Digital IDV Standards and Updated Regulation Needed to Combat Sophisticated Cybercrime

As digital payment preferences become more frequent, a recent study reveals that nearly one in five consumers have fallen victim to online identity fraud.

As highlighted in a recent ACI Worldwide Speedpay Pulse report, 18.7 percent of respondents reported falling victim to online identity theft, with two in five revealing incidents where accounts were opened in their name. The report indicates that as digital engagement increases, so does the sophistication of cybercriminals who exploit vulnerabilities in online transactions and identity verification systems. The rise in online fraud is part of a broader trend affecting financial transactions globally.

The Secure Technology Alliance (STA) has revealed discussions on network token authentication frameworks and their effectiveness in combating fraud, noting that there has been limited adoption by merchants, with Apple Pay being an exception due to its dominance in the digital wallet market.

It was also pointed out that senior industry leaders often hold outdated views from the early days of the 3D Secure protocol (3DS), perceiving it as risky and overlooking the enhancements and advanced authentication methods that are now available.

Similarly, merchants have reported increased step-up authentications from certain issuers, contrary to the expectation that EMV 3D Secure would require fewer step-ups compared to earlier versions of 3DS. Last year, American Express added biometrics to its 3DS-based protocol to protect card-not-present transactions.

A Call for Updated Financial Regulation

In the face of rising fraud and technological advancements, there is a growing consensus on the need for innovative approaches to financial security. As argued in a recent Forbes article, the upcoming election season presents an opportunity to rethink the ecosystem that supports financial innovation. In the article, Penny Lee, president and CEO of the Financial Technology Association (FTA), advocates for policies that foster technological advancements while ensuring robust regulatory frameworks to protect consumers from emerging threats. The FTA seeks to promote collaboration among fintech companies, regulatory bodies, and other stakeholders to develop systems that address both current and future challenges in the payments landscape.

An example is facial recognition technology, which is increasingly used in various sectors, including financial services. To effectively integrate this technology, the Forbes report suggests that the U.S. should establish digital ID standards and update fraud prevention requirements to minimise friction while expanding access to the financial system and enhancing security. Achieving this will require collaboration among multiple agencies to develop standards for digital identity documents, verifiable credentials, and consumer protections, ensuring the consistent and secure use of facial recognition technology.

Additionally, the STA is actively seeking experts to present at their upcoming Identity & Payments Summit in 2025, in a bid to encourage the implementation of strategies to enhance digital security. The summit aims to address the evolving challenges in secure payments and identity management, focusing on topics such as biometrics, tokenisation, and other advanced technologies designed to safeguard digital transactions.

Combating Fraud and Enhancing Security

Amidst these challenges, the payments industry is experiencing a surge in innovation aimed at combating fraud and enhancing security. Real-time payments and secure digital identity systems are at the forefront of these efforts. The U.S. Payments Forum Summer Market Snapshot highlights a growing interest in real-time payment systems, which enable the instant transfer of funds and provide businesses and consumers with immediate access to their money. These systems are designed to improve cash flow management and reduce the risk of fraud through enhanced authentication measures.

Elspeth Bloodgood of Jack Henry delivered a keynote address at the Forum’s member meeting in July, highlighting the rapid growth and adoption of real-time payments, emphasising that the industry is at a crucial inflection point. Bloodgood notes that while participation and transaction volumes are increasing sharply, the industry still faces challenges in developing new use cases for instant payment methods like Send and Request for Payment.