ID Verification for Credit Applications: How Utility Data Boosts Security & Expands Reach

Amy Hou  |  October 5, 2017   |  Credit & Lending  |  ID Verification  


In 2013, the FBI shut down a crime ring that created 7,000 fake identities to obtain tens of thousands of credit cards and loans. In 2017, Equifax reported a data breach impacting 143 million Americans, predicting reverberating effects on fraudulent transactions for years to come.

Governments Regulate ID Verification

Recognizing and reacting to the risk of fraud, government organizations have issued strict guidelines for ID verification of loan and credit applicants. Those regulations include:


  • Financial Industry Regulatory Authority (FINRA), which helps maintain market integrity and protect investors by developing and enforcing rules that apply to broker-dealer activities. FINRA aims to keep financial transactions fair and honest.
  • Anti-Money Laundering (AML) laws with which all financial institutions must comply under the Bank Secrecy Act. These laws require institutions to file a report for any individual who makes a cash transaction of over $10,000. Those reports are then investigated by the Financial Crimes Enforcement Network for signs of suspicious activity.
  • Know Your Customer (KYC) program, which is required by the Bank Secrecy Act and U.S. Patriot Act to confirm that customers only open accounts in their own legal name. It also calls for banks to have a general understanding of where money in an account comes from and to monitor transactions to prevent money laundering.
  • Customer Identification Program (CIP), which is part of KYC and is meant to curb identity fraud. Under CIP, financial institutions must verify the identity of customers including their name, date of birth, address, and taxpayer ID number (for US citizens) or passport or alien ID number (for non-US citizens).
  • General Data Protection Regulation (GDPR), which is an EU Parliament resolution that allows consumers to know exactly what financial institutions are using their data for, obtain an electronic copy of that data, and demand that data stop being used and even erased at any time. This program is intended to give consumers more control over their data.
  • Payment Card Industry Data Security Standard (PCI DSS), which requires branded credit cards to conduct regular compliance reviews in order to reduce fraud.


Financial Institutions Aim to Add Security

Well aware of the risks of identity fraud, financial institutions and consumers have also invested in improving ID verification. In fact, the market for more secure digital ID verification services is expected to reach $9.7 billion by 2021. Here’s what’s happening today.

  • Step 1: The institution typically starts by confirming an applicant’s name, date of birth, Social Security Number, and credit history with one of the three major credit bureaus.
  • Step 2: Once this information comes through, the institution then confirms that the applicant is who they say they are, via “out-of-wallet” questions that ask information about schools the applicant attended and cars they’ve owned.

While the two-step process does help weed out thieves, it’s not fool-proof by any means. “Out-of-wallet” questions are outdated and often can be answered with information that thieves already have access to. Additionally, it simply doesn’t work for the millions of Americans who are credit invisible or credit unscorable, meaning credit bureaus don’t have enough information on them to provide the banks with necessary verification details.

Utility Data Offers A New Approach

While the current ID verification process complies with regulations, there’s substantial room for improvement. And the key to making those improvements lies in more modern, data-backed technology.

To date, the best solution relies on “direct-from-source data.” Rather than asking consumers to manually input data or scan and upload documents like driver’s licenses and utility bills, financial institutions can rely on data feeds that pull information directly from the source.

With a direct-from-source data feed for utility and telecom data, financial institutions can simply ask users to log in to their utility accounts in order to pull data like bill payment history and address verification. This process expedites the consumer experience, provides more up-to-date information (as credit bureaus are slow to update details like address changes), and extends opportunity to the millions of credit invisible and credit unscorable consumers.

Best of all, it’s secure, as it’s virtually impossible for criminals to fabricate data pulled directly from the utility. More importantly: 

A direct-from-source data feed means that financial institutions don’t have to store sensitive consumer data on their servers and risk getting hacked.

These days, protecting consumer data and securing identity verification are an urgent priority for financial institutions. That’s where utility data can help.

Get in contact with one of our specialists to learn how utility data can boost your security and expand your reach.

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About Amy Hou

Amy Hou is a Marketing Manager at Urjanet, overseeing content and communications. She enjoys writing about the latest industry updates in sustainability, energy efficiency, and data innovation.

Tags   Alternative Data   |   Credit   |   Data & Technology   |   Data Quality   |   Identity & Fraud   |   Lending   |   Online Lending   |   Revenue Growth   |   Risk Assessment   |   Utility Data   |