Do You Need Real-Time ID-Theft Protection?

Even as the effectiveness of credit monitoring services comes under fire, some of the same companies are pushing a new generation of personal data tracking: identity theft protection that involves real-time monitoring of your most important information.

Here's how it works.  Companies that track personally identifiable information, or PII, contract with third-party database providers and track any activity that involves a consumer's name, address, date of birth or Social Security number.  Some services also scour web sites where such information is illegally traded.  Providers say that these services -- which can cost between $9.95 to $29.95 a month -- have the potential to catch identity fraud before it has occurred, thanks to the ability to monitor PII activity in real time.  Credit„monitoring, in contrast, alerts consumers after their information has already been misused -- one of the main reasons why the products have been criticized by consumer advocates.

While there is no hard data on exactly how many companies are offering real-time monitoring of personal data, two of the three large credit bureaus -- Equifax and Experian -- as well as at least one lender, Bank of America, and third-party vendors like LifeLock and IdentityGuard are already selling the service.  "In the past year, there's really been an explosion among vendors offering PII monitoring," says Rachel Kim, an analyst with Javelin Strategy & Research and author of two comprehensive reports on identity protection services released in 2009 and 2007.

Providers hope that PII monitoring helps attract consumers who have been disenchanted with traditional credit-monitoring products.  "These companies are struggling to keep their revenue up and to keep their customers because consumers realize credit-report monitoring is not all that effective," says Avivah Litan, a vice president and security analyst at technology-research firm Gartner.

But it is also adding to privacy advocates' concerns over the growing prevalence of personal-information dossiers: huge databases of consumers' personal information that can be used by lenders, marketers or any other service provider willing to pay the 50 cents to $2 charge per transaction to have it scored for the likelihood of fraud.

Most lenders already engage in such real-time monitoring of consumers' personal identity information by calculating identity scores that rate the likelihood that a specific credit transaction or application is fraudulent.  (If you've ever had to answer seemingly random identity-verification questions, such as the house number where you lived 10 years ago or the issuer of the mortgage on your first home, chances are your credit„application was flagged as a potential fraud.)

PII monitoring services are making this technology available to consumers, as well.  "We are using technology that has helped many of the Fortune„500„companies detect fraud activities in real time," says Todd Davis, the chief executive officer of LifeLock.

A big catalyst for the growth of PII monitoring was a lawsuit Experian filed against LifeLock in 2008, aiming to prevent LifeLock from placing or renewing fraud alerts on consumer credit files.  (Experian claimed that consumers should not have to pay $10 a month for something they could do on their own.)

By the time the lawsuit was settled in October, LifeLock had already switched to monitoring its customers' personally identifying information.  (As part of the settlement, it will no longer place fraud„alerts.)  Many of its competitors have followed suit.  "Now that fraud alerts have been deemed something that only consumers can do, the attention is going to be turning more towards information monitoring," says Kim.

But as with any new service, its effectiveness has yet to be tested -- or at least made public by the vendors who provide it.  "What we'd like to see vendors do more of is publicly provide their testing and research to show us that it's working," Kim says.

For now, the only gauge of how well PII monitoring works may be in so-called brand-protection or cyber intelligence services used by large corporations, says Gartner's Litan.  Large corporations often hire firms to monitor what is being said about them or their brand online, aiming to detect and prevent things like trademark misuse.  Roughly 60% to 70% of the threats against companies are typically detected, Litan says.

Yet, so far consumer„response to PII monitoring has been warm, says Javelin's Kim.  When asked to rate their satisfaction with these services on a scale of one to five (one being very dissatisfied and five, very satisfied), nearly half (45%) of the respondents to Javelin's survey gave PII monitoring top marks.  (Credit„monitoring was also rated a "five" by 45%.)  "Effectiveness is only one of the reasons consumers are purchasing [PII monitoring]," Kim says.  "Apart from that is the feeling of security and getting alerts from the subscription provider.  It's the interaction they're having with the vendor that gives them peace of mind."

By: Aleksandra Todorova, www.smartmoney.com