Identity verification and fraud trends will grow in 2023
Micheal Ramsbacker, Chief Product Officer at Trulioo, one of the world’s leading ID verification fintechs, gives us his take on the changes we will see take place over the next 12 months in the security space as well as in crypto.
#1 Identity verification will be a major focus as the economic downturn leads to an escalation of fraud risk.
Regardless of whether the expected economic downturn takes shape around the world, 2023 is poised to be a year that will present global businesses with their fair share of challenges. Ongoing regulatory changes, rising inflation and upheaval in new technologies will keep business leaders on their toes in the new year.
#2 There will be consolidation in identity verification systems
For businesses, there will undoubtedly be a focus on efficiency and organizations will examine how they can reduce customer acquisition costs. Identity verification will come under the spotlight, with business leaders looking to cut costs and partner with a smaller number of technology providers that have broader coverage.
Whenever possible, business managers will try to eliminate unnecessary software and systems and remove the associated maintenance costs.
#3 There will be an increased threat in terms of fraud
We have previously seen that in times of recession or economic uncertainty there is typically a marked increase in fraud. Covid was a good example of how bad actors are looking for new attack vectors at times like this.
Across all industries, organizations will need to identify and prevent new threats, including money laundering, account takeover or identity theft. Businesses are likely to be dealing with a highly complex, varied and ever-evolving threat landscape, and so they will want to work with identity verification companies that can help them manage the widest possible range of fraud risks.
#4 Crypto users will gravitate towards exchanges that embrace regulation
As we dive into specific sectors, it is likely that we will see identity verification take on an even more critical role within the crypto sector. Recent events are likely to lead to increased regulation across all areas of cryptocurrency and decentralized finance and, in particular, exchange functions. Regulators will look to bring in rules to protect consumers.
From a consumer perspective, trust and confidence around crypto is probably at an all-time low. Our own research last month found that 83% of crypto users said crypto companies should do more to reassure and protect customers.
Against this backdrop, I believe it will increasingly be a case of the market deciding how the crypto sector recovers and the direction it takes going forward. I predict that we will see mainstream crypto investors vote with their wallets and favor platforms (and jurisdictions) that embrace, rather than try to escape, regulation. Consumers will look much more closely at how and where exchanges are regulated, and they will choose platforms that take compliance, trust and security seriously.
The same research showed that consumers now want to see visible signs that organizations are focused on protecting them. 66% of crypto users claim they have become more tolerant of identity verification measures over the past three years, and 78% are more comfortable with identity verification checks taking longer.
#5 Financial services firms will lean on identity verification platforms to accelerate the transition to crypto
Another major trend during 2023 will be traditional financial institutions accelerating their transition to cryptocurrencies. Capital markets firms will recognize an increasing opportunity to play a central role in the market, providing reliable infrastructure for consumers to securely access the full range of digital assets now available, including cryptocurrencies, stablecoins, central bank digital currencies (CBDCs), tokenized securities and non-fungible tokens (NFT).
But to be able to do this, financial services firms need to re-engage with native players who have already developed sophisticated operations and go-to-market strategies. For this reason, agile identity verification platforms will be extremely attractive to them, providing a flexible and resilient path into new markets and an opportunity to build trust with customers.
#6 Online marketplaces will thrive, but will also be targeted by fraudsters
Looking elsewhere, we can expect to see rapid growth for online marketplaces during 2023 and beyond. As the global economic downturn begins to take shape, marketplaces and peer-to-peer platforms that allow people to save money on essential products and services, or earn extra income, will see an increase in demand.
But alongside this, these marketplaces will also become an attractive (and perceived easy) target for bad actors to launder money and defraud consumers, many of whom may be relatively new to digital services and therefore vulnerable. Business leaders in this sector should do everything they can to ensure that their systems and data are secure and that the people who use their platforms are protected.
#7 National ID system programs will be fast tracked
At the national level, outside of the US, we are likely to see strong advances in consumer, privacy-centric, national ID systems. Significant progress is already being made in this area in countries such as South Korea, India and Singapore, which are deploying digital ID systems that use biometrics, blockchain and other advanced technologies to make it easy for citizens to verify their identity when accessing public and financial services online. Other countries, and indeed the EU, will make great strides in this area over the next 12 months.
Although the protocols, standards and other specific details of these systems will inevitably vary, as countries increasingly implement strategies to provide all their citizens with a digital means of authenticating their identities, the vast majority of governments will succeed in providing their citizens with a secure digital ID within the next five years.
With a patchwork of national ID systems emerging, it will be more important than ever for businesses to work with identity verification platforms that can enable them to navigate these differences and global complexities.
#8 AI and machine learning will be decisive in the new threat landscape
Finally, from a technology perspective, organizations (and the identity verification industry itself) will lean on technologies such as AI and Machine Learning to tackle the escalation in fraud attempts. Of course, fraud is a never-ending, intractable problem, but AI and Machine Learning give business leaders a way to keep pace with an ever-changing and increasingly complex landscape, protecting customers while eliminating friction across the entire customer lifecycle.
Over the next 12 months, businesses will continue to operate in a rapidly changing landscape. Organizations that are able to demonstrate operational agility, respond quickly to changing customer needs while protecting customers will be in the best position to succeed. Identity verification will therefore be crucial for organizations across all sectors in 2023, providing a platform for deeper and more sustainable relationships with customers in a time of great uncertainty
