Hosted by top 5 banking and fintech influencer, Jim Marous, Banking Transformed highlights the challenges facing the banking industry. Featuring some of the top minds in business, this podcast explores how financial institutions can prepare for the future of banking.
The Best Customer Experiences Start with Identity Protection
Trust in banking hinges on the ability of financial institutions to safeguard identities and keep consumer and business data private, particularly during online account opening and onboarding.
Unfortunately, traditional Know Your Customer (KYC) and Know Your Business (KYB) verifications is often synonymous with tedious and manual processes, friction, and onboarding delays. The longer these processes take, the greater the negative impact to client acquisition.
My guest on the Banking Transformed podcast is Chris Luttrell, the CEO of IDology. She discusses what can be done to foster trust across the entire customer journey, while improving the customer experience for consumers and businesses.
This episode of Banking Transformed Solutions is sponsored by IDology
ExpectID® Business is an automated KYB solution that is imperative for any business that wants to remain competitive. With ExpectID® Business, IDology has combined KYB and KYC due diligence with multiple layers of risk detection and fraud intelligence into one powerful, programmatic solution. The solution goes beyond KYB and KYC verification to provide a holistic perspective of the risk associated with both the business and the primary user.
Jim Marous: Hello and welcome to Banking Transformed, the top podcast in retail banking. I'm your host, Jim Marous, founder and CEO of the Digital Bank Report and co-publisher of The Financial Brand.
Jim Marous: Trust in banking hinges on the ability for financial institutions to safeguard identities and keep consumer and business data private, particularly during the account opening and onboarding process. Unfortunately, traditional Know Your Customer and Know Your Business verification processes are often synonymous with tedious and manual processes, friction, and onboarding delays. The longer the process takes, the greater the negative impact on your brand new customer or your customer that is already part of your organization.
Jim Marous: My guest in the Banking Transformed podcast is Chris Luttrell, the CEO of IDology. She discusses what can be done to foster trust across the entire customer journey while improving the customer experience for consumers and businesses. New IDology research reveals that unauthorized account openings have increased 21% in the past year, highlighting the impact of the growing cyber fears across the entire customer journey. Much more than just at account opening, you're onboarding. More than ever trust hinges on the ability for a financial institution to safeguard the identities and keep both the consumer and small business' data private. The challenge is being able to do this with a level of security without negatively impacting the customer experience. So, Chris, before we start our discussion, can you tell me a bit about IDology and the services you offer financial institutions?
Chris Luttrell: Yes, sir. And thank you, I'm happy to be here on the show, so I appreciate the time that you're giving me today to talk about IDology. So, IDology, we're located in Atlanta, Georgia, and we are the trusted leader in digital identity verification and authentication. So, we've been around since 2003, we've seen a lot, we've done a lot. We've provided innovative identity solutions and fraud prevention tools since 2003, for really any organization, any industry operating in a digital environment.
Chris Luttrell: I've been with the company for 15 years. I've seen a lot of change over the years. We've evolved quite greatly in the nearly 20 years the company's been around and we've grown significantly as well. We've had to evolve to many different changes in the industry, new regulations, new fraud vectors, things that have happened along the way. So, the thing that I really love about IDology is how we've adapted along the way throughout history of the company, to provide these really great solutions that balance deterring fraud with an efficient onboarding experience. Our parent company is GBG, which is a global identity company, and they really share the same objectives that we share at IDology and they operate on a global perspective.
Jim Marous: It's interesting, you referenced it a little bit, that the whole identity theft and the identity fraud area, a lot of people in the past, would've thought that's really a back office function, and we have a lot of listeners that are front office executives. And what's interesting is, it really is a front office function because it is a customer experience functionality, that the more cumbersome you make it, the more difficult you make the whole Know Your Customer concept, it really impacts the person trying to open an account or trying to get onboarded.
Jim Marous: Financial institutions are used to and they're familiar with Know Your Customer, but they may not be as familiar with Know Your Business. Can you talk about the differences between what you consider to be Know Your Customer and Know Your Business?
Chris Luttrell: Yeah, for sure. And this is something we're really excited about as well. So, most companies, they need to carry out due diligence to identify consumers when they're onboarding a consumer to come on as an account holder, but they also need to carry out a similar due diligence to identify businesses that they're working with. And they do that as a means to fight money laundering and other tax crimes, whether it's a customer that's a business or a vendor that's a business, really being able to verify that, that is a valid business, is really important. And KYC focuses on verifying the individual. Know Your Business, KYB, focuses on identifying companies to really confirm that legal status of the company and its compliance with AML and other regulations. And there's still an individual being verified through KYB, but you're verifying that business first and foremost.
Chris Luttrell: And then from an individual perspective, you also want to verify the primary user, which is known as the ultimate beneficial ownership, UBO, we'll say UBO for the acronym here. That's really the person that's responsible as a legal representative of the business, who will be profiting from the business. And establishing the UBO really is revealing who is directly benefiting from that business. So, you want to make sure that you've got a true business, that's registered, it's in good standing, but you also want to make sure that you're verifying that individual that is the UBO for the business as well.
Jim Marous: So, how big of a problem is identity fraud in the business context compared to what we see in the consumer marketplace?
Chris Luttrell: Well, I think that it is a big problem. If you think about banks and FinTechs in particular, they've been hit hard by the small to medium sized business lending fraud. Think about what happened during the pandemic with all of the SBA loans, right? There was so much fraud associated with that. And our studies and some of the research that we've looked at in the US since 2020, there's been a 6.9% increase in small to medium business lending fraud. I actually think it's probably much higher than that, we just probably haven't scratched the surface of it because of what was going on with the SBA loans that were out there.
Chris Luttrell: But these SMBs, they're specifically are being targeted for identity theft, because you think about getting the business identifiers such as the EIN, the employee identification numbers, from the business and account numbers, those are really coveted and sought after by the hackers and fraudsters and criminals to commit financial account takeover. It allows you to file for income tax refunds, take out those business loans that we saw happening during the pandemic, order goods or services online. That's just to name a few of the activities that are happening there.
Chris Luttrell: Hackers know that this is a weak point, that especially in the SMB sector, the small to medium sized businesses, because 43% of the cyber attacks that are aimed, they're aimed at those SMBs, because fraudsters are aware that most of those don't have the necessary fraud prevention solutions and protocols in place. You think about, I guess, the size of this, the opportunity, which makes it really ripe for fraudsters, there's 30 million SMBs in the US and that accounts for 99% of US businesses. So, it's a huge target for people who are trying to commit fraud against these companies, doing account takeover, opening up, doing these small business loans and the likes.
Chris Luttrell: And from a KYB perspective, the majority of financial institutions today, still rely on simple Google searches to identify those UBOs, those beneficial owners, to verify annual filings and financial accounts. And there was a study out that we saw from Thompson Reuters, that showed that 40% of companies really employ no digital verification at the client account opening. So, there's a real opportunity here to improve what's happening and really stop some of the fraud that's also happening in the market.
Jim Marous: Chris, you're scaring me because I'm a small business owner and as you're saying all these things, I'm thinking about the fact that, yeah, I don't have the safeguards in place that a big company has. And sometimes you get in your mindset that, "Why would anybody pay attention to me?" But my small business is probably a much better place to hack than my personal accounts, seeing that it's the way into my personal accounts also. So, how does IDology help financial institutions with their Know Your Business initiatives?
Chris Luttrell: Yeah. Yeah. Happy to talk about that. As with everything IDology, it all begins with strong identity verification, fraud prevention solutions. We put out a couple of key pieces of research every year at IDology. One is our annual fraud report where we talk to businesses in the industry, some are customers, some are not customers of IDology, but this research is really good information. And what we found there is that banking leaders have told us that the biggest challenge to fraud deterrents that they have today is the verification of identities. And then when you stack onto that, the businesses that they're having to verify as well, it's a real issue.
Chris Luttrell: So, nearly the same percentage of those bankers told us that they really see multiple layers of identity verification as a critical best practice to locate, approve, and onboard legitimate customers. So, a truly robust IDV solution that's going to provide that low friction experience to onboarding while deterring fraud and maintaining compliance. So, when we think about what the IDology solution does from a KYB perspective, and why I really love this new tool that we've launched out this year, so much, is because we have this KYC product that we call ExpectID. We have such a robust product. And we've taken our learnings from that and the power of that and we've combined it with being able to verify a business.
Chris Luttrell: So, we're doing all the simple checks, the verifications, right? Making sure that, you've got to look at, to make sure you've got a proper EIN, that your business is in good standing. And then taking that and then layering on those levels of verification from a fraud and risk perspective, making sure that there's no suspicious activity going on. We've got these deep data insights that we've pulled together from our machine learning and human intelligence resources that we deploy across the product.
Chris Luttrell: And so, we're combining all of that together, verifying the business, but also combining our learnings and the technology and the tools that we have from a KYC perspective, pulling those real-time insights together through our consortium network, which is truly the most powerful consortium network that we have available in the market today. And so, this KYB product is now benefiting from all that we've done from a KYC perspective. And I'm just really excited about what we've done and how it's going to help our clients and help future clients in the industry.
Jim Marous: So, what actually is a consortium network? Can you explain that a little bit?
Chris Luttrell: Oh, yeah. Yeah. So, it's pretty interesting. We're basically, when we're pulling in transaction information from our customers, our customers, they're contributing to the consortium and we can see if there is multiple attempts across multiple industries from a specific identity or a specific identity attribute. So, we can see that if a fraudster is hitting a bank over here in this area, we can also see that they're hitting three or four other banks with the same information. And so, we can alert our customers in real-time to let them know, "You should probably take a look at this." To say that, "This is suspicious activity. You should probably take a look at this and maybe escalate that consumer or that business to a higher level of escalation, at least take it through some sort of review before you allow them to open an account."
Chris Luttrell: So, it's really powerful because we can see it not just within a specific industry, but within all the industries that we're working with. And those are some cool things that we've seen over time, where we'll see fraudsters jump from, they may start with filing a tax refund, but then it pops over to open a bank account and then it pops over to maybe do something in the online gaming space. Right? So, it's just interesting to watch how this fraud can move from business to business and industry to industry. And we can see all of that happening in real-time within our consortium network.
Jim Marous: It's interesting, we now know that we do more and more in the whole identity fraud area, but as you do more, it, by its own nature creates some friction, some stalling in the onboarding, in the new account opening process. How do you balance the whole issue around identity process with the customer experience and making it so that it doesn't slow down the whole digital account opening or onboarding process?
Chris Luttrell: Yeah. This is something that we've really specialized in over the years and continue to hone the practice. Where we give our customers choice. And it's really going to depend on the risk appetite for what the business has, what they, I guess, interpret their compliance rules to be versus their risk rules. And so, we give our customers choice, a completely customizable solution that says, "Okay, if you've got a really low threshold for risk, then you can just zoom through, set up a workflow that just allows consumers to get through friction-free, seamless, silent, authentication, just get right through the process." Where we have other customers that, they're very risk averse and so they may come through and just say, "If we see one thing wrong or one suspicious attribute, then we're going to make you escalate to a higher level of verification."
Chris Luttrell: All of that's done in workflows within our solution and our platform and it really enables customers to have the control over what they want to have happen within their solution. I'll tell you, most customers today are looking for a friction-free experience. And so, that really requires deploying on the back end, a solution that's looking at various attributes of the identity activity, of the identity, what's been happening within the consortium, within the network within that identity. And so looking at all of that behind the scenes and providing a really robust response and result for that consumer and being able to do that without the consumer ever even knowing that it occurred, right? We want to be as friction-free as possible, but we do give our customer choice on what they want to do there.
Jim Marous: So, it's really a tug of war. You have the fraudsters trying to stay ahead of companies like yours and the financial institutions. You have your company and financial institutions trying very hard to stay ahead of the fraudsters. How do you keep evolving and how do you try to keep ahead of what's going on in the marketplace?
Jim Marous: You mentioned earlier the whole issue of the PPP loans and all the fraud that went on there, but this is something that just dropped in your lap, I mean, as it did the financial institutions, and all the issues and opportunities for fraud and identity theft that took place. How does IDology stay ahead of the curve as it relates to what's going on in the fraud and the identity theft side?
Chris Luttrell: Well, there's a few ways. First is, we're listening constantly. So, we listen to our customers and the problems that they're having, and to see if it's something that we can help with. I've always been a firm believer that if you want to beat the fraudsters, you got to be able to think like the fraudsters, you got to be able to understand how they think and how they act. So, we spend a lot of time in forums, right? Listening and looking at some of the thing.
Chris Luttrell: The thing I'll tell you is that as an industry, from a banking industry, where we need to get better is collaboration within the industry. And I'll probably say this in every interview I ever give, because from a fraud perspective, hackers and fraudsters collaborate, they collaborate, because they're proud of what they're doing, right? And so, they collaborate so much more than we do as an industry.
Chris Luttrell: And so, we see that happening. And so, we've got our ear to the ground, we're listening, we're seeing things. And plus, we're seeing things in real-time too. So, some of the fraud that we saw during the pandemic, we were watching in real-time. And so, we could see this stuff happening and if the system wasn't catching it in real-time, we were immediately picking up the phone and contacting our clients to say, "You need to change a setting because this is getting through." Or, "You need to do this." And you know what? If we didn't have a solution that could stop the type of fraud that was coming through that we saw, we immediately got to work in our product and development teams and created something very quickly.
Chris Luttrell: We have a fun little acronym when we talk about how we operate as a business and we call it GSD, and I'll just say to be polite, we say, get stuff done, but you can replace that S with another term, but that's how we operate. And we don't let processes and procedures get in the way. When we know that there is an issue that needs to be resolved, then the teams get right on it. And within a few days, we can have a new feature or a new setting deployed that stops the fraud that's coming in. And I'm really proud of the team and what they do there.
Jim Marous: It's interesting. We think about Know Your Customer and the whole fraud prevention process, as something happens at account opening. The reality is, you really have to monitor the customers both on a consumer and a small business perspective, throughout the entire customer journey, don't you? It's not something that ends at the onboarding process. It's really something that continues throughout the entire customer journey, doesn't it?
Chris Luttrell: Oh, absolutely, because you think about, you need to make sure that you've got that ongoing transaction monitoring, the AML solution, you've got to make sure you've got that deployed and running properly, but there's a lot of things that can happen after the consumer's been onboarded. You can onboard a legitimate consumer and then a few months later, they could fall prey to a phishing scheme, right?
Chris Luttrell: So, maybe they've accidentally given up their username and password, and suddenly a fraudster has access to their account. So, there's phishing that can happen. There's call center fraud that can happen, where hackers are coming in, fraudsters are coming in and trying to do social engineering so that they can get access to accounts. So, you really have to have tools and controls in place every step of the way, so that you make sure that you're protecting the account after they've been onboarded as well.
Jim Marous: So, let's say I'm a customer or a small business and something has happened to me, that the fraudster got through the network. What is the process and how do you help financial institutions make it right for the customer?
Chris Luttrell: Yeah. So, I think that the thing that we always do, that we always make sure that we're impressing upon the folks that we work with, first and foremost, we work directly with our client. We don't work directly with the consumer, because we are a product that the banks are using behind the scenes. And so, we'll work directly with the banks, who are our customers, to say, "This is what we found and we think you need to take some steps to either review this account or shut down this account." One of the things that I personally always will suggest people do is make sure you're monitoring your credit report. Make sure you freeze your credit report. Make sure that you're taking the steps there, so that people can't open up a line of credit in your name or any other type of accounts in your name. So, making sure that you are monitoring that on a regular basis.
Chris Luttrell: But we work really closely with our customers and we have a lot of feedback from our customers too, where they'll say, "Hey, we found some fraud. Can you tell me what you see on this in your system?" And so, we'll go back and forth. So, there's just a lot of collaboration with our fraud team that we have at IDology and our customers, to make sure that we're getting them all the pertinent information that they need to help solve the cases on their side.
Jim Marous: It's interesting, fraud is not going away.
Chris Luttrell: No. No.
Jim Marous: Identity theft is not going away. So, to wrap this up, what do you see as the future of identity theft, identity fraud, identity fraud prevention? And most importantly, what do financial institutions need to do right now to protect themselves and make it so the experience is better for the customer, both small business and consumer?
Chris Luttrell: Well, maybe I'll start right there and then I'll talk about future. So, right now, what companies can do right now is please make sure you've got a really robust solution running in the background. Obviously I'm biased, I'd love for everyone to use IDology. So, you really got to make sure that you have a robust solution that can provide the seamless experience that you want, but you can't trade off having a seamless, frictionless experience, that can't be a trade-off with fraud. Right? You have to be able to still stop the fraud and onboard true, legitimate consumers and businesses with your company.
Chris Luttrell: So, having those multiple layers of verification, multiple points of escalation, ways to escalate paths for that, having the ongoing monitoring in the background. It's just having a really holistic approach to looking at that. Understanding your customer base. When's the last time you really looked to see how your customers are performing? Have you done any type of recent analysis on your customer base?
Chris Luttrell: From a future perspective, it's interesting because like I said, in the past 20 years we've evolved greatly, just because of regulation or because of new fraud, all the data breaches that occurred, right? When we think about, I don't know, 10 years ago or more, it was enough to just do basic matching, to verify someone's identity, their name, their address, their social, their date of birth. It all matched, it meets-
Jim Marous: Their seniors card.
Chris Luttrell: Yeah. Yeah. And now that's not enough anymore, right? And it's never going to be enough again. So, I think evolving, we've got to look at things, we've got to make sure we're keeping a pulse on regulations like the CCPA, and then the new rule in California that's going to be going live next year in terms of how consumer data is protected. And I think when we think about the future, that's something that's always on my mind is how we're protecting consumer data and making sure that we're treating it with the utmost respect, and how we're keeping fraud out of companies.
Chris Luttrell: And I think the opportunities are just endless, but I do believe the pandemic really forced most companies to go digital, to go online. We're never going to go back from that again. And so, continuing to look at ways that we can onboard consumers in a digital way, without a lot of friction, making it a good experience, but making sure you've got that really robust fraud prevention solution in the background. When I think about the future, I really think that it will be very seamless, very quick, but I think that consumers will also have a lot more control over the use of their data. And that's something that we've got to make sure that we're remaining a part of.
Jim Marous: Chris, thank you so much for being on the show today. I know people can look it up online, but what's the best way to get ahold of the people at IDology and to start the discussion around making a more robust KYC and KYB solution?
Chris Luttrell: Yes, sir. So, we'd love for you to come visit our website, it's idology.com, so I-D-O-L-O-G-Y.com. You can find out there, you can see ways to contact us. We've got a lot of great white papers. We've got our research report, so some of the research that I mentioned, it's there and there's some really great data there. So, we'd love for folks just to come visit us. And I'm on LinkedIn, people can reach out to me anytime. I love talking to folks. Yeah.
Jim Marous: Chris, that's a very good point you bring up about the research and all the white papers and things you've done. I found in researching about your company and getting prepared for this podcast, that you have so much data, that if somebody's trying to make a case for their institution to make a more robust solution, you give them a lot of tools to make that business case for them. So, I suggest everybody go to the website, if nothing else, no matter who you decide to go with, and learn a lot about how big the problem is and some of the possible solutions out there. Chris, thanks so much for being on the show again.
Chris Luttrell: Thank you, Jim. I really appreciate it.
Jim Marous: Thanks for listening to Banking Transformed, the winner of three international awards for podcast excellence. If you enjoyed today's show, please be sure to give our show a five-star rating. Also, be sure to catch my recent articles on The Financial Brand and the research we're doing for the Digital Banking Report.
Jim Marous: This has been a production of Evergreen Podcasts. A special thank you to our producer, Leah Haslage, audio engineer, Sean Rule-Hoffman, and video producer, Will Pritts. I'm your host, Jim Marous. Until next time, remember, as identity theft becomes more prevalent, financial institutions need to view safeguarding a customer's identity as part of the customer's financial wellness journey.