 2020. This number tripled since 2011. Among other findings, surveys by financial fraud suggested that they are losing up to 7% of their annual profit because of fraud. Unfortunately, only a small percentage of these losses are uncovered. Normal fraud detection and prevention methods are proving to be ineffective. 

There are large numbers of surveys that aim toward understanding the true cost of fraud to businesses & society, but it’s almost impossible to get a rational idea of how many losses fraud causes. Plus, these surveys don’t consider the associated costs of fraud. That includes the hours banking staff spend rectifying the issues and reputational damage and personal costs that fraud has on victims. One thing that financial institutions are clear about is that fraud remains a huge and financially daunting problem. Businesses need to employ the best anti-fraud strategies.

Proactive Approach for Reducing Online Fraud

To reduce the costs of fraud, and to combat new and evolving types of fraud, businesses need to invest time, money, and resources into fraud risk management. Having a successful process and strategy in place provides a comprehensive approach to identifying, assessing, mitigating, and monitoring fraud.

According to the Association of Certified Fraud Examiners (ACFE), the best approach to managing risk is proactive instead of a reaction-based approach. Organizations that have to tackle financial fraud, need to take a proactive approach to fraud. It helps in figuring out how fraudsters are going to attack and measuring the fraud level their businesses have to face. 

This can happen using robust fraud detection and elimination solutions and analyzing evolving fraud trends to stay ahead of the fraud types a particular business faces.

5 Foundation Steps for Effective Anti-Fraud Strategies

In today’s online banking environment, organizations need more than a strong team of fraud fighters. So what do businesses need to do about effective anti-fraud strategies? Businesses have to follow 5 foundation steps:

  • Educating People About Security and Governance

Fraud risk managers should make it a part of their strategy to educate people about fraud prevention. Fraud managers should aim to scatter their strategy throughout the business chain. A successful model also needs a compatible framework. Senior managers should hire the best team to fight all kinds of financial fraud. The team should have good enough experience in fraud awareness and detection. A customer-centric mindset is important when choosing a fraud detection team, it is crucial for implementing the right type of strategies. 

  • Finding the Balance

Businesses should have fraud teams focus on customer experience and growth-focused parts of the business to achieve a balance between how much risk they have to tackle and how many customers they onboard. Businesses could eliminate 100% of fraud if they don’t board any of the customers. However, the best fraud strategy suggests that the teams need to find a balance, and the team works with the broader business to find the ideal balance. 

  • Assessing the Fraud

Businesses need to figure out what frauds are your businesses encountering, and how these frauds have evolved? They also need to figure out, if some kind of fraud happens, how much financial loss it will cost your business. The basis for the prevention and detection of fraud for your business starts with assessing the risks. To understand the risks a business faces, you need a firm understanding of how the landscape works. 

  • Preventing & Detecting Fraud

How can businesses prevent financial frauds like account takeover and other fraud types? Is there a way businesses protect against fake or stolen identities and data breaches? How can businesses do this and not stop onboarding real customers? Using online document verification solutions and online ID verification solutions can help businesses figure out the real identities from fake ones.

  • Using Technology and Analytics

Customers want better digital banking and other online financial services. Humans don’t have the capability of keeping up with evolving fraud. To tackle the risks that are associated with online financial services, banks need to use better technological solutions like DIRO’s online document verification solution. The technology improves the customer onboarding experience and eliminates 100% of fraud.

Online Document Verification for Reducing Fraud

While there’s no limit to online anti-fraud best practices, not all financial institutions can implement the strategies in a way that matters. Most of the online/offline fraud revolves around documents, bad actors usually forge documents to gain access to the internal systems of an institution. 

Verifying these documents and ensuring that the documents are real is the foundation of mitigating all kinds of fraud. DIRO’s online document technology can verify online documents during customer/business/merchant onboarding instantly. DIRO helps in enhancing the implementation of AML and KYC compliance and 100% eliminating the use of fake and stolen documents.

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Ali Dia: Premier League’s Most Well Known Fraudster

Ali Dia Fraudster

The OG football fans know all about Ali Dia, and why wouldn’t they? Ali Dia became famous among the premier league fans globally with just one match. Not for the good reasons though, he played for a good 53 minutes and it was clear that Ali Dia wasn’t built for football. Let’s go deeper into the story of Ali Dia, the most well-known fraudster in football.

Ali Dia had a cousin named “George Weah” and George Weah had won the FIFA World Player of the Year in 1995. So the fact that George Weah called up a bunch of coaches suggesting they pick Ali as a striker in their team had some credibility. 

George decided to make some calls, he reached out to some of the top managers of the time like West Ham, Rotherham, and Gillingham to pitch Ali as their striker. However, none of them chose Ali for their teams. In the end, George reached out to the manager of Southampton, Graeme Souness, and told him that Ali Dia can play as a striker, he also told him that he’d played with Ali Dia. Finally, Graeme said yes and Ali Dia was signed on as a striker under a 1-month contract.

What Fraud Did Ali Dia Commit?

Well, the truth is that Graeme Souness had never met Ali Dia, or even heard of him before. To make things worse, no one had actually seen him play. He got selected in Southampton solely because he was George Weah’s cousin.

The other players who practiced alongside Ali Dia weren’t so convinced of his performance, to put it bluntly, he wasn’t up to the mark in comparison to other players. Still, Ali Dia made the team, finally, the day came when the world got to see him play. On 23rd November 1996, he was sitting on the bench as a substitute where Southampton played against Leeds. 32 minutes into the match, Matt Le Tissier had to come off the field with an injury. Ali Dia finally got a shot to play. 

Well, it’s safe to say that the performance wasn’t as impressive as one would expect. 

In the words of Le Tissier “It was very, very embarrassing to watch. We were like: What’s this geezer doing? He’s hopeless”. Needless to say that he was taken off the pitch by Graeme. He came for a physio on Sunday and after that, Ali Dia was nowhere to be found.

Some research was conducted and it was uncovered that Ali Dia wasn’t the cousin of George Weah. Turns out George Weah never even called any of the managers, it was someone pretending to be George Weah. And as it was clear now, Ali Dia wasn’t good at football at all. Ali Dia had successfully lied about his identity.

Preventing Identity Fraud

It was lucky for Southampton that Ali didn’t cause any huge loss for them. This is why it is vital to identify the identities of people you’re getting in a business partnership with. Today it is most important to Know Your Customer.

Obviously, not everyone has to deal with football stars, but fraud is a fraud regardless of its scale. If you constantly sign up new consumers on your website or for your business, it is vital to have good, perfect fraud prevention methods.

DIRO’s online document verification technology can help in verifying customer Identity documents in an instant. It also prevents the use of stolen or forged documents for identity theft. Another common use of DIRO’s online document verification technology is streamlined compliance with KYC/AML compliance. The solution provides instant document verification, which means fast and secure document verification. The use of proper technologies can prevent another Ali Dia.

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Why Reliable Digital Document Verification Services are Vital for Business Operations?

why do business need document verification

Digital transformation is at an all-time high and all the organizations are switching to digital methods instead of physical ones. The process of digitization has sped up due to the global pandemic and businesses being forced to operate using online methods. With more and more customer interactions taking place online, the potential for online fraud and identity theft is at an all-time high. For business operations to keep up with the digital transformation and reduce the risk of fraud, document verification solutions aren’t a choice, they are a must-have thing.

To make sure a business, be it a bank, financial institution, and FinTech reduce their risks of fraud, they need the help of document verification solutions for several things.

What Are Digital Documents?

A digital document or an electronic document is a piece of document that is intended to be used in an electronic form or can be printed for use. The development of computer technology has made it possible to use and distribute electronic documents instead of using physical documents everywhere. 

A digital document can be anything, an online proof of identity, bank statements, driver’s license, utility bills, or anything that declares the identity of a person. Digital documents can be used to open a brand new bank account, make transactions and so much more. There are basically two types of document verification, physical and document verification online. Financial organizations like banks and third-party payments providers need to learn how to do digital document verification because manual methods are prone to errors and are time-consuming.

Why Do Businesses Need Digital Document Verification Solution?

Online identities and online documents are becoming the norm nowadays. To make sure these identities and documents remain safe from online attackers and businesses aren’t tricked by these documents, document verification solutions are needed. One great example of a document verification solution is DIRO’s document verification solution. 

1. KYC Compliance

Utilizing a secure and reliable document verification solution is crucial for digitization. Although shifting to digital methods of working can make sure employees can work from remote locations, digitization can also increase businesses’ exposure to financial crime. 

To make sure the transition to online operations goes smoothly, businesses need to employ secure document verification solutions. Sectors like finance and banking are highly regulated and organizations need to follow regulations like KYC compliance to keep thriving. 

With more and more people moving towards online banking and digital banking features, businesses need to find solutions that can help them verify a variety of online documents. During a pandemic, the use of online banking has grown by 15% among all the 4 major banks in the USA. Solutions like DIRO’s document verification solution will help banks, financial institutions follow up with their KYC Compliance. 

2. Supporting a Smart Economy

As more businesses and customers move towards digital operations, we are also shifting to a smarter economy which is favorable for businesses to increase their productivity. This expected growth of business organizations is reliant on the culmination of different digital technologies such as AI, blockchain, and other solutions that can grow your business. With the use of digital document verification solutions, these online technologies will be even more secure. 

Banks need to provide customers with transaction solutions that go smoothly & digital document verification can provide a helping hand to make sure these transactions become as secure as possible from the onboarding process. Digital innovations have allowed financial services to verify customer documents with simple steps. 

3. Changing the Digital Document Verification Process

Since the pandemic hit the globe, some businesses have grown at an exponential pace, while others have almost perished. Instead of trying the old methods to return to their old glory, businesses need to adopt new methods to resurface. By adopting the latest document verification methods like DIRO’s digital document verification, businesses can improve the adaptability, speed, and security of business operations. 

Customers and businesses that are faced with more risk of online fraud today than ever are turning to secure online solutions. According to reports, residents of America 18 years and older have been targeted the most for digital fraud in the last year. Businesses need to adopt secure document verification technology to make sure they can bridge the gap in their fraud prevention methods.

4. Improve Digital Document Verification Solutions

One of the primary reasons for needing a secure online document verification customer is for building trust between brands and customers. Now there’s no limit to online solutions that businesses can adopt to improve their online document verification solutions. Using them, financial services can easily verify customers’ documents without reducing user experience. 

How do DIRO’s Document Verification Services Help In Improving Digital Security?

DIRO’s unique and innovative document verification technology facilitates the verification of bank statements, bank account holder information, proof of address, utility bills, and more. With the use of technology, banks, financial institutions, and FinTechs can reduce their risk for fraud, and comply with KYC and AML regulations all the while improving the customer onboarding experience.

The documents can be verified against the original web source with automated user consent and impersonation checks. Users can verify original documents by logging into a secure browser and getting strong proof of authenticity in seconds.

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International Client Verification: Verifying Customer Identity Online

international customer onboarding

The growth of digital banking platforms and online solutions is the key for businesses to grow by onboarding international customers. Remote international client onboarding costs businesses the most time and causes the most problems. Banks that extend their services outside of their domestic region, tend to lack the resources for verifying customer data. Complicated KYC and due diligence processes with tough technological solutions lead to an increased customer drop-off rate. 

Even if a customer wants to sign up with an international bank, financial institution, or any other industry, a complicated onboarding process is never worth their time. To complete the process, organizations need to employ seamless online ID and document verification solutions. There’s no way to manually verify international customer data, online document verification is the key to online document verification.

Accurate international addresses and document verification help reduce the cost of manual verification of data. Being able to verify international data means lower costs and an improved rate of customer onboarding. Using technological solutions like DIRO, banks, financial institutions, and other industries can verify customer data in an instant while reducing friction.

Why Is International Customer Verification Needed?

A business can quickly expand its business reach by building strong KYC techniques and strategies. Employing efficient online customer verification solutions can improve the international customer onboarding experience.

According to surveys and reports, 1 out of every 10 customers drops out of the onboarding process because of an overly complex process, distrust in the process, or just poor customer experience. Some businesses don’t even try to venture into unidentified markets because of their lack of ideal solutions. 

To broaden the customer base and improve the brand reputation, it is vital for brands to onboard customers internationally. It is not possible to do so without the use of a proper online identity verification solution.

Benefits of Online Document Verification

  1. Lower Friction

DIRO online document verification solution can be integrated with your website, the user can be asked for ID Information right there. It can provide instant results for verified documents. This means, no friction, no hold-up time, and little to no burden for the users. 

  1. Reduce Administrative Overhead

Having your team manually request and process ID documents is a time-consuming process. This manual process can be bypassed if documents can be verified in an instant using the business website. Manual document verification, however, requires too much friction and can lead to errors as some documents may be too sophisticated to distinguish by the human eye. 

  1. Improve Security of Customer Onboarding

Using physical documents or online copies of a document can open your business to the risk of fraud. Most documents that are used for verification are unencrypted and can be seen by others. DIRO’s document verification technology is backed by multi-factor authentication and strong impersonation checks that can reduce fraud.

How Does DIRO Enhance International Customer Onboarding Experience?

Even after the best technological solutions, verifying international customers during onboarding is incredibly tricky. There are a variety of factors that can cause friction during international customer onboarding.

By employing DIRO’s customer onboarding technology, businesses can verify online documents in an instant. DIRO can verify 5000+ types of documents from all over the globe. The technology provides 100% proof of authentication on verified documents. The proof of authentication can be used as a court-admissible document with forensic data.