Identity Fraud is a Customer Experience Opportunity

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 Banking Report, and co-publisher of The Financial Brand.

Jim Marous:
Identity fraud is an increasing challenge for financial institutions, impacting consumer trust and costing billions of dollars a year in losses. To combat this threat, financial institutions must streamline the authentication process while also improving the overall customer experience. When fraud or identity theft does occur, customers want fair, equitable, and fast resolution with a pain free frictionless access to their impacted accounts.

Jim Marous:
We are happy to have Chad Gluff, Senior Director Of Global Identity and Fraud Solutions for TransUnion, on the show today. Chad will share the impact that fraud and identity theft has on the banking industry and ways that organizations can really use this challenge to make better customer experiences and increase trust in the banking industry. Welcome to the show today, Chad.

Jim Marous:
According to Javelin Research, fraudulent accounts resulted in a combined loss of $24 billion in 2021, and affected 15 million US consumers. This was an increase of 79% from '20 to '21, illustrating the challenges that financial institutions have in trying to keep pace with increasingly sophisticated criminal activities. Just as frightening, new account fraud increased by 109% in 2021 with account takeover fraud increasing by 90% during the same period.

Jim Marous:
So Chad, to get us started, how has COVID impacted the world of identity and fraud for financial service companies? And do you expect this to change as we ease out of the pandemic?

Chad Gluff:
Yeah, Jim. We saw some really interesting patterns that we weren't expecting with COVID, as you are very well aware. COVID immediately increased digital channels, right? Where brick and mortar financial institutions weren't open. Generally, when we see that in the identity and fraud space, we expect a major shift in fraud instances, but however, we started doing research through Covert and we weren't really seeing the increase that we were expecting. In fact, in some of the traditional forms of fraud that we tag at TransUnion, account takeover, like you just me mentioned, identity fraud, we actually saw instance rates go down, and kind of left us scratching our head a little bit until we started to take a look at some of the government agencies and the programs that they were putting out there in place. And we saw that we were getting some very early reports on the PPP loans, state unemployment insurance, and the expectation that there was a tremendous amount of fraud going on in those programs. And simply came to the conclusion that fraudsters, being incredibly smart and a very nimble group, decided that it wasn't worth the time and effort it took to try and defraud financial institutions when they could take government agencies on instead.

Chad Gluff:
Those programs have since gone away. And the discussions that we've had with financial institutions is you can expect the fraudulent activity to come back, and probably at an increased rate. So our message to the market is make sure that you're prepared, understand that while the activity might have gone away a bit during COVID that the fraudsters are going to come back to financial institutions because that's where the money is.

Jim Marous:
So when you're talking about fraud and fraudsters, when it comes to the impact on financial institutions, what are the most important areas of fraud that financial institutions are having to deal with? And just as importantly, what types of solutions need to be utilized to combat these types of fraud?

Chad Gluff:
Sure. And there's no channel that's safe, Jim, there really isn't. Fraudsters, like I said, incredibly bright, they're nimble. There was always a belief in the market that they're going to focus on faceless channels, right? Where they could go digitally and online. Simply not the case. We see a lot of fraud happening in indirect lending, where fraudsters are sitting down in auto dealerships for hours and filling out the paperwork to take a car and then shipping it overseas. So yeah, there really isn't a channel that's safe, whether it's a DDA account opening, which oftentimes is kind of your foot in the door at a financial institution, the lending products, credit cards, all of those channels are being hit with fraud.

Chad Gluff:
And I wish I could sit here and tell you that there's a silver bullet, right? That you could just implement a solution or a tactic and you keep fraudsters out. There just isn't. So really, it's a combination of data and technology, and being able to run your requirements, your KYC checks, your OFAC and red flag checks, but then also following up with technology. There's been some really great advances in the identity and fraud landscape and the tools that are utilized, not just looking at kind of static PII information, but looking at how consumers are connecting to your institution, how they're communicating, how they're accessing accounts.

Jim Marous:
Well, it's interesting, when you look at fraud and identity, and when I look at it, yes, I know it's impacting financial institutions a lot, but the impact goes far beyond that. I mean, the reality is if my account gets impacted by fraud, it puts the onus on me to figure out what I can do about it. And it's not really clear. I mean, I get messages every once in a while from the credit bureau saying, "Your information on the dark web." And, okay, so what do I do?

Jim Marous:
Organizations really have to come to the forefront and help consumers in the process, because in some cases, banks and credit unions are shutting down accounts. How important is the overall solution when it comes to trust and when it comes to customer care, as far as organizations, at how quickly they can get the customer back up to speed again?

Chad Gluff:
Sure. And being the victim of identity theft is a horrible experience, right? I mean, talk to anyone that's had to go through it, it's difficult to get kind of out underneath that rock. It's a time consuming process. It costs money.

Chad Gluff:
Financial institutions definitely play a part in protecting customers, right? And that is the good customers that do business with them, which is the vast major majority of transactions. Right? Fraud is generally less than 1% of what a financial institution will see day to day, so making sure that you're able to protect the good customers, and just as importantly, you're able to offer a great customer experience, it's not hard to do business with you because you've got friction put up by fraud solutions, is incredibly important. And then being able to quickly transition to where a transaction doesn't look right. One of your tools is telling you that something's off. Being able to then put a lot of friction up to keep the bad actors out.

Jim Marous:
So given that, and you hit upon a good point that trying to let it so the good players can come in and the bad players are kept out. I'm a banker at heart, and I understand that many financial institutions are just highly risk adverse. It's almost like they want no losses. As a result, what happens is a lot of customers that should be able to open an account are either kept out, or the process is so cumbersome that we really are closing out a major part of the marketplace for fear that they may go bad. How do organizations work to make it so they can open the doors more fully while still not putting themselves at tremendous risk?

Chad Gluff:
Sure. And at TransUnion we have kind of a mantra when we're looking at developing solutions, optimizing solutions in the marketplace, that we want to deliver a friction right experience, so that those good customers are able to transact. They're able to do the things that they want to do day to day with our financial institution, and that the financial institution makes that easy. And then we want to be able to kind of alter that friction when we see something that doesn't look right.

Chad Gluff:
The worst thing that we can do is go in and talk to all of our financial institution customers and have them tell us that, "Hey, we've kept out 5% of their good customers and they're unhappy, and they're getting feedback that the tools they're utilizing aren't allowing them to do the things that they want to do and interact with their financial institution the way they want to interact." And it's not an easy thing to do, as you can imagine, Jim, right? And we're constantly looking at the tools that we're developing, the solutions that we're bringing to market, to make sure that for the best of our ability, transaction by transaction, we're helping make that decision as easy as possible for the financial institution.

Jim Marous:
So when you go into a financial institution, how outdated are most current fraud and identity solutions?

Chad Gluff:
It's gotten better. I think that over the last several years financial institutions have realized how big of a problem fraud is. I mean, five years ago, Jim, when I would go in, it'd be hard for a financial institution to tell me that a loss was tagged to a bad credit decision, or it was tagged to fraud. That's kind of where we were in the process. So they've gotten better. We've gotten well past just the, let's check the box for KYC because the regulators make us do that.

Chad Gluff:
Most financial institutions have a pretty good solution stack when it comes to identity and fraud. The problem is that this is an ever changing world, right? These guys, especially the rings, are very, very adept at being able to manipulate systems. They're very tech savvy. They understand the internet and how to access things. So message to the financial institutions is, you can't just set a program or process in place and let it sit there. It has to be constantly stress tested. You have to be looking at new solutions, because the mode of attack is going to change consistently. And I know that's not an easy message for financial institutions to hear. Oftentimes it's expensive. It's a cost center, right? They're not making any money on fraud products. But the worst thing that you can do is get a reputation within some of these fraud rings that you're an easy target, because it would be tough to stay in business. These guys, they really are a dangerous group that have the means, the methods, and the intelligence to be able to commit pretty significant levels of attack.

Jim Marous:
So I'm going to go back a little bit, because it really is at the foundation of everything we're talking about, what actually is digital identity? How is it established? And what tools are used to verify and authenticate digital identity?

Chad Gluff:
Sure. It's not necessarily a new term per se, but think of it as the way that you interact online. The things that you do, the devices and the tools that you do, and being able to take that information back and tie it to an individual, right? That's really kind of the crux of a digital identity. It's one of those things, too, Jim, if you ask 10 people, you're going to get 10 different answers. There isn't an exact definition to it.

Chad Gluff:
But one of the things that we've really tried to work on at TransUnion over the last several years is being able to tie that digital identity, or another term for it would be an online identity, to an offline persona, so that we know that Jim Marous is your name, that this is your birthdate, this is your address, this is your Social Security number, right? Kind of more static things when it comes to identity verification. But then also being able to tie, hey, this is how Jim also accesses his financial institution account. This is the device that we've seen. This is the device that he used to set up his account. We know that this device belongs to Jim. We also know that this device should access this account because we've seen it before. And those are the things that we're really working on when it comes to digital identity and digital authentication, is being able to tie all of those things together so that in real time, as you are logging into your DDA account, or you're logging on to pay your credit card account, we can give our financial institutions comfort in knowing that all of the things that we're seeing as part of this transaction go together, and Jim's low risk.

Jim Marous:
It's interesting, because one of the elements that your firm, TransUnion, really works on is you not only try to limit fraud and identity theft, but really is a completely new way of looking at the entire journey and saying, how do we do this under the umbrella of making it so it's a decent and acceptable customer experience? I mean, in the past it used to be, "Hey, you know what? I'm just trying to limit my risk as a financial institution. If it's tough on the customer, I'm doing it for..." We use the comment, "We're doing it for their behalf." Well, that's not going to cut it anymore, because when a person, let's say, opening a new account, or they're trying to transact, and over and over again they're getting messages, if that customer experience is a negative one, the customer's going to find somebody that's going to do it in a more fluid and a more customer friendly way.

Jim Marous:
So how does TransUnion work with finance institutions not only to flag potential fraud, but do this in a way that makes it so the customer not only trusts their financial institution, but wants to work with them because you're not making it just too difficult?

Chad Gluff:
Sure. And that conversation has changed over the last five years or so, right? Where, I mean, Jim, you can probably remember, if you wanted to open a bank account you had to come in with a Social Security card and a driver's license. And if you didn't have the right information, you'd have to go back home and bring it back in. Those days are all well and gone, right? You need to be able to open an account almost instantaneously, and needs to be in a faceless channel.

Chad Gluff:
So all of the tools that we develop and that we bring to market have to allow almost real time risk assessment. It needs to be passive. The consumer doesn't even need to know that it's going on. We need to be able to bring those risk signals together and deliver it back to the financial institution, again, all in milliseconds, to be able to say, "Okay, this consumer looks good."

Chad Gluff:
And whether it's the first time the financial institution has seen the customer and we're really running kind of a verification of the identity, or whether it's the customer coming back to accounts that they've established and being able to reauthenticate that consumer, all of it needs to be done extremely quickly in a digital environment. And again, without a consumer even knowing that it's happening or going on, because like you said, it takes one bad customer experience right now for a financial institution to potentially lose that customer. Choices have never been more prevalent for consumers on where they want to do their banking. And you don't have a lot of chances, right? You better make sure that you do it right the first time.

Jim Marous:
It's interesting, because when you open up an Apple Card, it's five screens, it takes about four and a half minutes. Their first step is, "Tell us if all this information we know about you is correct." The second one is, "Give us your last four digits of your Social Security number. Third one is your annual income. And then it's rules and regs. That's about it. That's the bar that's being set by tech companies and by fintech firms on how easy it can be to open an account or to engage. What are some of the things that you see that financial institutions still hang on to the past where you can really bring them into the future as far as, let's talk about know your customer and fraud things?

Jim Marous:
For instance, I had a financial institution we interviewed here that talked about the fact that their process was three minutes, and I thought, "Wow, that's astounding. That's really great." And then I tried to open the account and I realized that what they were talking about was three minutes internally to open the account. It was about 15 minutes for me to open the account. They asked for, as you referenced earlier, they asked for my driver's license number. They asked me for a lot of what I'm going to call legacy ways of verifying who I was.

Jim Marous:
How do you work with finance institutions that really keep one foot firmly in the past as the way they've always done it and try to move them forward. Because you do have technology, you do have solutions that are alternatives to traditional ones that are going to make it go faster, correct?

Chad Gluff:
Absolutely. 100%. And I will keep this financial institution nameless for this podcast, but I had a group show me their online application which required 17 clicks on your iPhone. And we had a conversation, and they were aware that it was an issue, and they understood why they had a 70% fallout rate, because no one wants to go through that type of process anymore. Right? We're in a real time world, right?

Chad Gluff:
So what we really try and do is bring as much of the data that we have in-house to the financial institution to see if there are some things that TransUnion stores, that we've got readily available, that can help speed up this process. You named it, the tech companies are already doing this. I mean, how easy is it to login to anything tied to Google anymore? It's a couple clicks on your iPhone and you're in. And financial institutions need to get there.

Chad Gluff:
And we talk to our financial institution customers all the time, like if it's an application process, what are the things that you absolutely have to have? And let's start with that list. Let's refine the app that you have online to just those things. Let's work with a provider like TransUnion or others in the market that can help with that verification of identity so that you're making that customer experience as smooth and easy as possible.

Chad Gluff:
You don't have 15 or 20 or 30 minutes to open an account anymore, because all your competition can do it in a couple of minutes. So that's really kind of the message that we bring to our customer base and try and do as best we can to help them limit the data fields that are required, and to make the transaction process as quick as possible.

Jim Marous:
It's interesting, because you look at... It's not that many years ago that we still required signature cards, and we all thought they were required, when really it was simply, can you validate a person's signature? Can you transact knowing that you're transacting with the customer you think you're going to transact with? Digital actually makes this process easier, because there's so much information online.

Jim Marous:
You mentioned it earlier. I just interviewed WeBank from China, and they use the way a customer uses their phone to determine if somebody's going to be bad. Now, they can't determine how good they're going to be by the way they use their phone, but they can certainly, in most cases, through models, determine if somebody is going to most likely be bad. And that's what we're really trying to avoid. We're not necessarily trying to figure out how good of a customer they're trying to be on the front end. We're trying to figure out, are they going to be bad?

Jim Marous:
And it's interesting, when we talk about the new account opening process, TransUnion and other providers can help so much in making this process easier if a financial institution is willing to change and willing to let go of some of the legacy processes that they've been tied to, when really, and tell me if I'm wrong, like your firm, can actually bring processes that are much more effective than some of the old ones we're trying to get rid of.

Chad Gluff:
Absolutely. 100%. You're spot on. An example, we've got a solution at TransUnion that's kind of widely accepted called document verification, right? Where you take your driver's license out, you take a picture of the front of the driver's license. You take a picture of the back of the driver's license and you submit it. Most consumers are going to think it's very similar to the old days where you just handed your driver's license over to somebody, they looked at it, and it kind of looked like you. Excuse me. And therefore they allowed you to do whatever you needed to do.

Chad Gluff:
Well, the process today, we are running hundreds upon hundreds of checks on that driver's license itself to make sure the license is accurate. We're scraping the data off of that driver's license. We are running it through our systems at TransUnion to make sure the name, the address, the date of birth, the SSN match. We're then looking at the device where the picture was taken to make sure the device is legitimate, that it hasn't been reported in fraudulent activity by other financial institutions.

Chad Gluff:
So there are so many different ways to improve that account opening process now that are quicker, that honestly, are more... that are cheaper, and that provide so much more security than the legacy systems that some financial institutions are using today. And I know this has been... I've followed the financial brand for years and years. I know this is a passion of yours, but digitizing those processes in the financial institutions and getting closer to the tech companies that we have and understanding how they're doing business is imperative to being successful in the future. There's no other way around it. We've got to let go of some of the things that cause issues in the customer journey now. We've got to figure out ways to streamline.

Jim Marous:
Well, it's interesting, because really what TransUnion has done is they've worked with other companies. Not everything has been developed internally, I would imagine. And that you've partnered with other firms that bring together the solutions so that a financial institution can go right to TransUnion and find ways to speed up their new account opening process in such a way, in a digital world especially, that is second to none. I mean, that's your goal. And I'm sure I'm sure, I'm pretty sure I'm right on this, that you've partnered with a lot of outside providers that were best in their field to be able to make it so that under one roof you can bring these solutions to the financial institution, correct?

Chad Gluff:
That's exactly what we're trying to do. And that's our position in the market. We're uniquely positioned being a credit reporting agency in that we have relationships with basically every financial institution in the country. So what we want to do, and our kind of promise to our financial services customers, is let us go out and explore the market for you. Right?

Chad Gluff:
I have got a team of several hundred people at TransUnion that are identity and fraud experts. We're going to scour the market. We're going to see what's best in class today. We're going to continue that. We're either going to acquire companies, we've had four or five acquisitions in the last couple of years, to help our position in market, or like you said, we're going to partner and we're going to figure out the best way to bring a palette of solutions to a financial institution that they can look at and they can say, "This makes sense for my business. Here are the three, four, five, six different things that we like. We can make one call to TransUnion. We can get all of those solutions." As opposed to going out to market and finding five or six different point solution providers, coding to all of them, trying to bring those signals in at the same time. We really are operating as kind of an orchestration platform for financial institutions, and that's where we want to be in the market.

Jim Marous:
And anybody who listens to the podcast, anybody who reads my articles, you know what my passion is, saying find the providers that can bring you to market with the fastest and most scalable solutions that can get you to the end point the best. And it's so important now more than ever that organizations partner with those organizations, those solution providers, that can get you there, not to overthink a process.

Jim Marous:
There's a lot of solutions out there, but it's better to make what I'm going to call maybe a slightly imperfect decision today than to keep on working on, okay, should we, shouldn't we, should we, shouldn't we? The important thing here is organizations like TransUnion can work with your firm to actually build new back office solutions that are not only going to be faster and easier, but they're going to be more effective.

Jim Marous:
And what's interesting is we've always thought that we need to try to avoid fraud, but really, when fraud occurs, Chad, this is where a financial institution is really tested. The customer has no idea what they should do next or how they can get access to their account, or how they can get back to some sort of normal. How does TransUnion's back office systems help a customer to get what I'm going to call back to normal as quickly as possible? Because really, this is where trust, this is where customer experience really becomes important, because I don't expect anything to go wrong with my account, so I expect the process to be smooth, but when it doesn't go smooth, that's when you're really tested. What has TransUnion done to help those customers that are actually impacted by what we hate to have happen?

Chad Gluff:
Sure. Yeah. No, it's a great question. And we've got an entire unit at TransUnion, actually, an affiliate company, TransUnion Consumer Interactive, that does exactly that. We provide breach services to financial institutions where if they've had a data breach we can help their customers with credit monitoring, making sure that there aren't inquiries and loans being taken out in stolen consumer credentials. We've got an app that you can download to where if you've been a victim of identity theft you have the ability with just a swipe of your phone to lock your credit profile so that no one's able to go into a financial institution and apply for a loan or open accounts in your name. It's an incredibly important part of the business, Jim.

Chad Gluff:
Like I said, having your identity stolen is not a fun process to go through, and we are working with the financial institutions that we support to make that journey as easy as possible and to clear up confusion. It's easier for you and I, we've been in this space for years and years and years. We understand financial services. Consumers often don't, right? And like you said, they are oftentimes left thinking, "What do I do now? Who do I go to?" And we want to make that communication path for them as easy as possible, and to make an unfortunate incident in their life go away as quickly as it possibly can.

Jim Marous:
Well, it's interesting, because I looked at the... I did some research on your firm and what your fraud and identity theft solutions are, and it was interesting because the whole positioning of the credit bureau of TransUnion, of what your solutions are, I would think intuitively that they're back office. And most of our listeners are not usually associated with the back office as much, or associated with the front office and the customer experience. What is interesting is because of what's gone on, because of speed, because of digital, these solutions really are customer experience solutions. These really are, in many cases, marketing solutions, account acquisition solutions, as opposed to back office, behind the scenes type solutions.

Jim Marous:
I think it's important for everybody to realize that these are the kind of solutions that can be a make or break for your customer acquisition goals, for your customer experience goals, for customers that want to engage. I mean, this also can be an educational process where content can be developed that can help a customer help themselves, because part of the fraud issue has to do with the customers not doing the right thing as opposed to the financial institution not doing the right thing, or a complete outsider. So when you look at the future, Chad, what do you see as the future for identity and fraud, and how do you see the environment changing in the near future?

Chad Gluff:
Sure. And there's going to continue to be an emphasis on technology and solutions that you can provide seamlessly in real time.

Chad Gluff:
I was at a conference last week called Identiverse out in Denver, where it's all the identity professionals come out. And one of the things that I've been passionate about for a number of years, and I love seeing traction, is something called a mobile driver's license. So the holy grail in identity and fraud is something called self sovereign digital identity. So I own all of my identity credentials on my phone. I'm in control of them. They're only stored on my device. If a financial institution wants to run an identity check, they need information from me, I have the ability, through biometrics, a thumbprint or a facial scan, to push my credentials out to that financial institution. It's being adopted. There are several states that are working on it now. So that document will live on your device. You can dictate where it goes, who has access to it, how much of it is accessible depending upon what you're applying for. And I really think that that could be part of the future of identity and fraud. Now, that being said, it's 50 different states looking at 50 different regulations. It's DMVs.

Jim Marous:
Multiple devices, multiple solution providers. Yeah.

Chad Gluff:
100%. Security is paramount too, and privacy always plays into our space as well, so it's not going to be an easy path at all, but I think it's something there are really good groups working on that particular solution. And if I was going to kind of identify one to keep your eye on in the space, I think that's something that could help in the very near future.

Jim Marous:
Well, it's interesting because in many cases the way we have fought fraud and identity theft is shutting things down. I think what you just brought up is really the marketplace is trying to work together to find ways to reopen some of the ways that people want to transact, want to engage, want to open accounts, and doing it in such a way that is universal. I mean, the universality of it all is a big challenge, because as you said, you got 50 different states, you got multiple varieties, you got multiple devices. What Apple does isn't the same thing that Google wants to do, and there's completely different solutions being impacted, but it works well for everybody.

Jim Marous:
So finally, how can banks and credit unions find out more about TransUnion solutions? Also, as I referenced earlier, I used a white paper that you've just recently published that worked on some statistics by Javelin. How do they get that white paper as well?

Chad Gluff:
Yeah. Everything is available on our website, TransUnion.com. Also, if you're a financial institution, you've got a TransUnion sales representative that's probably talking to you quite a bit, they'll have all the information on our TruValidate Solution Set, which is our identity and fraud products. My team is the go to market team. We will have discussions with financial institutions. We kind of come in, show and present solutions in the identity and fraud space. Those are the best ways to connect with TransUnion.

Jim Marous:
Great. Chad, thank you so much for being on the show, and it's good to see you again.

Chad Gluff:
Appreciate it, Jim. Thank you.

Jim Marous:
Thanks for listening to Banking Transformed, the winner of three international awards for podcast excellence. If you enjoyed today's interview, please give our show a five star rating on your favorite podcast platform. Also, be sure to catch the recent articles we have done for 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, identity theft is more than a financial loss problem, it's a customer experience problem for every financial institution.