Many businesses are still in the dark ages when it comes to making sure customers are who they say they are, reveals a new report by risk management experts Experian.

The report shows that 70 per cent of financial services companies still rely on fraud-friendly paper documents to authenticate a person's identity, and 36 per cent of retailers and 40 per cent of telecommunications companies are still doing it.

According to the survey too many industries are left hamstrung by their reliance on the use of passports, utility bills and driving licences for authentication, despite the fact that electronic systems are generally considered to be safer and faster for all concerned.

"It's staggering to think that today's businesses are still using paper documents to confirm a person's identity," said Anne Green, fraud consultant at Experian.

"Take passports for example. They actually date back to the 15th century and were intended for travel, not verifying a person who wants to open a bank account. Companies need to break the paper chain and move with the times. It is the 21st century after all."

The report is based on interviews with 1,500 consumers and anti-fraud, risk and compliance experts from 70 businesses in the UK.

As well the security implications, this reliance on paper-based proof or identification may be costing companies business, with 30 per cent of 18 to 24-year-old respondents saying they have either delayed or given up on applying for a new account due to difficulty in providing the necessary paperwork.

"Businesses need to start using electronic authentication; it's faster, safer and cheaper than paper processes," concluded Green.

"Unlike relying on paper identity documents, it tracks the key financial events in people's lives, together with their data history, and cross-references them electronically. This means organisations can be confident that the customer really is who they say they are."

Identity fraud is one of the fastest growing forms of fraud around the world and is estimated to cost the UK economy £1.7bn a year.

80,000 cases of identity fraud were reported in the UK in 2006, up from just 9,000 in 1999.