https://www.wsj.com/articles/banks-h...dmv-1542018600
Banks Have a Solution for Their Identity-Fraud Woes: The DMV
Big banks are enlisting the local DMV in their fight against identity fraud.
Lenders including JPMorgan Chase & Co., Bank of America Corp. , Wells Fargo & Co. and Citigroup Inc. are looking for ways to link up with databases at state departments of motor vehicles and other government offices to make sure potential customers are who they say they are.
Motor-vehicle departments are appealing partners for banks as more people are opening accounts online. At the DMV, applicants typically must appear in person, at least initially, with a stack of documents including birth certificates and social security cards that are verified by trained staffers.
Identity verification, a perennial problem for banks, has taken on greater importance since some high-profile data breaches exposed loads of customer data that fraudsters can exploit to open accounts. Banks also are looking for ways to combat a rapidly growing and particularly vexing scam that involves made-up borrowers.
If banks can enlist DMV help, they could see big savings. Financial firms globally spent $6 billion on identity-verification technology in 2017, according to consultancy Aite Group, a sum that’s expected to grow to $10 billion by 2021. Branch employees are still sometimes relied upon to gather much of the required documentation to verify a customer’s identity, making it harder for banks to pare physical locations and open more digital accounts.
The task is especially complicated in the U.S. While many other countries have national IDs, the U.S. relies on a patchwork of state and federal agencies to establish identity. Banks are working with technology vendors and other partners to coordinate their efforts across state lines.
“DMVs are the largest footprint for in-person identity proofing,” said Matt Thompson, who was recently hired from Capital One Financial Corp. to work on new forms of identification and bank-DMV partnerships for IDEMIA USA. “We can build on that to create a trusted digital identity for people who want it to be known on the internet that they’re not a dog.”
Privacy concerns may also stand in the way. Banks are wary of being caught up in debates about nationalizing state ID efforts. Some local officials, meanwhile, worry that states will be forced to bear responsibility—and potentially blame—for whatever consequences come from the use of licenses as bank identifiers.
“We were trying to keep kids from buying beer; now we’re talking about financial transactions using a smartphone and a driver’s license,” said Maine Secretary of State Matthew Dunlap.
Working with banks could provide a way for DMVs to preserve their role as critical identity gateways, especially in a world where fewer people drive. The fees from such a service could help cover the costs of technology upgrades.
Iowa Department of Transportation Director Mark Lowe said he regularly talks to financial companies about identity applications.
“I can’t guarantee in 30 years we’ll be dealing with driving in the same way, but I have a very good sense we’ll be involved in identity management,” he said.
A group of financial firms including JPMorgan, Wells Fargo and Bank of America earlier this year helped launch the Better Identity Coalition to push state and federal agencies to help them with identity verification. The organization is meeting with officials around the country, according to coordinator Jeremy Grant.
Banks also have stepped up their efforts to work with the Social Security Administration to check customer information. JPMorgan and Wells Fargo, among others, are working with the agency on ways to identify and cross-check customer information, such as whether a customer is deceased or is an active service member, when accounts are opened digitally, according to people familiar with the matter.
Congress recently smoothed the path for such partnerships. An overhaul of banking regulations enacted in May included a provision that guaranteed banks’ ability to use a digital image of a driver’s license, which some state laws could have prevented. It also required the Social Security Administration to offer financial firms an electronic database for verifying social security numbers for the purpose of fraud prevention.
“Digital evolution in banking is fantastic, but along with it has come increased incidence of fraud and identity theft,” said Josh Denney, director of government affairs for BBVA Compass, which helped formulate the license provision in the bill. “The new laws allow us to reach more consumers and also do more to prevent fraud.”
Some lenders already allow their customers to snap a picture of their license when opening a checking account on a mobile app. But that data isn’t checked definitively against a DMV database. Instead, the image is examined, sometimes by a person, to determine if it has the necessary authentication marks.
That may not go far enough, said Ian Grossman, vice president at the American Association of Motor Vehicle Administrators, which represents DMVs. “We know that high-quality counterfeit credentials are in circulation,” he said. “But one thing it will never have is the record at the issuing agency.”
Bank technology vendors such as Au10Tix Ltd., Mitek Systems Inc. and Socure Inc. already work with banks to scan driver’s license images and record the information.
Mr. Grossman said AAMVA is also working with vendors on expanding an existing network used by states to verify that a person doesn’t have a license elsewhere.
Banks would also pay states a fee to use the network. The Better Identity Coalition has also recommended a $200-million-a-year federal grant program to states, though it estimates the total cost of needed upgrades to exceed $2 billion.
Bringing that network up to speed will require some work. Today, 35 states participate, though not all of those states allow access for nongovernment usage. It is also not clear yet whether the technology can handle the volume of inquiries banks typically require.
Citigroup and other big banks worked with AAMVA, the Department of Homeland Security and a handful of states about six years ago to pilot an identity-verification service, using licenses and social-security numbers. The effort fizzled without supporting legislation that granted access to social-security data.
While the legislation passed by Congress in May should prevent more recent efforts from meeting a similar fate, it has its limits. The law requires banks to delete driver’s license images them after using them, making it harder for banks to study identity data or create their own databases using the information.