In March of this year, GIACT, a leader in helping companies positively identify and authenticate customers, announced a new report, Undeliverable as Addressed: The Staggering Cost of Returned Mail and How Proactive Identity Monitoring Can Solve the Problem. This report focused on the costly problem of returned mail as a result of deficient identity management and highlights the volume of consumer change events and the difficulties associated with keeping up-to-date consumer profiles; the compliance issues that follow undeliverable as addressed items; as well as best practices for implementing a proactive identity monitoring approach to streamline compliance and drastically reduce the number of returns.
According to the report, returned mail can cost businesses up to $25 per returned item, which includes the additional effort required to correct the mistake and resend the item. Overall, according to the United States Postal Service, returned mail costs the mailing industry – a cost passed down to the originator, i.e., the business sending the mail – an estimated $20 billion annually. What is more, returned mail should be considered an identity theft red flag, triggering the sender to investigate and revalidate the customer to ensure KYC and the FTC's Red Flag Rule compliance.
Mailing Systems Technology sat down with Clint Tenney, EVP, Client Acquisition & Consumer Support at GIACT, to discuss these findings more in depth.
Q: What makes returned mail such as issue?
A: Returned mail comes at a massive cost. Our research suggests that a single returned item can total up to $25 in ancillary costs. Extrapolating even a low double-digit rate of return, the overall costs of returned mail can be staggering.
The biggest issues of returned mail, however, are the regulatory and compliance problems that follow. By law, many businesses need to know their customer’s home address (a part of “Know Your Customer” or KYC rules), along with other important personally identifiable data. KYC requires that applicable businesses process and verify the identity of their customers at account opening and periodically, including change events. When a mail item is returned, it’s a red flag – indicating that something in the customer’s personally identifiable information is incorrect. The sender is then liable, under penalty, for revalidating the customer.
Q: What role does identity management play in returned mail?
A: Identity management is key to understanding who your customer is and where they reside. There are two approaches to identity management that factor greatly into returned mail: proactive identity monitoring and reactive identity monitoring.
Returned mail is often the result of a reactive approach. The mark of a reactive approach is when a business is made aware of a change in address only after the mail item is returned. Conversely, a proactive approach to identity monitoring includes validating identity on an ongoing basis, as change events (including address) occur – also known as managing the customer lifecycle. This is usually done by using some sort of third-party service to validate identity.
Businesses that can effectively manage the customer lifecycle can drastically reduce instances of returned mail because they’ve processed changes before an item is sent. What is more, businesses that can apply good identity management practices can also significantly reduce fraud. (Returned mail is not only the result of a legitimate address change; it can also be that the “customer” is a fake identity being used to perpetrate some sort of fraud.)
Q: What weaknesses exist in some current identity management programs?
A: Many businesses today continue to apply a reactive approach to identity management which can play a big role in returned mail. Regardless of approach, however, the biggest weaknesses in most identity management programs include the following: the quality of data and how identity risk is reported.
Businesses that want to stem instances of returned mail, and fraud, need to apply the most up-to-date, diverse data. By triangulating not only the name and address, but a wide range of personally identifiable information (PII), businesses can more accurately know their customer. This requires sourcing data from a third-party that is continually pulling and cross-examining the PII of your customer with a diverse set of inputs.
Another key weakness is the reliance on risk scoring to manage identity. With risk scoring (i.e., a number or letter system that displays identity risk) there’s no way to differentiated specific data. The result of that is that you don’t know which piece of PII is right or wrong. To reduce instances of returned mail, businesses need to be able to pinpoint which piece of PII is incorrect and adjust accordingly.
Q: How can companies better manage the identities of their customers? How will this translate into reducing instances of returned mail?
A: Businesses can better manage the identities of their customers through proactive lifecycle management and clearer insight into their customers’ PII. What is more, businesses need to be alerted to specific changes in name and address, for example, from quality, up-to-date third-party sources, so that they can investigate those changes and update their customer’s profile accurately.
Doing so will result in a more accurate customer profile – leading to less returned mail, less fraud, and a better customer experience.
Q: Can you explain the relationship between returned mail and the Customer Identification Program?
If a company is required to abide by the Customer Identification Program (CIP), a returned mail item can be a real problem. Under CIP, applicable financial institutions are required to meet certain identity standards. Returned mail puts the institution under a regulatory clock wherein the returned item acts as a red flag – once the institution is notified of the return, they typically have 45 days to revalidate the customer or they might be required to freeze or shut down the account.
Q: Can you explain how companies can monitor change events as they occur?
A: To monitor change events as they occur, businesses need to apply a proactive monitoring solution, i.e., subscribe to a technology provider that can monitoring specific PII and notify the business accordingly.
Certain technology providers specialize in scrubbing customer lists (adding net new customers on an ongoing basis) and notifying the businesses of change events (including address). For the most accurate, up-to-date, picture of your customer list, this scrubbing of information should be done on a daily basis and against several unique sources.
You can view the full report by downloading the white paper here.
