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How Banks & Credit Card Companies Verify Identity Online

If you’ve ever applied for a new checking account or credit card online, odds are, in the back of your mind you thought, “How do they know it’s me who’s applying?” All of us have wondered that at some point. After all, walking into a branch and showing our driver’s license is a breeze. Flashing our pearly whites to show it’s the same person flashing those same pearly whites in the driver’s license photo isn’t possible online at 3 a.m. when you wake up in a cold sweat and realize you’re paying too much interest on your Visa card.

Things have changed over the past two decades when we began taking care of business online (doesn’t seem that long ago, does it?). The benefits and perks are still awe-inspiring and the hacks and thieves still strike fear in the hearts of all of us. So how does MasterCard know it’s actually you applying for one of its partner’s credit card offers?

First, Verify Your Identity

Just like every other financial application you fill out, whether it’s online or in person, the first stop along the info gathering highway are the credit bureaus. That proverbial highway may loop back around before its journey is finished, but immediately, the priority is to ensure the social security number you provided actually exists and that it belongs to a 35 year old woman who’s lived in the same region the address is on the application.

All three credit bureaus weigh in. Rarely does the information match verbatim, but hey, it’s a start, right? This is an inexpensive way to ensure the credit card company, bank or even insurance company isn’t wasting its time. This is also where many problems emerge for younger applicants, immigrants or those without much of a digital presence. If that’s the case, then the request takes an exit on that highway and visits other sites that might have the information.

This, by the way, is a bit mind boggling. As far as many consumers are concerned, the three bureaus having access to their information is more than enough. To realize that first, any of the bureaus don’t have the information needed is bad enough, but then to realize that it exists, but that the bureaus don’t have it and instead, other companies do, is just a bit much for many consumers. Still, if and when those dynamics are present, companies like RSA and LexisNexis are brought into the picture. This is where what’s known as alternative data sources are found. Phone bills, rental payments, past lawsuits, property deeds – even marriages and divorces – are found in these datasets. If it’s public record, it’s here.

Processing Your Application

Next, and remember, this is all taking place within seconds – you’ve seen the “Please don’t hit the back button while we process your application” warnings – there are identity checks going on too. Mostly, it’s looking for any kind of red flags. If you’re on the government’s terrorist watch list, for instance, could present more than a few problems. There’s a good chance, too, that the FBI’s Most Wanted list is consulted as well. If your application is coming from a foreign ISP address, you might receive a “We cannot process your application at this time” message.

Once those checks and balances have been conducted, then a visit is made back to the credit bureaus to see how well you’ve paid your bills in the past, if you have too much credit, if you’ve had a bankruptcy or foreclosure or if you have a history of going over the limits on your credit cards.

This is all conducted within seconds and if everything is on the money, you’ll see a message along the lines of, “Congratulations. We’ve approved your application”. But even then, there’s more you need to do to prove your identity. So, basically, your account is approved if you follow the next steps of agreeing to different contractual terms and what’s known as a final stage questionnaire. You might be asked what street you lived on ten years ago or it could be a multiple choice question: In 1986, did you live in New York City, Montgomery Ala or Houston Tex. These are questions that are considered “out of the wallet”, meaning it’s not information an identity thief can find on your driver’s license or any of the information contained in a stolen wallet or identity.

It’s Not Perfect

It’s not a perfect science, but it works and when it doesn’t, banks, credit card companies and other businesses will err on the side of caution and request more information in a more traditional setting – such as speaking with a live operator or being asked to wait for documents in the mail, fill them out and then return them. Of course, that makes the convenience factor of applying for financial accounts online rather moot, but it’s the best we have at this point.

Will it continue to emerge? Absolutely. Will we have more opportunities to do even more online when it comes to our finances? Every day, new technology is introduced and if you’re wondering if there are threats to using these conveniences, the answer to that is yes, as well.

Consider all of the attacks our banking and financial structures have endured in recent months. The collective security communities are getting much better at identifying problems within the infrastructures and as a result, they’re better able to take proactive steps instead of reacting to an attack after it’s occurred. The problem is, as security efforts evolve, so do the hackers. The good news, though, is that we, as consumers, aren’t being asked to shoulder those burdens. It’s why we’re so drawn to credit card offers with zero fraud liabilities. It’s why our banks reiterate their commitment to no financial burdens placed on us if their systems are hacked.

How much of your life is online? Do you trust the only application process? Would you be comfortable reverting back to the tried and true “visit your local bank branch to apply for the new credit card”? Share your thoughts on our financial technology.

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