This is part 1 of a 6 part series. Please refer to the introduction to this series Lending: don’t hate the players, hate the game for more context.
As mentioned in What is Lending?, verifying the identity of potential new customers is crucial. It is also an extremely difficult task because most personal information is accessible to the people around us e.g. fraudsters with stolen personal information, untrustworthy family or friends, etc.
Lenders and merchants eat the dollar value loss when fraudsters steal other people’s identities to take out loans or purchase things illegally. In most cases, victims are not liable for the fraud. Therefore lenders must exert great effort in verifying that a potential customer is the person they claim to be.
Unfortunately these identity verification processes require legitimate customers to do more work, jump through more hoops, and waste time. The majority of interactions are not attempted fraud — they’re conducted by legitimate customers. But everyone must be questioned and verified. A few bad apples really spoils the bunch.
It’s not easy to make identity verification a beautiful customer experience. It is by nature an intrusive request. Customers gets frustrated because they know they are who they say they are. The personal questions are invasive and annoying e.g. What’s your full name? Email address? Mailing address? Social Security Number? Mother’s maiden name? What was your residential address when you were a child? Are you a U.S. citizen? Are you employed? Where? How much do you make? How much do you pay a month in rent/mortgage?
The barrage of questions, or really any time there is more than one question, makes people feel defensive and anxious.
Moreover, most lenders who practice secure identity verification may also require new or existing customers to go through additional phone or email verification. This means entering your phone number or email address, finding your phone or logging into your email account, waiting to get a text message with a PIN number or an email with a link, and figuring out where to input the PIN number provided. Each of these steps greatly increase the chance for customers to drop off. Not only is there the possibility that something goes wrong and no PIN or verification link gets texted or sent via email, but (let’s face it) every additional step is annoying.
Many companies have improved the flow of verification a new customer’s identity by leveraging an intelligent system to analyze multiple types of identity attributes. For example, when applying for a loan with Marcus from Goldman, potential customers are asked the following:
If all this personal information provided upfront looks correct and matches a known identity (let’s assume known identities are in a directory managed by a credit bureau. The definition of identity is a much longer discussion that we’re not going to get into in this series), the user is successfully verified and does not need to proceed with any additional identity verification flows. Account successfully created and loan options are presented!
However, if this personal information does not match the information of a known identity, Marcus from Goldman asks the user for more information, specifically a full Social Security number:
If the SSN provided helps match to an identity, the user is successfully verified and does not need to proceed with any more identity verification flows. Account successfully created and loan options are presented!
If the SSN provided does not help identity the user, the potential customer might be asked to provide additional forms of ID such as a picture of his or her driver’s license.
If the information on the drivers license is still not able to successfully verify the identity of the potential customer, than the user is unable to create an account and is ineligible for loan options from the lender.
As you can tell from this flow, the system allows for the option to escalate to additional stronger forms of verification (e.g. providing a full SSN, taking a picture of your driver’s license) when and if the time is right, but it also allows for legitimate customers to avoid these steps if no additional checks are required. This way there is less friction for real customers and more verification for potential fraudsters.
Of course, no matter how intelligent a system, lenders must still require new customers to go through identity verification before providing any service. And it’s not easy to make this first interaction a welcoming experience.
Next up is Part 2: Predicting the future is hard, and a 90% success rate isn’t good enough
This is part 1 of a 6 part series. Please refer to the introduction to this series Lending: don’t hate the players, hate the game for more context.
