Why Identity Safety Matters for Financial Health

Helping consumers with their financial well-being has been a marquee issue in the banking space for the last decade. After all, empowering consumers with the information and tools that aid their financial success is not only good for them — it is also for business.

Enabling consumers to access new financial products by improving their financial well-being is an easy strategic priority for banks. Unfortunately, the critical role that identity safety plays in financial wellness has been almost wholly overlooked.

That’s not to say that banks and credit unions don’t prioritize securing customer accounts or even touting their security – they do. But if they fail to integrate it with their financial wellness engagement strategy, that can be a potentially missed opportunity.

Making identity safety a key focus of its engagement strategy can preserve the ability of a bank or credit union to successfully support their account holders’ financial future, while simultaneously strengthening the organization’s potential revenue.

Connecting the dots of financial health and identity safety

While some might question how they are related, the relationship between identity safety and financial wellness is pretty straightforward.

Let’s start with the definition of financial well-being. The Consumer Financial Protection Bureau notes that it is measured by four criteria:

1. Control over one’s finances
2. The capacity to absorb a financial shock
3. Being on track to meet financial goals
4. The ability to make choices that allow one to enjoy life

Financial institutions have a fiduciary responsibility to encourage that financial well-being. Yet no matter how many traditional financial wellness apps and services are deployed by a bank or credit union, a single identity crime or compromise has the potential to undermine a consumer’s ability to meet any of those financial wellness criteria.

How identity crimes erode financial health

Given how our identities are integrally linked to our financial accounts, the misuse of a victim’s identity can take away any semblance of control over their finances while creating acute challenges to other areas of their financial well-being.

We can see examples of this by looking closely at different types of identity crimes. For example:

• An account takeover – where a criminal gains effective control of a victim’s account – can result in the often temporary, but sometimes permanent, loss of funds that subsequently reduces a victim’s ability to make necessary purchases, let alone absorb financial shocks.
• In the case of fraudulent new accounts, the impact on a victim’s credit could significantly limit their ability to meet key financial goals. If a fraudster opens a fraudulent credit account and doesn’t make payments, it is the victim who is penalized. Until the resulting identity and credit issues are resolved, the victim can face higher loan costs, problems purchasing a home or difficulty getting employed.
• Targeted scams might lead to victims mistakenly transferring their long-term savings to criminals – which dramatically alters the ability of consumers to enjoy the lives they planned in retirement. Such an incident can either delay when victims retire or, worse yet, forces those already retired to reenter the workforce.

The risk posed by those identity crimes is not hypothetical. Javelin reports that identity fraud scams resulted in $43 billion in losses to consumers in 2022 – and that number is not just of concern to scam victims.

Financial health of individuals benefits the institution

Ensuring the financial well-being of bank customers or credit union members has traditionally paid dividends to the institution. After all, financially healthy individuals make for better borrowers and are more likely to increase their share of wallet over time.

Yet the increasing threat of identity fraud scams gives financial institutions an additional reason to ensure consumers are engaged in their identity health. Guidance from the CFPB will likely limit the ability of financial institutions to deny reimbursement to fraud victims unless there is clear evidence they knowingly colluded in the scam.

Unless they want to contribute to the billions lost each year, FIs need to connect consumers with the insights and tools needed to avoid identity fraud scams.

Opportunity to act

Incorporating identity health into its engagement strategy enables an institution to deliver on its fiduciary responsibility to promote the consumer’s financial well-being, strengthens the long-term relationship with that individual, and secures both parties against the risks posed by identity fraud.

By prioritizing the need to connect bank customers and credit union members with the right tools and messaging, we can motivate better security behaviors – bolstering their identity safety and improving their ability to bank, borrow, and save.

It’s hard not to see the value in that opportunity.

To learn how delivering AI-driven insights and personalized recommendations help financial institutions strengthen the financial well-being and security engagement of consumers, you can explore the details of our BreachIQ™ solution.