What is Digital Identity Verification?

Identity verification is pivotal in initiating and integrating new accounts, albeit often entailing complexities. In predominantly online financial services, verifying digital identities is a linchpin, ensuring customers are who they claim to be and preventing illicit financial crimes such as money laundering.

In response to this necessity, financial institutions have embraced advanced technologies that meticulously scrutinize and cross-reference data points to authenticate a customer’s identity. This adoption streamlines the verification process and mitigates the risks associated with identity-related financial crimes.

Beyond its efficacy in streamlining operations, this approach enables FIs to improve defenses against financial crime and identity theft while facilitating adherence to regulatory frameworks like KYC (know your customer). 

Why Online Identity Verification Matters

In 2023, 61% of companies reported increased attempted attacks via consumer and business accounts, highlighting the growing importance of robust security measures.

Identity verification platforms are essential in this context. They swiftly gather and analyze data to ensure the legitimacy of user identities. These platforms enhance security by identifying patterns, such as the repeated use of the same device ID in previous incidents.

Online identity verification is also crucial for meeting regulatory requirements like KYC (Know Your Customer), especially for finance and finance-related companies with customer identification programs.

The benefits of digital ID verification are:

1. Improved access to services: Digital document verification enables customers to initiate and complete banking services remotely from the comfort of their homes using any internet-enabled device. The process is swift and typically is completed within minutes.
2. Enhanced security: Digital ID verification leverages biometric data such as fingerprints, two-factor authentication, or facial recognition, providing a more secure solution than traditional security measures like passwords and PINs. This significantly enhances protection against identity theft.
3. Streamlined onboarding: Digital ID verification accelerates client onboarding, enhancing satisfaction by minimizing wait times and simplifying procedures. Additionally, it translates into reduced operational costs for financial institutions, making it a win-win solution for all stakeholders involved.

What is KYC Verification?

KYC verification is a pivotal requirement businesses impose to authenticate a customer's identity and evaluate their risk level during onboarding. The primary objective of KYC checks is to prevent:

• Identity Theft

Identity theft has become a rampant concern in the digital era. Studies suggest that around 86% of online shoppers worldwide have fallen prey to identity theft, with incidents skyrocketing notably in 2023.  KYC verification mandates account holders to provide digital proof of identity, establishing barriers to prevent malicious actors from gaining unauthorized access to platforms or initiating account openings.

• Money Laundering and Terrorist Financing

Money laundering entails the illicit transfer of substantial sums generated through criminal activities, which are then "cleaned" through dummy accounts to appear legitimate. Post-COVID-19, instances of both money laundering and terrorist financing have seen an uptick.

With anti-money laundering (AML) protocols, KYC verification is a crucial deterrent against criminals setting up supposedly clean accounts. Moreover, since KYC verification necessitates matching people attempting to open accounts against watchlists, suspected terrorists can be intercepted before exploiting financial services.

What is Involved in a Standard KYC Verification Procedure?

Verifying customer identities is essential for banking, insurance, and e-commerce businesses. KYC typically involves the following steps:

1. Data collection: Gather customer information such as name, address, and date of birth, along with additional identification like passports or driver's licenses.
2. Verification: Check the collected data against trusted sources such as government databases or credit bureaus to confirm its accuracy and authenticity.
3. Risk assessment: Evaluate factors like occupation and transaction history to determine the customer's risk profile, identifying potential illegal activities or high-risk transactions.
4. Risk rating: Assign customers a risk rating based on their assessed risk profile, which determines the depth of subsequent checks. High-risk customers undergo more rigorous scrutiny, while low-risk customers enjoy a streamlined process.
5. Record maintenance and monitoring: Keep customer records updated and secure, reflecting any changes in circumstances. KYC is an ongoing process that requires continuous monitoring and reassessment to manage and mitigate risks effectively.

What Are The Consequences of Non-Compliance?

Non-compliance with KYC regulations can lead to several serious consequences for businesses, particularly those operating in the financial sector, where stringent risk and compliance standards are imperative. Here are some of the main repercussions:

1. Legal and regulatory penalties: Businesses that fail to meet KYC regulations may face fines, sanctions, or other penalties from regulatory bodies. The highest-value fine, at $4.3 billion, was issued to the world’s largest cryptocurrency exchange, Binance, for AML failings. Financial institutions globally faced fines totalling $6.6 billion in 2023.
2. Reputational damage: Non-compliance can damage a company’s reputation, leading to a loss of customer trust and potentially resulting in a decrease in business.
3. Increased scrutiny and oversight: Companies that fail to comply with KYC requirements face increased scrutiny from regulators. This could involve frequent audits and monitoring, increasing operational costs, and diverting resources from other business areas.
4. Legal liability: The institution and its executives could also face increased legal liability, as they might face personal sanctions or legal action if the non-compliance leads to illegal activities such as money laundering or terrorist financing.

Electronic KYC Verification (eKYC)

The shift towards online banking has become increasingly pronounced, with 78% of adults in the US opting for online banking. This trend underscores the emergence of electronic KYC (eKYC) as the future standard for Know Your Customer processes, marking the official advent of KYC digitization.

There are compelling reasons why businesses should embrace the automated, online, and paperless nature of eKYC:

• Accelerated processing: Digitalization and KYC automation streamline processes. What once took days or even weeks for manual KYC verification can now be completed in minutes.
• Enhanced security: eKYC offers speed and bolsters security through comprehensive due diligence. By leveraging diverse data and signals, the digital process provides a more comprehensive understanding of potential customers, enabling more precise risk detection.
• Increased conversion rates: A swifter and more secure process translates to a smoother and more trustworthy user experience, leading to improved conversion rates.
• Enhanced customer experience: Targeted and streamlined online processes naturally elevate customer experience scores, fostering greater user satisfaction.

The transition to eKYC optimizes operational efficiency and security and enhances customer and employee satisfaction, positioning it as a win-win solution for businesses embracing digital transformation.

How Does Digital Identity Verification Work? 8 Vital Data Checks

Digital identity checks ensure that online users are who they claim to be. Here's how it works through eight key data checks:

1.Digital Fingerprinting

Digital fingerprinting uses unique identifiers to monitor digital transactions and activities. It enhances KYC processes by analyzing transaction patterns, logins, and device usage, ensuring compliance with regulatory requirements.

2. Device and IP Checks
Device and IP checks validate the authenticity of devices and IP addresses, bolstering security measures by preventing unauthorized access and identifying suspicious activities.

3. Email Checks

Email account checks examine sender information and content to detect signs of phishing or spoofing, scrutinize links and attachments for security threats, and verify embedded logos and trademarks to ensure authenticity.

4. Phone Checks

Phone number verification operates similarly to email verification. When a phone number is linked to multiple external accounts, such as those on Google or Facebook, it signals the likelihood of a genuine user. Conversely, phone numbers without association with other accounts may raise suspicions of potential misuse.

5. Network Risk Management

Network risk checks play a pivotal role by examining whether a current user has previously attempted to verify their identity from the same device. This scrutiny enhances overall security measures by identifying suspicious activities.

6. Behavioral Analytics

Behavioral analytics utilizes digital footprints to refine risk assessment and enhance customer experience, detecting deviations in user behavior that may signify security threats.

7. Digital ID and Liveness/Selfie Verification

Digital ID and Liveness/Selfie Verification cross-reference personal information with authoritative databases and employ real-time selfies or videos to confirm the user's physical presence, strengthening online identity check processes.

8. Database Verification

Database verification ensures the accuracy and integrity of customer data within databases by conducting checks for accuracy, consistency, and rule validation, ensuring reliable data for KYC purposes.

These checks are implemented through advanced technology and automated tools, enhancing the efficiency and reliability of digital identity-proofing processes in various industries.

Enhance Security with Real-Time Digital Identity Authentication

Fenergo presents a robust solution for managing online digital verification and KYC onboarding, revolutionizing the digital verification landscape for financial institutions.

By digitizing and automating the onboarding process, Fenergo's KYC solution minimizes manual tasks, reduces the potential for human error, and streamlines the verification process. This efficiency helps promptly verify legitimate clients and ensures a smooth onboarding experience.

Fenergo's commitment to compliance ensures adherence to AML and KYC standards. Our monitoring system continuously tracks customer activities, promptly detecting unusual behaviors in real-time.

By partnering with Fenergo, businesses can ensure efficient onboarding, compliance adherence, and fortified client relationships, thereby elevating trust and reliability in digital verification.

Request a demo for more information or a demonstration of any Fenergo solution.