There has been a 25% decline in the total mail volume for the USPS (United States Postal Service) from 2006-2011, resulting in a $5.1 Billion loss in 2011 alone. Since 2007 the USPS has been unable to cover its annual budget, 80 percent of which goes to salaries and benefits. In contrast, 43 percent of FedEx’s (FDX) budget and 61 percent of United Parcel Service’s (UPS) pay go to employee-related expenses. The USPS has 571,566 full-time workers, making it the US’s second-largest civilian employer after Wal-Mart. It has 31,871 post offices, more than the combined domestic retail outlets of Wal-Mart, Starbucks, and McDonald’s. It’s also more than double the number of branches of the combined retail distribution points of Wells Fargo, Chase and Citibank. The problem is that 80% of those USPS offices lose money annually.
Why the decline?
The decline in first-class mail in the US has accelerated in recent years. The USPS relies on first-class mail to fund most of its operations, but first-class mail volume is steadily declining—in 2005 it fell below junk mail for the first time. The USPS needs three pieces of junk mail to replace the profit of a vanished stamp-bearing letter.
Junk Mail, or as Advertisers call it “Direct Mail”, promotion is rapidly declining with projected declines in the range of 39-50% estimated for the period 2008-2013.
Email, Internet Bill Payment and Statements, SMS alerts, and other information delivery mechanisms are much more timely and cheaper than “Snail Mail” today. Environmental awareness and ‘do not mail’ lists have contributed to the decline also. The couponing business, which has supported the ‘junk mail’ industry for the past two decades in the US, has been decimated in recent times by the daily deals industry. Jeff Jarvis predicted this shift back in 2009.
It shouldn’t be a surprise that the USPS is in major trouble.
What does this have to do with banking and IDV?
At least 80% of non junk mail I receive these days is from financial institutions that I have a relationship with (an even then it is often bank ‘junk mail’). This is despite my best efforts to eliminate snail mail as a formal method of communication with those service providers I choose.
Most banks still ask me for my address, and require verification of that address through some utility bill. This is a requirement of most regulators too.
The problem is – no bank has ever, as far as I know, actually verified my address is real. In theory, a utility bill is one of the easiest documents to compromise via identity theft, and/or fake with photoshop and a laser printer.
Why do banks collect my address?
The initial reason had nothing to do with regulatory requirements. The main reason initially was to send me my replacement cheque book, or send my regular monthly statements. Today, with snail mail all but disappearing, why do I still need to verify my address with the bank? I actually don’t want the bank sending me snail mail, and my physical address has nothing to do with my ability to pay for credit or the likelihood of anti-money laundering.
From a compliance perspective, sending you physical mail is one of the riskiest activities a bank can undertake today, because not only is it not secure – it actually increases the likelihood of fraud. If there wasn’t a legacy snail mail process, it is unlikely in the extreme that compliance would approve a process as risky as snail mail today.
Do we need an address?
Today your address is just a common data element shared as part of your profile. It is insecure. It can be easily compromised. It bears no relevance to the likely risk or otherwise of your suitability as a customer. It is unverifiable.
It doesn’t make sense to have address verification associated with a customer from an identity perspective.
There must be a better way. Why not use the guarantor method? Why not get trusted associates to vouch for you, as they do with new social networks likeConnect. Why not ask a new applicant to get an existing customer of the bank to vouch that he is real, and trustworthy? Why not take a photograph of the applicant and match their picture to their drivers licence or passport photo using facial recognition, along with cross-checking a government database?
There are a dozens of activities I could undertake which are safer, more reliable and more verifiable than a physical address.
Identity doesn’t need an address. Identity is about verifying you are real, and an address doesn’t do that.
Keep it as a data point, by all means. But let’s stop kidding ourselves that an address is a requirement for KYC.