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ID Analytics Announces Findings from Largest-Ever Research into Identity Fraud with Cooperation of Business Leaders Across Multiple Industries

Report Details the Sophistication of Identity Crimes, Providing New Insights into the Behaviors of Criminals

SAN DIEGO, CA, September 23, 2003–ID Analytics, Inc., a technology company providing businesses with solutions to detect and prevent identity theft and related fraud, will unveil the findings from its National Report on Identity Fraud at its annual symposium, Identity 2003, on September 25. The year-long research project leading up to this report analyzed more than 200 million records, including valid and fraudulent consumer applications for credit, debit and new accounts, together with the largest collection of cross industry known frauds to date. An overall key finding is that a surprising portion of the identity fraud perpetrated against businesses is actually without a consumer victim because the fraudulent identity is fabricated. In fact, 88.4 percent of identity frauds discovered through the research were not originally reported as such by businesses due to the criminals' ability to obfuscate traces of the crime.

Largest Identity Fraud Research Project Ever
Undertaken in partnership with the Center for Information Policy Leadership, which develops global privacy concepts for the digital age, the 56-page detailed report from ID Analytics is the largest and most comprehensive effort ever undertaken to analyze identity fraud. Based on tremendous interest from businesses to better understand the crime in an effort to prevent it, ID Analytics received extensive support from eight of the top 10 card issuers, two of the top five wireless providers, and approximately 80 percent of US retail bank DDA applications. This unprecedented collaboration of companies across multiple industries enabled ID Analytics to gain an accurate assessment of the size and scope of identity fraud as well as the highly sophisticated and complex behaviors of the criminals who commit it. The report describes in detail the results obtained through analysis of this data, providing information never before available about how identity fraud occurs and why it is so difficult to detect.

"According to Gartner research, the most effective identity theft fraud prevention approaches are those that predict fraudulent behavior across industries by spotting applications not normally flagged as fraudulent," said Avivah Litan, vice president and research director for Gartner Financial Services. "In order to curb this problem, Gartner advocates a more aggressive approach that focuses on stopping the fraud at the source--at the companies that extend credit." (Note: Avivah Litan's FirstTake on the National Report on Identity Theft is being released today on Gartner.com.)

"Until now, there has been a lack of robust, empirical evidence detailing how identity theft is committed and how the ensuing fraud victimizes financial institutions," said Dennis Behrman, retail financial analyst for Financial-Insights. "The National Report on Identity Fraud provides a statistically-viable look into this costly epidemic that had previously been hidden from the industry. The result is that the key findings unveiled in this report are already playing a large role in the formulation of business solutions that prevent identity fraud before it starts." (Note: Financial-Insights has published a report on the crime called "ID Verification Solutions: A Floodlight on the Den of Identity Thieves.")

Key Findings from the National Report on Identity Fraud
Other significant findings from the National Report on Identity Fraud include:

• The majority of fraudulent and suspicious accounts have no links to known fraud at the time of application. In fact, only four percent of identity frauds could be linked to another identity fraud at the time of application. As a result, current fraud detection methods that rely on links to known fraud have limited value.
• While many cases of identity fraud are, in fact, the result of fabricated identities, the majority of applications contain actual, valid identity information. The research shows that 97 percent of all applications contain a valid Social Security number.
• Sophisticated identity frauds are extremely difficult to detect and prevent using current approaches. Because many of these frauds are associated with unreported identity theft and fabricated identities, they are often undetected and misclassified.
• Fraud rates vary greatly by the type of application, depending on whether it's a face-to-face transaction (e.g., in a store or bank) or not versus a "faceless" transaction (e.g., online, by telephone or via postal mail), in combination with whether it is instant credit granted at the point of initial purchase versus non-instant credit where there is a waiting period (e.g., a checking account). The highest rate of fraud detected was among instant credit transactions, at 6 percent, and also among faceless, at 4.4 percent. By comparison, lenders had tagged instant credit fraud at .46 percent and faceless fraud at .23 percent.
• Participation and collaboration across multiple industries--including bank and retail credit card, wireless, retail banking, and online consumer finance--is vital to detecting and preventing fraud. No single corporation or industry has sufficient visibility to identify fraudulent patterns based on analysis of its applications alone.

"At ID Analytics, we have engaged a cross-industry consortium of market leaders dedicated to stopping identity fraud before it starts," said Bruce Hansen, chairman and CEO of ID Analytics. "While these companies already have multiple fraud detection systems in place, they are increasingly concerned that this type of fraud is becoming epidemic, and the only way to stop it is through large scale, multi-industry cooperation. These companies are to be commended for their strong stance against identity fraud, and in defense of consumers. It's clear that the fight against fraud is gaining momentum."

"We all knew that identity fraud was a problem, but we didn't know how the patterns linked together," said Martin Abrams, senior policy advisor and executive director, Center for Information Policy Leadership. "Based on this research we now know that identity fraud can only be detected through the use of advanced pattern analysis technologies. At last we have actionable information to prevent the crime."

Research Methodology
The main focus of the research was on studying identity fraud at the point of application and determining if there were ways to prevent fraudulent accounts from ever being opened. The research concentrated on the four US industries that bear the vast majority of identity fraud losses: new wireless account set-up and activation, major retailer and bank credit card applications, retail bank checking account openings and instant loans for online and retail purchases. The research methodology was unique in several ways, including its examination of identity information across all applications, rather than only approved credit or accounts that were ultimately tagged as fraud by the credit grantor. The research also looked at account performance information over time; each newly-opened account was scrutinized for how it performed over the first six months of the account lifecycle - in other words, how many dollars were charged against the account and at what point in time, and whether or not payments were made. As a result, the findings were more comprehensive and more insightful than any identity fraud research findings to date.

"We are eager to detail our National Report on Identity Fraud at Identity 2003, our second annual Identity Fraud symposium this week," said Hansen. "At that time, representatives from the government, finance, wireless and retail sectors will have the opportunity to discuss these findings and share best practices. By working together we have developed a deeper understanding of the identity fraud problem and have put in place the technology to safeguard businesses--and consumers--from being victimized by this crime."

Research Findings Lead to Development of the ID Score
The report also presents findings on current approaches to fraud detection, as well as insights into the best approach for stopping identity fraud before losses occur. A key finding from the research is that current fraud detection methods based on data matching and known fraud files are inadequate; only cross-industry collaboration can identify and predict fraudulent behavior patterns.

The knowledge gained through this research, combined with new advanced technology, led to the development of ID Analytics' ID Score, which assesses the legitimacy of identity information provided by individuals at the point of application, before credit, debit or new accounts are granted. Underlying the ID Score is a pioneering pattern recognition technology called Graph Theoretic Anomaly Detection^® (GTAD™), which has a patent pending. GTAD dynamically detects unusual patterns based on the identity data elements on an application. Today, the ID Score is being used by some of the nation's largest credit card, retail card, wireless and online instant credit companies, daily helping to detect hundreds of frauds and saving many thousands of dollars in losses.

About The Center for Information Policy Leadership
The Center for Information Policy Leadership at Hunton & Williams provides thought leadership, solutions development and strategic consulting on all aspects of information policy, privacy, security and management. ID Analytics serves on the Executive Committee of the Center.

About ID Analytics, Inc.
ID Analytics, the leader in Identity Risk Management, provides unprecedented real-time visibility into the risk of individuals, protecting both organizations and consumers. ID Analytics pioneered identity scoring technology and uses Advanced Analytics^SM and the ID Network^®, the nation's only real-time, cross-industry compilation of identity information, to assess risk and improve the customer experience across all consumer touchpoints. Top U.S. communication and financial service companies, as well as major retailers, government agencies and healthcare insurers, all trust ID Analytics to drive new revenue opportunities, eliminate financial losses, and protect their brand reputation with less customer friction.

ID Analytics is a registered trademark of ID Analytics, Inc. All other trademarks and registered trademarks are the property of their respective holders.