How Knowledge-Based Authentication Prevents Fraud and Identity Theft

Published by Merryl Dusaran on

How Knowledge-Based Authentication Prevents Fraud and Identity Theft

Companies, especially those that process payments via credit cards and digital wallets, invest a lot in measures designed to combat identity theft and fraudulent activities. At the same time, fraudsters also try to develop advanced mechanisms to hack their way through the system. While many industries fall prey to these thieves, the banking and finance industry has been at the forefront in developing and implementing stringent practices to secure consumer information.

Before the business world began to integrate technology into its financial systems, security measures were reliant on consumer-generated passwords, which are inherently weak because a little internet sleuthing will easily reveal the characters behind the asterisks.

Pretty soon, banks and other financial service providers wised up and begun adopting high-end identification verification methods, such as knowledge-based authentication or simply known as KBA. Knowledge-based authentication (KBA) is a security measure that verifies an individual’s identity through a series of questions whose answers are known only to that individual. Those specific, personalized security questions are considered “out of the wallet” questions that act as another layer of security to confirm the account’s owner is the exact same person who’s trying to access it.

Out of the Wallet Questions

This added challenge in the transaction is a marvelous technique to identify whether the person trying to access certain information is truly the owner, or otherwise a fraudster. Out-of-the-wallet questions are simply a string of questions that cannot be found in your wallet (in case it gets stolen and they could not use the information to answer the questions).

These are questions which only a consumer should know the answer to as it is designated to prevent identity theft and fraud. Examples of KBA out of wallet questions are “What country do you want to visit one day?”, “Who is your favorite relative?”, and “What is the name of your first dog?”

Out-of-the-wallet questions should not rely on publicly available information. Especially now with the rise of social media, everyone tends to post everything on the platform. With so much personal information online, the Federal Financial Institutions Examination Council (FFIEC) warns not to use the information that can be easily guessed or acquired from an Internet search.

Knowledge-Based Authentication versus Fraud and Identity Theft

Knowledge-based authentication is widely used in banks and other financial institutions. At some point in your online transactions, you probably have encountered KBA, like when you are setting up your account. This high-end authentication method provides confidence to both the business and consumers that data in the digital space is secure.

The KBA is considered as one of the best types of identity authentication across the industry. Since it is difficult to identify someone when you can’t see them, KBA provides a non-intrusive way to customer authentication whenever they are accessing their accounts online. Information is encrypted comprehensively until the user identifies themselves as the owner by answering the questions that are exclusive for them. Then, they can access the information or service after their identity has been verified.

When implemented correctly, KBA can be a strong form of login security and consumers can engage effectively with the right KBA questions. There are different ways of creating a comprehensive and proper implementation of the KBA solution. Multiple security questions and robust authentication and verification policies can be aspects of the maximum security and convenient customer experience.


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