From community banks and credit unions to global organizations, financial institutions are looking for ways to strengthen customer loyalty.
One way to do this is by protecting data on children.
This can be tough in an era when branches and community presence are less determinative of bank choice than digital capabilities and rewards. However, on a fundamental level, retaining profitable customers still comes back to helping those customers better manage their finances and protect themselves, as well as their children, from fraud.
This can be achieved by investing in state-of-the-art payments fraud monitoring analytics or educating customers on the importance of monitoring their credit report and guarding personal information. Going beyond that, however, some institutions are trying to build intergenerational loyalty by modernizing the tools that parents use to teach their kids about money. For example, a host of fintech startups are helping bring allowances and chores into the 21st century.
These are all encouraging steps in the right direction, but when it comes to consistently demonstrating a commitment to protecting customers and their families, the industry often fails at one critical task: preventing child identity theft.
Targeting the young
A 2018 report released by Javelin Strategy & Research found that more than one million children were victims of identity fraud in 2017. The widespread damage included total losses of $2.6 billion and more than $540 million in out-of-pocket costs for families, the study said.
Fraudsters who create and nurture a false identity at the credit bureaus by using a combination of false, stolen, true or borrowed data, called synthetic identity fraud, is rampant. Synthetics differ from identity theft, in which the entire persona of an individual adult is impersonated and used by the fraudster to acquire credit.
For many years, fraudsters have exploited the Social Security numbers of recently deceased persons, a technique called ghosting. AARP reports that fraudsters use the identities of 2.5 million deceased people to create synthetic identities. Some industry experts estimate that 80% of credit card fraud losses are attributable to synthetic identity fraud and child identity theft.
Rather than combing through public death records to capture SSNs, criminals are now targeting the youngest Americans, pairing stolen SSNs with fictitious personal information.
This is partly due to a 2011 change the U.S. Social Security Administration made in the way it generates SSNs. Previously, the formatting of SSNs allowed validation of the SSN’s “age” as a sanity check to legitimate inquiries. The new process, called randomization, was created to help prevent identity theft but had the unintended consequence of facilitating fraudsters exploitation of dormant SSNs, like those of children born after the change took effect.
Identity thieves take a child’s SSN and use it alongside a fictitious name, address, phone and birthday to apply for credit and open accounts. This creates a fabricated or compilated identity known as a synthetic ID.
Randomization also makes it harder for financial institutions to verify the legitimacy of any given SSN, as the first five digits are no longer indicative of the holder’s birthplace, as was the case in the former SSN numbering convention.
Children’s identities are a perfect target because a SSN is required by the IRS for parents to claim their newborns as dependents. While most Americans receive their SSN at a very early age, there is no logical reason to immediately build credit history or monitor a child’s credit score.
This means any fraud perpetrated against these victims is typically undetected until they turn 18, leaving them with massive debt and an inability to get a loan, rent an apartment or engage in other essential financial activities.
Teaching customers to protect children’s data
Banks that proactively engage parents with tools and education to protect their children’s financial futures, demonstrates the institution’s commitment to helping families and positions it as the service provider of choice for the next generation of customers.
The first step is to build a resource center on the financial institution’s website. This information should include guidance for parents on how to check their children’s credit.
The Federal Trade Commission recommends checking whether a child has a credit report close to their 16th birthday. If there is one, and it has errors due to fraud or misuse, there is still time to correct the report before the child applies for a job, a car or tuition, for example.
A financial institution’s resource center should also cover common warning signs that a child’s identity has been stolen, such as calls from collection agencies, pre-approved credit offers or a declination notice for government assistance. Also, provide parents with directions for freezing their children’s credit if they believe fraud has occurred or if they want to take precautions.
Finally, a financial institution’s resource center shouldn’t just sit on a website, unused. Promote it via email, link it to the mobile banking app, and train branch staff to be aware of the issue and prepared to walk customers through the resource center. This could also include infusing the resource center with life-stage-based marketing campaigns like, “Congratulations on your new baby! Let’s protect their financial future.”
The unfortunate reality is that identity fraud will impact many customers and on a very personal level. Financial institutions must ensure they protect their customers’ data, while also providing the tools and education to empower customers to protect themselves and their family.
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