Breakthrough Ideas 2006

It’s another way for scammers to commit fraud: they call your bank or credit card company, give your name, Social Security number, and account information, and tell them you’ve moved. Then they ask the institution to send a new card or more checks to your “new” address. When the materials arrive, the scammers go shopping—about $40 billion a year.

Adam Elliott and Bob Clark, veterans of the fraud protection field, realized that this was the direction identity theft was heading. They left their management positions with eFunds Corporation and started ID Insight in 2003. Their aim was to create fraud-busting products that help financial institutions, credit card issuers, and others stay on top of this emerging form of identity theft.

The pair developed a technology called “address differential analysis” that allows institutions to zero in on the most likely instances of fraud. For example, John Doe lives in a 3,500-square-foot house in the suburbs, but he’s called in an address change to an 800-square-foot vacant lot in another state. Armed with that information, the bank can spend more time verifying the address or closely watch the account.

Using demographic information from the U.S. Census and other databases, ID Insight’s system allows financial institutions to quickly hone in on the most suspect address changes. The riskiest 20 percent of address changes is the culprit in roughly 60 percent of a company’s fraud, explains Elliot, who is president of ID Insight in St. Paul. “When we share this with any card issuer or solution provider, they say, ‘Why haven’t we thought of this?’ ” says Elliott. “It is elementary and it also takes a bit of a leap of faith.”

ID Insight already has one major client and partnerships with Fair Isaac and eFunds. Additionally, President Bush recently signed a new law that requires financial institutions to “red flag” accounts when a customer changes an address and also asks for a new card. That’s exactly what ID Insight’s systems help institutions to do.

“When we got together in 2003, we realized how potentially important this system was and that it didn’t exist,” says Elliott. “We spent a lot of time, money, and resources on developing our systems and patent positions. Every bank in the country will have to do this.”