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Digital Identity checks for secure and swift customer onboarding

James Efron
January 13, 2020
4 minutes read
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The digital transformation of businesses continues apace, driven in part by regulations that mandate enhance customer privacy and protection. Other driving forces of digital transformation includes technologically sophisticated consumers, the global increase in the use of digital channels, as well as protecting firms and consumers from financial crimes.

While speed and security are two basic things customers demand when opening a bank account, when it comes to customer identification and verification, the manual process can be slow and tedious, in turn contributing to high customer abandonment rates. On top of this, humanly errors could lead to inaccurate results.

According to a recent Refinitiv survey, 53% of the respondents confirmed that they undertake KYC verification checks during onboarding, but only 46% of these checks are successful. Interestingly, among the surveyed companies only those embracing digital identity checks appear to be more successful at performing KYC checks(47 per cent) than those who don’t use technology (28 per cent).

Survey also revealed that 51% of the relationships with clients had not been subject to any formal due diligence check during customer onboarding and only 39% of respondents confirmed that they perform ongoing identity checks in real-time after onboarding.

These compliance gaps could somehow justify why financial crimes remain widespread. Respondents overwhelmingly that digital identity checks can help to cover these gaps.

Secure identity checks are a regulatory requirement for all financial institutes including but not limited to banks, money service businesses, and investment banking. KYC and AML regulations demand running checks on any individual or business while opening an account.

Types of digital identity checks

Document Verification

Document verification is the process of verifying the identity of a person by matching the details mentioned in the authentic documents. Most of the time, government-issued ID cards, driving license, passports, bank statements and utility bills are used for verification.

Customers can scan ID documents using a webcam or upload a picture of their identity documents. The required information is then extracted using Optical Character Recognition (OCR) technology. The following information is validated in online document verification:

First and Last Name of the user
Forged or Photoshopped documents
Document’s format type
Document’s Expiry date

Address Verification

In the digital verification scenario, the address of an individual user or a business could be verified by asking the user to upload a picture holding ID document displaying their address. Secondary documents to be uploaded by the user should also contain the official address. The address on both of the documents is then matched and verified.

Knowledge-Based Authentication (KBA)

KBA is an online identification method that incorporates security questions that can only be answered by the authentic users. For instance, asking for the mother’s maiden name or name of your best friend.

It’s considered more secure than passwords because it’s easy to remember. However, these questions could easily be breached by guessing or social engineering.

2-Factor Authentication (2FA)

As an added security layer, 2FA combines two different authentication factors: something you know and something you have. It solidifies account protection by enabling an extra security layer. An email or an SMS with a verification code is sent to the user on their device that should be available to the user when accessing their account.

Passwords alone are not enough to prevent fraud. Hackers can easily breach passwords using different techniques such as brute force attack, phishing, and social engineering. This is why 2FA or two-step verification is a necessary identity check.

Face Verification

The biometric is the most robust identity check because it adds the most important authentication factor: something you are. Among different biometrics, fingerprints and face are the most used. With the advent of smartphone cameras, facial verification is the easiest way to verify the customer.

Users can upload a selfie or a video using their smartphone and at the backend, facial recognition technology immediately matches the selfie with the picture on ID document and authenticate customer in real-time and accurately.

Benefits of using digital identity checks

Digital identity checks are already being used by financial institutions. The benefits of using digital identity verification solution include:

High accuracy and better compliance
Time efficiency
Enhanced security, as the outdated passwords, are easy to hack
Low operational costs – Employing digital solutions reduces the manual labour and with it the cost involved in manual processing
Enhanced customer experience

Performing identity checks at the speed that customer expects and with the security compliance and fraud prevention demands isn’t difficult to achieve if the right processes and right technologies are in place.

Disclaimer: No warranty is herein provided that the information contained in this document is accurate, up-to-date, and/or complete. In no circumstance(s), does such information constitute legal or any other advice. Any person who intends to use, rely, pass-on, or re-publish the information contained herein in any way is solely responsible for the same. We suggest to verify the information and/or obtain expert advice independently if required.

Latest News

News
Banks Introduce Confirmation of Payee to Tackle Fraud
Types of digital identity checks
Benefits of using digital identity checks
The Confirmation of Payee (CoP) system was launched in October 2018 but implementation was delayed multiple times. Now under Payment Systems Regulator rules the six key banking groups—Barclays, RBS, Lloyds, HSBC, Nationwide, and Santander and their subsidiary banks—have a deadline of 30th June to execute the system for Faster Payments and Chaps.
Banks Introduce Confirmation of Payee to Tackle #Fraud https://t.co/gwPKZvpOcb #payments #FasterPayments #CHAPS #BACS #banking #CoP pic.twitter.com/fA8vLiaddQ
— Neira Jones (@neirajones) June 4, 2020
Some banks have already introduced it, so if both your bank and your intended recipient are now taking part, you might be inclined to check who is taking your money. If you can identify a mismatch, the payment can be stopped.
In the past, bank transfers would be complete in spite of the name written and the fact that it matched the account and sort code. This allowed scammers to pose as someone else—often authentic people and companies—and fool people into sending money to the wrong account. Customers could also transfer funds to the wrong account by mistyping the account number by mistake.
Bank of Scotland, Halifax, Lloyds, NatWest, RBS, and Ulster Bank are some of the banks that have already introduced the system to facilitate Faster Payments for both individuals and companies. Faster Payments are the most common type of bank transfer, taking under two hours and for sums up to £10,000. By the end of June, banks from the six main groups will also introduce confirmation for Chaps payments, used for huge sums of money.
After 30 June, banks will be launching the system for Bacs payments, which are mostly adopted for direct payments or by companies to pay salaries. However, the system most likely won’t apply to international payments any time soon.
The Confirmation of Payee system is directed to impede one type of bank transfer scams, namely authorized push payment fraud. According to UK Finance, Britishers lost a staggering amount of £465 million to these scams in 2019. Thit includes unknowingly transferring funds into accounts exploited by criminals or paying for goods and services that were never received.
Last month the Lending Standards Board (LSB) warned that banks aren’t doing enough to protect and compensate victims of this type of fraud, especially their vulnerable customers.

Digital Identity checks for secure and swift customer onboarding