Identity Verification for Banks: Why You Need it and How it Functions

Zarema Plaksij

Copywriter

With banking moving online, digital identity verification has become the foundation of modern banking security, especially when fraud is getting more sophisticated every day. Today, banks are not only tasked with verifying someone’s identity through a screen as quickly as in seconds, but also with keeping fraudsters at bay.

And the challenge doesn’t stop there. Modern customers expect instant digital onboarding, while fraudsters use increasingly sophisticated tactics, including deepfakes and synthetic identities. So, it’s paramount for banks to make onboarding smooth enough, so that customers don’t abandon the process, and secure enough, so that criminals don’t slip through the cracks. And that’s not easy!

In this article, we’ll walk through everything banks need to know about identity verification: what it is, why it matters more than ever, how it actually works behind the scenes, and the real challenges banks face when trying to verify customers in an increasingly digital world.

What is Identity Verification in Banking?

Identity verification in banking is the process of confirming that a person is who they claim to be before granting them access to financial services. But the actual process goes far beyond the basic ID checks, because banks operate under some of the strictest verification requirements of any industry.

Here is what it looks like in practice: when you sign up for a social media account, the platform mainly wants to know you’re a real person, right? But when you open a bank account, they need to know more: verify your legal identity, understand your financial background, assess your risk profile, and ensure you’re not on any sanctions lists or involved in financial crime. That’s why digital identity verification in banking is a much more serious and complex endeavor.

Banks must answer several critical questions: Is this person’s identity real? Are they using their own identity or someone else’s? Do they pose a money laundering or terrorism financing risk? Are they legally allowed to access banking services in this jurisdiction? And all of these questions go far beyond just matching a name to a document.

Why Identity Verification is Critical for Banks

But why do banks operate under such a high level of scrutiny?

It’s because even a single weak verification made by a bank can lead to money laundering, terrorist financing, fraud, or other financial crimes. That’s why banks’ identity verification is a mix of document checks, biometric verification, database screenings, and ongoing monitoring – that together create multiple, hard-to-breach layers of security.

Let’s go over the main reasons for strict identity verification processes that banks follow and why it actually benefits them. 

1. Regulatory compliance is non-negotiable

As if preventing financial crimes wasn’t enough of a challenge, banks also must meet specific regulatory standards that don’t apply to most other businesses. Banks can’t just decide to skip certain checks or simplify verification to improve customer experience. The rules are clear, and the penalties for getting it wrong can be devastating. 

The total number of global regulatory penalties in the first half of 2025 reached $1,23 billion, which is a 417% surge in the value of fines during the same period in 2024. Source

Banks operate under Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations that require them to verify customer identities and understand their financial activities. These aren’t suggestions, they’re legal obligations. 

2. Fraud prevention protects both banks and customers

Identity fraud is exploding, and banks are on the front line. In the US alone, 748,555 cases of identity theft were reported in the first half of 2025, up over 196,000 year over year. Criminals use stolen identities to open fraudulent accounts, secure loans they never intend to repay, and launder money through the banking system. Without robust identity verification, banks simply become unwitting accomplices to financial crime.

3. Protecting customers increases trust

When people deposit their money with a bank, they’re placing enormous trust in that institution. So, when fraud happens, customers don’t just lose money – they lose confidence in a bank that couldn’t offer a secure onboarding, leading to them ditching the bank’s services altogether. To make matters worse, today the news of all security failures spreads instantly, and customers can switch banks with a few taps on their phone.

4. Access to financial services must be secure yet inclusive

Identity verification is also about fair and secure inclusion. This means that banks have to do both: prevent criminals from accessing the system and ensure that legitimate customers can easily open accounts and use banking services. Which leads to another headache: if identity verification is too strict, it may exclude genuine, honest customers, especially those without traditional documents. On the flip side, if the verification process is too lax, fraudsters can get in. Getting this balance is key for banks and regulators alike. 

Bottom line: identity verification is the first line of defense in protecting the integrity of the global financial system. Tip it over on one or another side – and everything else will fall apart. 

Regulatory Requirements for Identity Verification in Banks

Banks are not only legally required to verify customer identities but also must do it under multiple overlapping regulatory frameworks. Here are the key frameworks and what they generally require:

KYC requirements. Banks must verify the identity of anyone opening an account or accessing banking services, by collecting specific information: full legal name, date of birth, residential address, and identification numbers. To make sure they know who they’re doing business with, banks must verify identities using reliable, independent sources, usually government-issued documents.

AML regulations. Banks must also assess the risk of each customer: are they likely to get involved in money laundering or terrorist financing? This Customer Due Diligence (CDD) process requires checking customers against sanctions lists, Politically Exposed Persons (PEP) databases, and adverse media. Banks must also understand the source of a customer’s funds and the nature of their expected transactions. 

Ongoing monitoring requirements. For financial institutions, verification doesn’t end at onboarding. Regulations require banks to continuously monitor customer transactions and periodically update customer information, in order to determine whether or not a customer’s behavior changes or matches suspicious patterns. If so, banks must investigate and potentially file reports with authorities.

The Financial Action Task Force (FATF). This organization sets global standards and guidance that are followed by many jurisdictions. FATF’s recommendations require banks to implement risk-based approaches to customer due diligence, meaning higher-risk customers face stricter verification – Enhanced Due Diligence (EDD). FATF recommendations influence most banks, creating a standardized global framework. 

The EU’s Anti-Money Laundering Directives (AMLD). Across the EU, banks operate under AML directives and country-level implementations. Its latest iterations, namely 5AMLD and 6AMLD, expanded obligations around beneficial ownership transparency and introduced stricter penalties for non-compliance. Banks operating in the EU must verify identity using documents or electronic identification.

The Financial Crimes Enforcement Network (FinCEN). In the US, the Customer Identification Program (CIP) rule requires banks to collect identifying information, verify customer identity using documents or non-documentary methods, and maintain records of verification for at least five years. FinCEN also mandates Suspicious Activity Reports (SARs) when verification reveals potential criminal activity.

Failure to follow all these regulatory KYC and AML requirements and rules imposed by organizations may result in severe penalties reaching billions, face operational restrictions, loss of licenses, and irreparable reputational damage.

How Identity Verification for Banks Works (Step-by-Step)

When a customer opens a bank account today, whether online or in a branch, they go through a carefully organized verification process. Let’s walk through a typical identity verification flow for the customers of financial institutions.

Customer Data Collection

It all begins with gathering information. Banks collect personal details including:

• Full name
• Date of birth
• Address
• National ID number (where applicable)
• Tax ID / Social Security Number / local equivalent
• Contact details
• Employment, income sources, and the intended use of the account

You might wonder: Why so much information? Banks need enough data points to verify identity conclusively and (especially) assess risk. A simple name and email won’t cut it, because banks need to match customer information against authoritative databases and public documents.

Identity Document Verification

Next, banks need to verify all this information against official documents. So, customers are asked to upload or present government-issued identification, typically passports, national ID cards, or driver’s licenses.

The document verification step typically involves extracting information from the document by using optical character recognition (OCR) and comparing it to what the customer entered, focusing on:

• Document authenticity features, such as layout, security elements, watermarks, holograms, etc. 
• Data consistency, matching DOB and expiry date.
• Whether the document looks altered or forged.

This step concludes with checking documents against issuing authority databases when possible. Some countries provide APIs that allow banks to verify passport or ID numbers directly with government systems in real-time.

Biometric Verification and Liveness Checks

The goal of this next step is to prove the customer is a real person and present at this moment of verification, not someone holding up a stolen photo or using a replayed video.

The biometric authentication process looks like this: the customer takes a selfie or records a short video. Then, the bank’s system compares this image to the photo on the submitted ID document using facial recognition technology. If the faces match with high confidence, the bank confirms the person holds the genuine document that belongs to them.

To eliminate the chance that the presented photo could be of someone else or it’s a pre-recorded video, banks use the liveness detection technique that can confirm the person is physically present during verification, not using a photo, video, or deepfake.

During the liveness check, the customer is asked to turn their head, blink, smile, or move closer to the camera. Advanced passive liveness detection analyzes subtle cues like skin texture, eye movement, and depth perception without requiring any action from the customer.

Risk Assessment and Approval Decision

Finally, banks evaluate the overall risk before approving onboarding. This stage involves screening the customer against multiple databases and watchlists:

• Sanctions lists like OFAC (Office of Foreign Assets Control) to ensure the person isn’t subject to financial restrictions.
• PEP databases to identify politically exposed persons who require enhanced due diligence.
• Adverse media screening to detect negative news associated with the applicant.
• Credit bureau checks to understand financial history and detect potential fraud patterns.

From start to finish, the entire identity verification process can take anywhere from a few minutes for straightforward digital applications to several days for complex cases requiring enhanced due diligence. The result is usually one of three outcomes: approved, needs additional verification, or rejected.

Common Identity Verification Methods Used by Banks

Usually, banks use multiple verification approaches, combining several methods to create layers of security, because no single method is foolproof. Let’s take a closer look at the commonly used identity verification methods. 

Document-Based Identity Verification

This is a classic, widely accepted and familiar method that involves checking government-issued documents, like passports, IDs, or driver’s licenses. This method is widely used, as it’s clear and expected by all customers, which causes no friction. 

When examining documents, banks check for authenticity markers specific to each document type, such as specific fonts, precise spacing, embedded chips, watermarks, and UV-reactive features. Some national ID cards also include holographic overlays and machine-readable zones with encoded information. 

However, the recent spread of high-quality fakes makes it more challenging to rely on this identity verification method alone. 

Biometric Identity Verification

Biometric verification relies on identifying unique physical characteristics, such as facial recognition. A customer’s face becomes their passport, which, unlike a paper document, is much harder to steal or fake convincingly.

Modern facial recognition systems use AI algorithms that analyze geometric patterns, distances between facial features, and unique characteristics that remain consistent even when a person ages or changes their appearance slightly.

Another element is liveness detection which has become crucial as deepfake technology improves. Passive liveness checks analyze micro-expressions, skin texture, and light reflections that are nearly impossible to replicate artificially. Active liveness might ask you to perform specific actions in real-time, confirming you’re not using a pre-recorded video.

Database and Registry Checks

Apart from verifying documents and biometrics, banks also cross-reference customer information against external databases. This adds another layer of confidence and supports AML screening obligations.

Database and registry checks happen in the background and include:

• Government registries (where accessible)
• Credit bureaus
• Sanctions and watchlists
• Phone and address verification

Ongoing Identity Verification and Monitoring

Identity verification doesn’t stop after you open an account. Banks continuously monitor customer behavior and periodically re-verify information, because customers’ risk levels change over time. 

A customer with a clean record might later appear on a sanctions list or become a politically exposed person after being appointed to a government office. And fraudsters don’t behave the same too: they can open accounts with stolen identities, keep them dormant, then suddenly use them for criminal activity.

Ongoing transaction monitoring systems help banks flag unusual patterns, for example, sudden large deposits, rapid movement of funds, transactions with high-risk countries, or behavior inconsistent with a customer’s stated profile. When red flags appear, banks investigate and may require additional verification.

Periodic re-verification is also common. Every year or two, banks might ask customers to update their information and confirm their identity again, especially for high-risk accounts or business relationships. This ongoing due diligence is a regulatory requirement in many jurisdictions.

Digital vs. In-Branch Identity Verification in Banking

With the arrival of digital banking, the way banks verify identity has fundamentally changed. But both traditional and modern approaches successfully coexist today. 

Traditional in-branch verification involves physically visiting a bank location. A bank employee examines your original documents, compares your face to your ID photo, photocopies or scans your documents, and has you sign forms in their presence. This process is slow, but it’s familiar and gives customers face-to-face interaction.

Digital identity verification happens entirely online, often through mobile apps. Customers photograph their ID, take a selfie, and complete verification in minutes from anywhere. The system automatically checks documents, compares faces, screens databases, and makes approval decisions without human intervention in straightforward cases.

It’s time to highlight the key differences between the two. 

There is also a new hybrid approach, in which banks offer digital verification for straightforward cases while maintaining branch options for complex situations, high-risk customers, or those who prefer in-person service. Some banks use video verification that combines digital convenience with human judgment by having customers video-call a verification specialist who guides them through the process.

Key Challenges Banks Face with Identity Verification

Getting verification right is not always easy, even despite powerful technology that banks have at their disposal today. Here are some persistent identity verification challenges that you should be aware of:

Identity fraud is constantly evolving. Criminals use stolen IDs, altered documents, and impersonation to open accounts or take over existing ones. Banks are locked in an endless arms race with sophisticated deepfakes, forged documents and stolen biometric data.

Synthetic identity fraud is particularly insidious. Criminals use fake identities that combine real information, like valid Social Security numbers, with fabricated data, like fake names, addresses, etc. They can pass basic verification checks, build credit histories over months or years, then disappear after taking out loans, while traditional verification methods struggle to detect them.

False positives create friction for legitimate customers. When verification systems are too strict, they reject real customers. Someone’s facial recognition fails because of poor lighting, or a document is rejected because it’s folded or slightly damaged, or a customer’s name doesn’t match exactly across databases because of middle initials or name changes. Every false positive frustrates customers and potentially loses business.

Banks must balance security with user experience: make it too difficult, and legitimate customers leave – make it too easy, and fraudsters get through.

Regulatory complexity varies by jurisdiction. Banks operating internationally must comply with different rules in each market: what’s acceptable verification in one country might not meet requirements in another. Navigating this regulatory patchwork requires significant compliance expertise and flexible verification systems.

Legacy systems weren’t built for digital verification. Many established banks run on decades-old core banking systems designed when verification was based on examining paper documents. Integrating modern biometric verification, real-time database checks, and AI-powered fraud detection with legacy infrastructure is technically challenging and expensive.

Data quality issues cause verification failures. Government databases contain errors, and credit bureau information might be outdated. A customer’s legal name might differ from what appears on their credit report due to nicknames, cultural naming conventions, or simply errors. When verification systems can’t reconcile these discrepancies automatically, applications get stuck in manual review queues.

Balancing security with financial inclusion is ethically complex. Strict verification requirements can exclude legitimate customers who lack traditional documentation. These are immigrants, refugees, young people without credit history, and people who’ve changed their legal identity. Even though banks have a social responsibility to provide access to financial services, they can’t compromise security. Finding this balance requires thoughtful policy design and verification methods that work for diverse populations.

The cost of verification can be too high for some services. Comprehensive identity verification involving document checks, biometrics, database screenings, and ongoing monitoring isn’t free. For low-value accounts or services, the verification cost might exceed the revenue the customer generates. So, banks must decide where to invest in premium verification versus accepting higher risk for lower-value relationships.

The Role of Technology in Modern Bank Identity Verification

It’s a fact – technology has transformed identity verification from a manual, slow, error-prone process into an automated, fast, and more accurate system. On the other hand, technology cannot entirely replace bank compliance teams but rather helps them work faster. 

Here are key technologies that are reshaping verification:

• AI and Machine Learning power modern document verification, with AI systems trained on millions of images detecting subtle forgeries, such as inconsistent fonts, cloned stamps, altered text, that would fool human reviewers.
• Optical character recognition (OCR) converts photos of IDs into structured data, handling diverse document types and languages even when images are blurry or angled. This automation eliminates manual data entry, slashing errors and processing time.
• Liveness detection combats spoofing by analyzing micro-expressions, blood flow patterns, eye reflections, and depth perception in milliseconds. It catches printed photos, screen replays, deepfakes, and masks with high accuracy.
• Database connectivity and APIs make real-time verification possible. Banks instantly query credit bureaus, sanctions lists, and government registries. What once took days of manual searches now happens in seconds.
• Blockchain and distributed ledger technology are emerging for decentralized identity solutions where customers can prove who they are without repeatedly sharing documents. Still early-stage in banking but promising for reducing friction.
• Behavioral biometrics create unique profiles based on how you type, hold your phone, or swipe. If someone logs into your account but their behavior doesn’t match your patterns, the system flags it immediately.
• Risk scoring engines assign nuanced risk scores based on hundreds of factors rather than simple yes/no decisions. This lets banks route low-risk applications to instant approval, medium-risk to additional checks, and high-risk to human experts. 
• Cloud infrastructure lets verification systems scale instantly when application volume spikes. No more fixed capacity planning, just automatic scaling when needed.

Of course, fraudsters are also using technology. Europol and major outlets have noted how AI and synthetic media are lowering barriers to digital crime. That’s why identity verification technology has to keep evolving.

How Ondato Supports Identity Verification for Banks

Ondato provides comprehensive identity verification solutions specifically designed to meet the complex needs of financial institutions, and banks in particular. Rather than being just another verification tool, Ondato serves as a complete platform that addresses the multiple layers of verification banks require. 

Typical Ondato capabilities for banking include:

• Document verification for checking authenticity and data integrity
• Biometric verification and liveness checks
• Compliance support for KYC/AML-aligned onboarding workflows
• Fraud prevention tools to reduce identity fraud attempts
• Scalable digital onboarding that helps banks onboard more customers without adding operational overhead
• Flexible integration options for incorporating Ondato’s verification into existing systems without complete infrastructure overhauls, via APIs, SDKs, and white-label solutions.

What sets Ondato apart is understanding that effective identity verification for banks is about supporting the entire verification process from customer experience through regulatory compliance to fraud prevention.

If you’d like to learn more about how Ondato products could help your bank balance security requirements with the user experience expectations, then contact us now. 

Final Thoughts 

Identity verification for banks sits at the intersection of security, compliance, and customer experience. Since the world has turned digital, customers expect to open accounts in minutes, not days. But convenience can’t come at the expense of security.

Luckily, technology makes both convenience and security possible. Modern verification systems authenticate customers faster and more accurately than traditional methods while catching fraud that would fool human reviewers. Banks that get this right win: faster onboarding, lower fraud losses, reduced compliance costs, stronger customer trust. Those that don’t will face escalating fraud, regulatory penalties, and customer abandonment.

As fraud techniques evolve, so must verification. The question isn’t whether to invest in robust identity verification, but rather it’s whether you can afford NOT to.

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Published January 29, 2026

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