Every year, millions of people worldwide suffer at the hands of identity thieves. By impersonating a victim, fraudsters get access to their credit cards, and open bank accounts to make unauthorised purchases or obtain loans. In a 2022 survey, respondents reported total losses of $42 billion due to fraud. As a result, regulators keep introducing stricter provisions to ensure that financial institutions and other regulated industries take responsibility for financial crime prevention. The most important safety mechanism that regulators enforce to prevent fraud is identity verification. This article explains everything you need to know about this procedure and how it protects your clients and keeps your service safe.
What is Digital Identity Verification?
Digital IDV (Identity Verification) is the process of confirming the legitimacy of someone’s identity online. It employs cutting-edge technology such as machine learning and AI to confirm who people are, minimising fraud risk. This includes preventing financial crimes such as money laundering and identity theft by stopping criminals in their tracks. Digital IDV is frequently used in non-regulated industries to ensure the safety of their services.
Identity Verification in KYC and AML Compliance
Identity verification is a critical component of Know Your Customer (KYC) and Anti-Money Laundering (AML) regulatory compliance. It ensures that businesses can employ secure customer onboarding, assess potential risks of illegal activities, and distinguish legitimate customers from bad actors.
Role in KYC Compliance
KYC is a regulatory requirement that mandates businesses to collect information about their customers, verify their identity, and monitor their transactions over time. Identity verification ensures that businesses can accurately establish a customer’s identity before providing services, which helps reduce risks associated with fraud or financial crimes.
Steps in Identity Verification for KYC:
Customer Identification Program (CIP): Collect data like name, address, and ID documentation.
Document Verification: Check the authenticity of government-issued ID documents.
Biometric Checks: Use fingerprints or facial recognition for additional verification.
Database Screening: Check customer details against databases like sanctions lists, politically exposed persons (PEP) lists, and adverse media.
Role in AML Compliance
AML regulations are designed to prevent illicit financial activities by making identity verification essential to identify individuals attempting to launder money, screen for high-risk customers or suspicious activities, and ensure compliance with laws such as the USA PATRIOT Act, the EU’s AML Directives, or other jurisdiction-specific regulations.
Key Aspects in AML Verification:
Sanctions Screening: Verify that customers are not listed on sanctions or watchlists.
Transaction Monitoring: Cross-reference identities with transactions to detect unusual behaviour.
Enhanced Due Diligence (EDD): Perform more rigorous checks for high-risk customers, such as politically exposed persons (PEPs).
Why Is Digital Identity Verification Important?
Identity verification plays an important role in fraud prevention by ensuring that individuals are who they claim to be, thereby reducing the risk of fraudulent activities. It helps businesses detect and prevent identity theft, account takeovers, and unauthorized transactions. By verifying customer identities during onboarding and throughout the customer relationship, organizations can block fraudsters from accessing sensitive services or financial systems.
The process typically involves verifying government-issued IDs, cross-referencing customer details with trusted databases, and using advanced technologies such as biometrics, facial recognition, and liveness detection to confirm authenticity. Additionally, identity verification systems monitor for inconsistencies in customer data, flagging anomalies that could indicate fraud. This proactive approach not only protects businesses and customers but also ensures compliance with regulatory standards, such as KYC and AML, which mandate identity checks to mitigate risks associated with financial crimes.
Fighting Financial Crime and Fraud Prevention
The most crucial benefit of identity verification, and its primary purpose, is to fight identity fraud and financial crime. Carefully checking each client’s identity will clear up discrepancies, spot fake identity documents and synthetic identities, verify age, and gather other important data. This way, your service and its users will be secure.
Improving Accessibility
Implementing a digital identity verification service makes various services more accessible. It is also crucial to your business’s global expansion.
Streamlining the Customer Experience
Implementing digital IDV can alleviate the burden of remembering to update necessary information. In the past, clients were expected to update their information when it changed. Now, automatic reminders and information checks have taken over the process. It also makes the account opening process much faster for the customer, increasing their chance of staying with the service.
Helping to Avoid Penalties for Non-Compliance
In 2019, global penalties for non-compliance with AML, KYC, and sanctions regulations totalled $36 billion. In addition to financial loss, failing to comply with regulations can hurt a company’s reputation and can cause it to lose customers.
By using a digital identity verification service, companies can prevent fraud and reduce fines.
Protecting Minors
Many services that offer age-restricted content continue to employ ineffective age-verification methods. Customers are frequently asked to confirm their legal age by pressing a button or entering their birthdate. With these types of checks, children can easily cheat their way onto age-inappropriate platforms.
On the other hand, identity verification technology makes it easy for providers of adult content to stop children from using their services. For example, Ondato’s age verification system determines a user’s age range by asking them to take a selfie. The system then places the user in an age group that is 95 percent accurate. If the user is deemed too young, they are required to provide identification.
How Do Automated Identity Verification Solutions Work?
Identity Verification Process
The ID verification process consists of three major steps:
Identification: collecting and documenting relevant user data, either manually or automatically.
Identity verification: ensuring that the collected data is legitimate and not stolen or forged.
Identity authentication: revalidating returning users’ identities before granting them access to the service.
The customer is typically asked to provide their ID only during the onboarding process unless the document has expired. However, their identity should be verified several times during the customer lifecycle. Meanwhile, authentication may be necessary each time a customer returns to the platform.
What Technology Can Be Used to Streamline the Digital Identity Verification Process?
Digital identity verification may appear to be a simple process, but only because it encompasses a wide range of technology to streamline the process. These are the most common features used to increase usability and conversion rates:
Identity Document Verification is the process of determining the authenticity of a document. A document is analyzed for spoofing attempts and checked in various lost or stolen document registries. Driver’s licenses, social security cards, passports, birth certificates, and other documents can be used in the process.
Biometric Verification is a method of identifying people by analyzing their unique biological characteristics. The AI-based technology maps out the biometric data of a person’s face and compares it to an image on an ID card or passport. This method effectively detects spoofing artefacts, such as masks or printed photos.
Liveness Detection is an important additional step in ID and biometric verification to ensure that customers are physically present and that their documents have not been tampered with. The liveness detection looks at movement, reflections, light, the background of a photo, and other details to find spoofing attacks.
OTP (One Time Password) is a temporary password or a PIN code sent to a person via SMS or email. It is frequently used to add a second layer of security. OTP can also be used to authenticate users.
NFC (Near Field Communication) enables compatible devices to extract and wirelessly transfer data from microchips. It is an enhanced security measure that allows for the quick reading of data from ID documents. NFC is frequently used to seamlessly onboard clients.
Ondato Identity Verification Methods
The most common ways to perform digital identity verification are:
Photo-based identity verification. It works by mapping biometric data from a customer’s selfie. It is a quick and simple method to onboard consumers while complying with KYC regulations. Ondato’s photo-based identity verification process involves two parts:
- A person snaps a selfie. The liveness detection guarantees that the individual is present and isn’t utilizing any spoof artefacts.
- A person takes a photograph of their identity document. Then, their biometric face data is compared to the ID photo. The verification is completed after the system automatically performs registry, PEP, and sanctions checks. The process usually takes less than 60 seconds.
Video-based identity verification. It is performed through a real-time video call. During the process, a person’s biometric and identification document data are captured automatically. Then, the data is analyzed for any spoofing attempts to ensure that the client is who they claim to be. Ondato’s video-based verification can be assisted by our well-trained KYC specialists or provide a platform for your specialists. All essential checks are completed automatically without delaying or interrupting the call.
Upload-based identity verification. It can be used when regulations permit a person not to be present during the verification process. They are required to submit data manually. Registry checks are performed to verify a person’s identity and ensure the authenticity of provided documents. Upload-based identity verification efficiently replaces real-time procedures.
NFC-based identity verification. The newest verification method on the market that allows for a smoother process. Users with NFC compatible phones can scan their documents to ensure security and accuracy without requiring extra time.
What Technology Can Be Used to Streamline the Digital Identity Verification Process?
Digital identity verification may appear to be a simple process, but only because it encompasses a wide range of technology to streamline the process. These are the most common features used to increase usability and conversion rates:
Identity Document Verification is the process of determining the authenticity of a document. A document is analyzed for spoofing attempts and checked in various lost or stolen document registries. Driver’s licenses, social security cards, passports, birth certificates, and other documents can be used in the process.
Biometric Verification is a method of identifying people by analyzing their unique biological characteristics. The AI-based technology maps out the biometric data of a person’s face and compares it to an image on an ID card or passport. This method effectively detects spoofing artefacts, such as masks or printed photos.
Liveness Detection is an important additional step in ID and biometric verification to ensure that customers are physically present and that their documents have not been tampered with. The liveness detection looks at movement, reflections, light, the background of a photo, and other details to find spoofing attacks.
OTP (One Time Password) is a temporary password or a PIN code sent to a person via SMS or email. It is frequently used to add a second layer of security. OTP can also be used to authenticate users.
NFC (Near Field Communication) enables compatible devices to extract and wirelessly transfer data from microchips. It is an enhanced security measure that allows for the quick reading of data from ID documents. NFC is frequently used to seamlessly onboard clients.
Identity Verification Use Cases
A wide range of industries must ensure that their clients are actual people before doing business with them. As a result, identity verification has a wide range of use cases.
It is widely used in the following industries, both for individual customer onboarding and as part of business verification:
- Financial services
- Cryptocurrency marketplaces
- Telecommunications
- Sharing economy
- eSports
- Travel and tourism
- Online gambling
- Adult content
- Retail
- Healthcare
- Education
- Others
How Ondato Can Help Prevent Fraud
Fraud causes harm to businesses, financial institutions, and other industries. Every year, their customers lose large sums to identity thieves. Meanwhile, organizations face penalties for failing to comply with financial crime prevention regulations.
Automated ID verification is the most effective method of catching fraudsters. While doing it manually requires a significant amount of time and effort, the process can be easily streamlined by utilizing Ondato. Our automated solution enables you to onboard clients quickly while detecting various spoofing attempts such as masks or document alterations.
By delegating heavy lifting to our smart tool, you will save time, improve performance, and ensure safety.
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