One of the Internet’s premier advantages is its ability to enable connections across the globe, regardless of physical location. Online traffic can come from anywhere in the world, an advantage for sales and marketing teams who want to increase the range of their brand awareness as much as possible. Unfortunately, what represents an advantage for outreach can be a challenge for fraud prevention teams: bad traffic can also come from anywhere in the world.
Where users are says a lot about who they are. Preventing fraud is just one of many reasons why location data matters for consumer internet companies with an online presence. Using location signals to confirm location for logistics and shipping is another. Companies use two main types of software to accomplish these two goals: address validation and address verification.
Address validation only confirms that a given address is real and deliverable for shipping and logistics purposes. Address validation software may include features like correcting incorrectly entered customer addresses and “cleaning” or standardizing address data. This type of software is used by consumer internet companies in ecommerce and financial services to reduce customer frustration and the logistical challenges caused by incorrect shipping information.
Alternatively, address verification software not only confirms that an address is real, but also seeks to confirm that the address is connected to the individual providing it, making it one component of an identity verification flow. Whereas address validation may rely on a database from the USPS or other international postal service to confirm the mailing address exists, address verification is more likely to rely on an identity database, like those maintained by the DMV or credit reporting bureaus. As an early line of defense, address verification can help reduce fraud occurrences by making it more difficult for bad actors to fake their identity.
Address validation typically uses software that makes an API call to a database maintained by a postal service, like the USPS, or a private company in countries with no national address database. When a user enters their address information, the software cross-references it against the database to confirm that the address both exists and was entered correctly.
Address verification software also uses identity databases to verify an address. As mentioned above, address verification solutions are more likely to leverage databases maintained by credit bureaus or government agencies, like the DMV, rather than the postal service alone, as the address data maintained by these organizations can authenticate identity information. Because address verification is used for security purposes, it is held to a higher accuracy standard.
The database approach can pose a problem for address verification in coverage and recency. For example, in the United States alone in 2015, an estimated 26 million Americans were “credit invisible,” meaning they had no data registered with any credit authority. Recency is another issue; though the software-made API calls are instant, these databases are only updated periodically, and both software vendors and customers have no control over how often these updates occur or how accurate they are.
Another common address verification route is via proof of residence documentation. In this method, users are asked to submit photos of documents like leases and utility bills and photos of a government-issued ID to confirm identity and address. Though this method can produce accurate verified addresses, it can also increase user frustration significantly due to the extra steps, onboarding time, and privacy incursions involved. Additionally, if manual document review is required, this approach can significantly raise onboarding costs for companies.
More recently, real-time location data has been used to develop new address verification methods. Real-time address verification uses location signals, such as GPS, WiFi, and Bluetooth, to capture live data from a user’s device and compare it with the provided address information to assess risk. If the provided address data matches the real-time location data, users can be verified automatically without additional friction. In fact, 85% of people open new accounts, transfer funds, and complete other sensitive transactions from a trusted location, like their home or work, increasing the relevance of this signal for fraud and risk mitigation. Additionally, the precision of this location technology and features like tamper-resistance, make real-time address verification a strong behavioral risk signal.
If the goal is to add an identification signal, perhaps to strengthen a KYC process or improve Trust & Safety initiatives, companies should evaluate address verification solutions over address validation tools. Depending on the industry, address verification is used in a number of different ways to prevent fake account creation.
Anti-money laundering laws require financial institutions to follow KYC or “know your customer” protocols. Simply put, banks and other financial organizations are responsible for ensuring they aren’t doing business with known criminals or money mules. Address verification can help lower identity verification costs by quickly ruling out prospective customers who input fraudulent or unreliable address information. By eliminating these bad actors in the early stages of account opening, more time and resources are focused on verifying good customers.
Address verification can also have a positive effect on fraud prevention for financial institutions. By comparing real-time location data with the address information provided at onboarding, companies can improve detection of identity theft and attempts to create fake accounts. Similarly, a real-time address verification signal that is tamper-resistant can be used at login and continuously throughout the user journey to ensure that logins and transactions are not occurring from a location that is unfamiliar. If a customer has provided an address based in Utah and has transacted from there for years, but then suddenly the account is accessed from Moscow, and a larger transaction is attempted, it’s clear suspicious behavior is occurring.
P2P marketplaces like Craigslist and Facebook Marketplace can be excellent resources for people looking to buy and sell locally, but they can also be vulnerable to a broad range of scams. Fortunately, verifying the addresses of marketplace users can go a long way in reducing scams and other abuses.
The online-to-offline nature of P2P marketplaces broadens the range of Trust & Safety issues that can occur. By leveraging address verification as an upstream risk signal, marketplaces can catch suspicious behavior and cut down on the costs and time associated with other content moderation approaches.
Address verification can also help these types of marketplaces improve their payment approval rates by offering an additional signal for authentication transactions. Incognia CEO and co-founder Andre Ferraz explains how Incognia helped a marketplace achieve this in this clip:
The ability to meet and communicate with people online, regardless of where they are located, is one of social media’s most compelling features. However, it also creates opportunities for scams and fraud. People who use social media platforms, especially online dating apps, are often looking for human connection. Unfortunately, that characteristic is what bad actors will exploit if platform administrators don’t take preventative measures.
Verifying new users on dating apps, including via address verification, is one of those preventative measures. Depending on the security needs of the platform, some form of identity verification might even be mandatory at onboarding. Even when ID verification isn’t required, however, even just giving verified users special badges can help encourage the user base to verify their identities and be cautious when dealing with unverified users they have never met.
Because address verification is a much more thorough identity signal than address validation, it’s also more expensive. This type of investment is a cost of doing business for a company in the verticals mentioned above, but that doesn’t mean that every industry requires such a rigorous identity verification process. For some verticals, a simple confirmation that mailing addresses are valid is sufficient.
Delivery issues can rack up significant shipping costs and customer service challenges for an ecommerce business. Address validation software can help prevent wasted resources by double-checking address information with a postal address database to ensure the delivery will be successful. By prompting customers to make corrections where necessary, ecommerce companies can save on both money and prevent the reputation issues that could arise from poor customer experiences.
Similarly to the ecommerce use case, logistics companies have a vested interest in ensuring that shipments arrive safely and correctly to their intended destinations. A quick address validation check on outgoing mail or shipments can help catch mistakes before the postage is paid.
Though they both deal with addresses in the real world, address verification and address validation have different practical applications. While validation only seeks to confirm that an address exists and is deliverable, verification is part of a larger effort to verify identity and promote trust and safety.
Financial institutions, P2P marketplaces, and dating and social media apps are just a few examples of business types that can benefit from address verification as an upstream risk signal. For other verticals, like ecommerce and logistics, using address validation to confirm delivery information is a better investment.
Readers interested in learning more about the efficacy of real-time address verification can find a case that highlights how Incognia helped a marketplace app increase its verification rate globally.