In the fast-paced world of modern business, staying ahead of the curve is crucial to success. Nowhere is this truer than in identity verification (IDV), a cornerstone of secure customer onboarding.
When it comes to selecting an IDV solution, choosing the best from the start can save an organization from incurring hefty costs down the line. As the old adage goes, “an ounce of prevention is worth a pound of cure,” and in the realm of identity verification, this wisdom couldn’t be more relevant.
The hidden costs of legacy IDV solutions
Legacy identity verification solutions, although they may seem cost-effective in the short term, can lead to a cascade of issues that end up costing the business far more in the long run. Let’s take a closer look at the potential costs associated with relying on an outdated system:
Losses from fraud: Fraud is a persistent threat that could strike a business at any time. According to a report by LexisNexis Risk Solutions, every dollar of fraud now costs financial businesses in the US $4.23 in losses. Legacy systems often lack the sophistication to detect increasingly complex attacks, leaving the business vulnerable to financial losses and reputational damage.
Poor customer experience: A clunky identity verification process can lead to frustrated customers. Research by PwC shows that 32% of customers would stop doing business with a brand after just one bad experience. An outdated verification system can result in delays, errors, and friction in the onboarding journey, ultimately driving customers away.
Journey drop-off rates: When customers encounter hurdles during the transaction process, the likelihood of them dropping off increases significantly. Data from the Baymard Institute’s Checkout Usability study indicates an average cart abandonment rate of over 70% for ecommerce businesses. A clunky identity verification process could contribute to this high dropout rate for financial services as well.
Regulatory penalties: Compliance is a non-negotiable aspect of the financial industry. Using a legacy solution that does not adhere to the latest regulatory standards can result in costly fines and legal repercussions. In the EU, GDPR violations can lead to penalties of up to €20 million or 4% of the company’s global annual revenue.
A comparative analysis of potential losses
Let’s quantify the potential losses a financial services business might face by relying on a legacy identity verification solution versus investing in a state-of-the-art solution:
|Cost factor||Human/legacy solution||Technology-led solution|
|Fraud losses & operational costs||$2,430,000||$18,744|
|Staff hourly costs||$25,000||$0|
|Total potential losses||$2,430,025||$18,744|
Embracing positive change
Investing in the best identity verification solution on the market might seem like a large up-front cost, but it’s essential to view this investment as an opportunity for improvement rather than a sunk cost. The benefits of adopting a cutting-edge identity verification system are abundant:
Fraud prevention: A modern solution employs advanced algorithms, machine learning, and face biometric technologies to accurately identify potential fraud. This not only saves the business from financial losses but also upholds its reputation as a secure institution.
Enhanced customer experience: Streamlined and user-friendly identity verification processes result in smoother customer onboarding, leading to higher customer satisfaction and loyalty.
Reduced drop-offs: By minimizing complexity and delays, an improved verification process decreases the likelihood of customers abandoning their applications, translating into higher conversion rates.
Regulatory compliance: A state-of-the-art solution is designed to comply with the latest regulations, reducing the risk of penalties and legal issues.
The time to be innovative is now
The way of successfully conducting business is evolving rapidly, and staying competitive requires embracing innovation in all areas, including IDV. While legacy solutions might appear to offer short-term cost savings, the potential losses from fraud, poor customer experience, journey drop-offs, and regulatory penalties far outweigh any initial savings.
Embracing a modern identity verification solution is not just an investment; it’s a proactive approach to safeguarding the business, enhancing customer relationships, and positioning the company as a trustworthy player in the industry.
Remember, in the world of IDV, an ounce of prevention is truly worth a pound of cure.
About the post:
Images are generative AI-created. Prompt: Steampunk camera on a tripod on the sidewalk in the middle of a modern city block. Tool: Midjourney.
About the author:
Matt Ingman is VP, Marketing for IDVerse. He has served the marketing function since 2021 and has spent the last 6 years in the fraud and identity space. Matt brings a non-traditional way of thinking to deliver innovative and practical solutions for IDVerse’s accelerated growth.