Identity fraud is becoming an increasingly urgent challenge for businesses worldwide. As digital transactions surge, fraudsters are exploiting security gaps to bypass traditional defenses. The financial and reputational impact on organizations is significant, with many facing rising fraud-related costs and operational risks.
Let’s explore the key drivers behind this trend, its financial consequences, and the role of identity verification (IDV) in mitigating these risks. With insights from The Future of Global Identity Verification, a 2025 report co-authored by Entrust and Docusign, we’ll also examine how you can strike the right balance of security and customer experience.
The increasing threat of identity fraud
According to the report, 69% of organizations agree that identity fraud attempts are on the rise. While there’s no single cause behind this surge, a few common themes come into play across the globe:
- More transactions happening digitally: As businesses shift toward digital-first operations, fraudsters have more opportunities to exploit online interactions. The increasing volume of digital transactions has made it easier for bad actors to commit fraud at scale, especially in industries like finance, e-commerce, and insurance.
- Outdated identity verification (IDV) technologies: Many organizations still rely on legacy authentication methods, such as passwords and knowledge-based verification (e.g., security questions), which fraudsters can easily bypass.
- Lack of awareness of best practices: Many organizations said that their customers being unaware of fraud-prevention best practices is a big factor. Without proper education on secure authentication methods, users may fall victim to phishing attacks, social engineering scams, and other tactics.
Common forms of identity fraud
Respondents report the following types of fraud most often:
- Identity theft: Fraudsters steal personal information – such as Social Security numbers or banking details – to impersonate victims and commit financial crimes.
- Account-creation fraud: Criminals use stolen or fake identities to open new accounts, often to exploit promotional offers, access credit, or launder money.
- Digital document forgery: Artificial intelligence (AI) makes it easier to create fake IDs, passports, and other documents, enabling fraudsters to bypass weak verification systems.
- Chargeback fraud: Also known as "friendly fraud," this occurs when a customer makes a legitimate purchase but later disputes the charge to get a refund while keeping the goods or services.
Unfortunately, fraud will only become more common as attackers increasingly leverage AI. Entrust’s 2025 Identity Fraud Report found that digital document forgeries – typically created with generative AI – increased 244% in the past year. In addition, there has been an emergence of deepfakes, making traditional verification methods less effective. Deepfakes now account for 40% of all biometric fraud.
The financial impact of identity fraud
The cost of identity fraud is staggering, with businesses worldwide absorbing significant financial losses. According to The Future of Global Identity Verification, 41% of the organizations surveyed estimated direct fraud-related costs exceeding $1 million annually, while 15% estimated at least $1 million in indirect costs, such as reputational damage and operational disruptions.
Larger organizations – those with 10,000 or more employees – bear the brunt of these losses, as fraudsters target enterprises with high transaction volumes. Beyond immediate financial setbacks, businesses also face rising fraud-related chargebacks, increased compliance cost, and the risk of eroding customer trust.
Identity verification as a critical defense
IDV plays a vital role in detecting and preventing fraud at key stages of the customer journey:
- Account creation: Fraudsters often use stolen or synthetic identities to open new accounts for financial gain. IDV solutions, such as biometric authentication and document verification, help businesses confirm that new users are legitimate before granting access.
- Login: Advanced IDV methods – including multi-factor authentication (MFA) and liveness detection – provide an extra layer of security, ensuring only authorized users can access their accounts.
- Payment authorization: Implementing IDV at the payment stage – such as requiring biometric verification or real-time risk assessments – helps prevent unauthorized purchases and reduces fraud-related costs.
Modern IDV solutions are more robust than traditional methods. According to the survey, respondents view username-and-password authentication as the weakest tool, whereas facial biometric and liveness detection are considered the safest.
Why? First, consider the downfalls of password-based authentication. According to a 2024 SpyCloud report, 74% of people exposed in multiple breaches in the past year reused passwords across multiple accounts. Reuse means if credentials are compromised once, an attacker can breach any account sharing the same login information.
By contrast, multi-factor authentication (MFA) adds layers of protection that can stop hackers from accessing accounts, even if they obtain a username and password. Biometric verification adds even more assurance, leveraging facial recognition or fingerprint scanning to help ensure that someone is who they claim to be. These identity details are hard to replicate, making them a key defense against fraud.
The ROI of IDV
Investing in identity verification isn’t just about security – it’s a strategic financial decision. Organizations prioritizing IDV see significant cost savings, with 52% estimating annual fraud-prevention savings exceeding $1 million, and average savings reaching over $8 million. Companies that invest heavily in IDV are also 2.2 times more likely to see cost savings of over $1 million compared to those who invested the same or less than their peers.
Beyond direct financial benefits, stronger IDV leads to:
- Reduced chargebacks
- Fewer fraud claims
- Improved customer trust
- Better brand reputation
Balancing fraud prevention and customer experience
While 79% of organizations say customer experience is critical to their success, 66% acknowledge that fraud prevention and customer experience are competing priorities. Also, 58% worry that stronger security measures could frustrate customers and lead to abandonment.
However, modern IDV solutions can enhance both security and user experience by:
- Reducing onboarding friction: Automated IDV, such as biometric authentication and document verification, streamlines the process while ensuring security.
- Minimizing false positives: AI-driven risk assessments help businesses detect fraud without blocking legitimate users.
- Building trust and loyalty: Customers feel more secure when organizations prioritize strong authentication, reinforcing confidence in digital transactions.
By adopting frictionless yet robust IDV solutions, businesses can prevent fraud without sacrificing user experience, ensuring a smoother and safer journey for customers.
The future of fraud prevention in the financial sector
As fraud tactics evolve, organizations are doubling down on advanced security. 74% of businesses plan to increase their IDV spending, recognizing the need for stronger fraud defenses that don’t compromise customer experience.
Key innovations shaping the future of fraud prevention include:
- AI-driven fraud detection and risk-based verification: Machine learning models analyze behavioral patterns in real time, flagging suspicious activities more accurately while minimizing false positives.
- Biometric authentication: Fingerprint scanning, facial recognition, and liveness detection offer stronger, frictionless verification compared to traditional passwords or knowledge-based authentication.
- Generative AI for ID verification: AI-generated deepfakes are becoming a serious threat, but the same technology is also enhancing fraud detection, improving document verification, and strengthening biometric analysis.
Key takeaways
With fraud rising, businesses must take proactive steps to strengthen their defenses. Investing in modern IDV technology is no longer optional – it’s essential to protecting customers and preventing financial damage.
IDV not only protects against fraud but also enhances the customer experience, reducing friction throughout the consumer journey. The financial sector stands to benefit greatly from today’s advanced solutions, especially AI-driven fraud detection.
Want to dive deeper into the latest trends and IDV strategies? Download The Future of Global Identity Verification .
