By Guillaume Deybach
Identity theft is widely and correctly viewed as an insidious crime, wherein a person’s good name and financial standing are tarnished, often through the criminal misuse of credit and debit cards. But many of the programs and insurance policies designed to protect a person against the ravages of identity theft are extremely limited in scope. These protection schemes limit out-of-pocket liability and offer little or nothing more to the victim.
Now, ensuring that a person’s monetary losses in the event of identity theft are limited is a very good thing. According to a recent insurance industry study, typical identity theft losses can be in the thousands of dollars. Any protection mechanism that caps these losses at $100, for example, is laudable. This is the reason so many banks offer this kind of protection to their credit and debit card customers. But once the bleeding has stopped, damage to the victim’s good name and financial standing remain and must be corrected. Financial losses are the proverbial tip of the iceberg; restoring creditworthiness is the lumbering behemoth just beneath the surface.
In a May 2005 report, the U.S. Federal Bureau of Investigation (FBI) said that in addition to the financial losses associated with identity theft, “The individual victim of the identity theft may experience a severe loss in their ability to utilize their credit and their financial identity. This loss can be short in duration or may extend for years. It may result in the inability to cash checks, obtain credit, purchase a home or, in the most insidious cases, the arrest of the individual for crimes committed by the identity thief.”
To further paint an unattractive picture, identity theft is one of the fastest growing crimes today. The FBI said that identity theft is “a significant and growing crime problem,” that victimizes 10 million or more persons a year in the United States and costs American business more than $50 billion a year. These are fairly current figures, and this is a very fast-growing crime.
Banks Should Be Concerned
U.S. banks, leading issuers of credit and debit cards, have at least five reasons to address the identity theft issue. First, the competitive financial services market requires it as a cost of entry. If a competing issuer of credit cards limits its customer’s identity theft losses to $100, the progressive bank will either offer equal protection or differentiate itself by limiting customer losses to something less than $100.
Second, banks are often the last line of defense between identity thieves and their victims. As such, they can be viewed as carrying a moral responsibility to protect consumers from ID theft. While there may be no legal or financial liability involved with this perception, there is a potential market liability. Again, to remain competitive, banks must show themselves to be more suitable financial partners than their competitors. Offering a greater relative degree of security can go a long way toward cementing customer relationships.
Third, bank personnel will ultimately be involved in helping their credit and debit card customers recover from the ravages of identity theft. Employee time spent on these matters cannot be spent on other matters. It may be hard to measure, but overall bank efficiency (and thereby profitability) are degraded somewhat in this way by the identity theft issue.
Fourth, another efficiency issue is tied to bank employees who themselves become victims of identity theft. Among working Americans, it is likely that as many as one in 10 people have had their identities stolen. A typical identity theft victim will spend as many as 600 hours over the better part of a year working to resolve issues related to a single case of identity theft. Those 600 hours should be a huge concern for any employer. Identity theft-related customer service at the credit card companies and credit reporting bureaus is often only offered “during regular business hours.” So individuals often must take time during their workdays to resolve these issues, diminishing their productivity. Not to mention the personal anxiety that accompanies identity theft, the impacts of which can sometimes take up to a year or more to resolve.
Fifth, as institutions that hold confidential customer data in their file cabinets and databases, banks have a very real legal responsibility to protect these data. Should a bank employee be implicated in an identity theft case for having mishandled customer information, the bank may well be held liable.
What a Bank Should Do
In light of the competitive, operational and legal concerns associated with identity theft, banks do well to stand against this crime in whatever ways are feasible.
Legally, banks are well equipped to protect themselves, their customers and their owners from becoming legally entangled in identity theft. These actions include taking the operational steps to ensure the ongoing confidentiality of customer data. So taking steps against identity theft on the competitive front is perhaps the area where banks can make the greatest amount of progress.
Banks and other issuers of credit and debit cards have begun offering enhanced forms of identity theft protection to their customers. One available product protects customers against many of the hidden costs of identity theft, those being the time, effort and money spent repairing one’s credit history after the identity theft has been successfully foiled.
For example, ID Theft Resolution Services from Worldwide Assistance helps victims recover from identity theft by assigning a specially trained coordinator to work with them toward a complete resolution. The coordinator personally assists the victim by doing the necessary paperwork, making appropriate phone calls and completing other restoration activities, such as credit report reviews, account cancellations, disputed items removal and more. This frees the identity theft victim to worry less and focus on existing responsibilities, instead of the task of restoring his or her good name. This package of services can be offered by the card issuer to differentiate its credit or debit products from those of the competition.
Other competitive solutions are continuing to emerge and banks should consider all such differentiators to not only address the social and moral issues surrounding the battle against identity thieves, but also to solidify their customer relationships.
As former Federal Reserve Chairman Alan Greenspan said, “Even in the face of consolidation, competition is fought on the battlefield of the local market, where most households obtain the majority of their banking services.”
The identity theft problem is real. Competitive pressures for banks increase regularly. By utilizing existing and emerging products that help minimize the impacts of identity theft, banks can not only compete better for valuable customer relationships, but also demonstrate continuing leadership in the community.
Guillaume Deybach is president and CEO of Worldwide Assistance (worldwideassistance.com), the United States office of Europ Assistance. Worldwide Assistance’s ID Theft Resolution Services help financial institutions by allowing current and existing customers to gain added protection and assistance around ID theft.
Copyright 2007 The Warren Group