Security guru Bruce Schneier has a great essay in Forbes on how to solve the identity theft problem.
In short, he says the focus needs to shift from the theft of personal information to the sloppy ways that banks and other institutions verify identity and allow fraudulent transactions to occur.
Right now, the economic incentives result in financial institutions that are so eager to allow transactions — new credit cards, cash transfers, whatever–that they’re not paying enough attention to fraudulent transactions. They’ve pushed the costs for fraud onto the merchants.
But if they’re liable for losses and damages to legitimate users, they’ll pay more attention. And they’ll mitigate the risks. Security technologies can work wonders in preventing identity theft, once the economic incentives to apply them are there.