Companies worldwide now generate and manage vast volumes of data. The explosion of information, especially customer-related data, presents a security challenge which businesses must address.
The challenge is identity theft.
The problem may appear in multiple places, from a government agency responsible for distributing social benefits to a large bank. What’s more, you never know what you’ll have to deal with—the cause or its harmful effects.
In this article, we will put a spotlight on the fundamentals of identity theft to give you a better understanding of this threat. What is it? When and where does it happen? What are the warning signs of identity theft? How to prevent it?
Let’s dive deeper.
What exactly is identity theft?
Identity theft is the illegal use of another person’s financial or personal data—a name, birth date, Social Security Number, address, driver’s license details, credit card number, etc.—for any gain, typically monetary. Simply put, identity thieves pretend to be someone they are not when interacting with organizations and businesses to take advantage of their “new persona.”
To obtain identity data, scammers use numerous tactics. Here are some common ones highlighted by the USAGov website:
Steal individuals’ belongings like a wallet or purse to get their ID and bank cards
Go through someone’s trash to find bank statements, insurance policies, or tax documents
Use skimmers at ATMs, cash registers, and fuel pumps to digitally obtain information from bank cards
Extract personal data from mobile devices connected to public Wi-Fi
Employ social engineering to fraudulently get data through phishing emails, SMSs, or phone calls
Check social media accounts to find identity information in posts or photos
Ask for personal information in online quizzes and surveys
Massive data breaches are also a rich source of personal data for scammers.
Furthermore, identity theft can involve collaboration between the ID holder and their associates. For example, several drivers may share one ID-linked account associated with ride-hailing services for tax avoidance and getting unregistered income. Since the associates may have no driver’s license at all, that poses security risks for passengers, and financial harm for businesses.
Identity theft has a dual impact, affecting both the victims whose identities have been stolen, and the businesses where the stolen identity is used for fraudulent transactions.
Since it’s hard to detect identity theft at early stages, the damage from the crime is significant.
Identity theft isn’t identity fraud. What is the difference?
Identity theft is a close term to identity fraud. Here is how to distinguish them.
Identity theft is always the first part of the criminal action. Initially, scammers need to steal or otherwise obtain someone’s identity data to get to the next step. Identity fraud is one of the numerous ways to deceive companies or individuals with the data thus illegally obtained.
For instance, fraudsters may use stolen information to make a fake identity document to purchase age-restricted products or even access restricted areas. Misuse of data provided legally for a particular reason can also be interpreted as identity fraud. So, identity theft isn’t a required component for identity fraudsters to act.
Both crimes end in money loss and reputation damage for a company, so identity theft and fraud are the same evil in terms of aftermath. Plus, they affect businesses in different industries. As identity fraud statistics show, 95% of enterprises and 90% of small businesses dealt with the problem last year.
The most common types of identity theft
Criminal minds aren’t original when it comes to scams and fraud ploys. That’s why there are several types of identity theft that many people try to take advantage of. Let’s take a look at them.
Child identity theft
In this scenario, an underage person's data—name, address, SSN, etc.—is used to get benefits or services, or commit fraud, according to the Federal Trade Commission’s official website for consumers. The stolen information may be used by identity thieves to open a new account or credit line, sign up for utility services, apply for unemployment or government benefits, or even rent a property.
The victim of identity theft may reveal the problem a few years later, for instance, when it’s time to apply for a college loan. What’s more, monitoring fraudulent transactions involving a child’s name becomes the parents’ burden. Adults who are not aware of the threat can easily overlook it. That’s why child identity theft is so appealing to criminals.
Criminal identity theft
When someone’s data is used as a cover-up in illegal activities, it’s known as criminal identity theft. Culprits may use another person’s ID while interacting with law enforcement; for instance, they may present a stolen driver’s license to avoid criminal charges like speeding or accidents.
Financial identity theft
This type of identity theft is the most common one. It applies to cases when one person uses another person’s data for financial gain. The list of possible fraudulent uses includes credit and debit card number theft, online retail transactions using another individual’s payment information, unwanted activity with checking or savings accounts in the victim’s name, insurance fraud, etc.
Medical identity theft
Medical identity theft is when a scammer poses as another person to fund medical services. The main source of personal data in this case is healthcare data breaches, as well as phishing emails, messages, and calls. Additionally, criminals may go through old medical documents and health insurance cards that were not disposed of correctly.
As a result, the victim of medical identity theft may see unfamiliar medical procedures in their record, or even unknown medical debts.
Synthetic identity theft
This kind of identity theft is one of the trickiest. Synthetic identity theft implies the use of personal data to make a non-existent identity. Fraudsters often mix a genuine piece of data like a Social Security Number or home address with AI-generated artifacts, such as a name, photo, etc.
This synthetic identity can then be used in a plethora of fraudulent activities. Typically, scammers target banking institutions, primarily in the US. One of the usual schemes involves opening a bank account with a synthetic ID. By acting as a regular client for a while, fraudsters can earn some trust from the bank and get a higher credit score, only to close the account and disappear later.
Identity theft emergency
From the business side, it’s important to keep customers aware of the problem. In the US, individuals can review whether they have a credit report with any of the three big credit bureaus—TransUnion, Equifax, and Experian. Also, it is always a great idea to set up a fraud alert that notifies banks anytime they want to extend their credit. In this case, extra steps to verify customer identity are needed to complete the transaction.
Also, there are some resources where individuals (and organizations) can report identity theft when it does happen:
Which industries are most affected by identity theft?
Companies from the Banking and Fintech sectors remain the key target for fraudsters, since this is where the larger share of all financial identity theft cases occur.
Investment banks, mortgage lenders, insurance companies, and private equity funds also fall into the vulnerable category. Since there are banking regulations and oversight by authorities such as non-banking institutions, these businesses may pay less attention to data security and identity theft problems. For instance, the recent FTC law amendment requires non-banking financial institutions to report data breaches affecting 500 or more customers.
E-commerce businesses such as online merchants, telecom companies, and payment operators are also under attack. According to the Euro Retail Payments Board (ERPB), identity theft, among other types of fraud, contributes to the increase in payment fraud in the EU. For instance, 14% of consumers in Portugal (with a population of about 10.4 million) became victims of payment fraud, resulting in average losses of €155.50 per person.
Unfortunately, most scammers who make a living on impersonation attacks and identity theft aren’t now lone actors, but professionals, the ERPB working group claims. They quickly adapt new technologies and employ AI and deepfakes to modernize their techniques. As a result, preventing identity theft is a challenge for many companies that requires a comprehensive approach to be effectively addressed.
Identity theft prevention: What businesses can do
Organizations in some countries such as the US must design and implement written identity theft prevention programs which describe warning signs and red flags employees need to know when doing their day-to-day operations. According to the US FTC’s Red Flag Rule, financial institutions and creditors must comply with this requirement.
Additionally, there are more global regulations which help mitigate security risks connected to identity theft and fraud. Here are some that are worth checking:
International Civil Aviation Organization (ICAO) standards
General Data Protection Regulation (GDPR)
Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) regulations
Know Your Customer (KYC) regulations
Electronic Identification, Authentication, and Trust Services (eIDAS) regulation
Financial Action Task Force (FATF) Recommendations
Payment Card Industry Data Security Standard (PCI DSS)
Consumer Privacy Acts
Electronic Signatures in Global and National Commerce Act (ESIGN), etc.
Generally, most of these documents declare identity verification as one of the mandatory components in companies’ interactions with customers.
Let’s see what exactly you can do to make your company more fraud-resistant and prevent identity theft cases:
Running educational campaigns for customers
Since identity theft often implies using psychological tactics by criminals, some of your customers remain vulnerable to tricky fraudulent attacks aimed at getting unauthorized access to their personal information. Additionally, as AI continues to spread and become more advanced, these tools are expected to become weapons for threat actors who will launch more sophisticated phishing scams at scale.
With thousands of clients aboard, it’s hard to check each account and transaction in detail. Customers who are informed about the threat of identity theft may become your loyal allies against any type of fraud. That’s why it’s worth investing resources in educational content on your company’s online materials and in physical branches.
Mastercard notified their LinkedIn followers before the holiday season with commonly used fraudulent approaches and tips to detect these tricks.
Employee training
Since identity theft is one of the consequences of a data breach, you need your staff to comply with all security policies and requirements. It’s crucial to add regular cybersecurity training for employees into your anti-fraud program, as well as invest in phishing simulation exercises for your team.
Courses raise awareness about current threats and attacks, as well as equip your specialists with sound knowledge to identify red flags in customer behavior and prevent bigger incidents. Such courses usually cover email protection, social engineering, and best practices in password policies, all of which are essential components in any data breach prevention strategy.
Using MFA with biometrics
This measure is aimed at identity theft detection by enhancing the customer identity verification flow. Multi-factor authentication (MFA) involving a combination of biometrics—for instance, a selfie or fingerprint—with one-time passwords, SMS codes, etc. enables you to confirm that a user is the person they claim to be.
Importantly, MFA can be more customer-centric than standard login/password protocols. For example, user biometric authentication with Regula Face SDK takes seconds. Also, you can significantly reduce your support team’s workload, since password-related issues make up the majority of support requests.
Implementing automation into verification procedures
Identity thieves prefer to operate online, so you need to bring more attention to revising and enhancing the identification process for remote scenarios. Fortunately, some parts of it can be automated with identity verification software.
For instance, the largest private bank in the world implemented an automated customer onboarding process involving biometric ID and NFC verification. As a result, new clients can open an account in a few minutes via their mobile device. The system, backed by Regula Document Reader SDK and Regula Face SDK, remains secure thanks to RFID chip verification—which every electronic identity document contains—and a face match between a user’s selfie and their ID photo.
Revising security policies and processes regularly
Industries such as Public Safety, Banking, Education, and Healthcare are required to conduct regular cybersecurity policy reviews as mandated by industry and government compliance standards.
However, there is no need to wait for an external push with a strict deadline. New threats and fraudulent tricks are evolving, and your systems should be kept up to date to address these challenges. So, you need to review all implemented security measures at least once a year.
It’s also important to revise your internal security-related policies and processes anytime there is a notable change in your organization, such as when new offices are opened or new products are added. Also, updating policies is a must after an incident or policy violation is detected.
Final thoughts
In an age of digitalization, identity theft remains a major security threat for many organizations. Fraudsters take advantage of online business processes, plotting tricky scams for your customers and employees on the web.
To keep your revenue and reputation safe, you need a comprehensive identity theft prevention program including compliance with regulations in your industry, development of strict security and data access policies, and enhancement of all money- and data-related processes in terms of due diligence.
Regula’s contribution to identity theft prevention is a complete solution for ID and biometric verification that enhances your security while staying fully customer-centric. Book a call or demo to learn more.
