In a world full of fraudsters, identity verification is vital. Did you know that HSBC, the second-largest bank in Europe behind BNP Paribas, paid a record $1.92 billion in fines to U.S. authorities for being used to launder a ton of drug money flowing out of Mexico and other banking lapses? Believe it or not, this is a true story that shows exactly what happens if businesses do not follow through with government laws and regulations.
So the question is, why do we verify clients, and why do we need identity verification? Most importantly, customer verification helps to reduce the risks of fraud and protects businesses from paying huge amounts of money for non-compliance.
To verify means that you checked if that someone exists and if they’re true and correct. That’s why identity verification is an essential instrument that validates a person’s traits and authenticates them against a real human being.
KYC and AML regulations
Anti-Money Laundering (AML) laws are mandated by international and local authorities to place a variety of screening and monitoring obligations on the financial, blockchain, e-commerce sectors, and other companies that have money flowing. These AML regulations include Know Your Customer (KYC) process, which is designed to identify customers and understand their financial behavior patterns.
The difference between KYC and AML
Even though both regulations have similarities, you can say that Anti-Money Laundering is an umbrella term for the measures and processes which companies need to place in order to achieve compliance, whereas Know Your Customer is a part of AML laws that refer to the means by which businesses verify their clients’ identities.
KYC requires companies to collect and verify a range of information from clients, including the name, address, date of birth, and company incorporation documents. In other words, AML refers to various measures in terms of preventing money laundering, such as monitoring transactions for suspicious customer activity, and KYC refers to clients’ identification. This process ensures that you understand their risk to your businesses and, this way, prevent fraud and money laundering as well.
Digital identity explained
Whether we like it or not, we leave our footprint on the internet. Countless data is surrounding us, and that’s why we have a digital identity. It’s a representation of a person’s real identity, just online. A digital identity consists of personal information that businesses can use to establish the identity of their clients.
For example, there are different ways of how to verify one’s digital identity, including online identity verification, document authentication, or biometric identification. Basically, it’s the process of identity verification using an online solution. Once the user verifies their identity, they can access many online services, including e-notaries, banks, travel, or even gambling.
Biometric technology
Everyone has their own unique traits - these are our biometrics. This technology is often used for security purposes. By taking into account the biometric data and retrieving it from a physical user, you can authenticate entities and cross-match their details against particular devices.
The widely used technology is also used to protect documents. Biometrics can be found in e-passports that have a chip containing iris or fingerprint data. Such an advanced mechanism prevents unauthorized data readers and ensures that the data is safe. Of course, this technology doesn’t stop here.
According to IBM research, 87% of firms would consider using biometric-based ID verification in the future, while 92% of companies rank biometric authentication as a very effective tool to secure clients’ data. Yes, you’ve guessed right - biometrics offers a user-friendly way for clients to verify their identity online. Instead of a long process, users prefer to sign up to a platform or open a bank account in their own homes.
Face-to-face vs. digital ID verification
Do you remember the last time when you had your identity verified in a face-to-face encounter? Well, there’s a reason for that. Thanks to digitalization, many businesses are moving to online platforms. The best example is banks and fintech firms. When it comes to retail banking, going digital improves efficiency and ensures a better customer experience. Verifying your identity, applying for loans, or simply making payments online - are all simple processes that require a smartphone device.
The global pandemic made such an impact on many industries and the overall economy that we now have newly developed behavioral habits which are here to stay. The term “digital identity” or “electronic signature” is now a part of professional and private use that has become a mainstream trend over face-to-face operations. To put it simply, many argue that remote automated identity verification provides greater control and better security than traditional methods.
Many uses of identity verification
We’ve already discussed the importance of identity verification in banking and how digital identity and the whole digitalization process is changing many businesses. Now, let’s take another example. For instance, nowadays, you can purchase and sell properties online, including signing high-risk documents. Of course, these procedures are secured via digital identity verification.
The main issue remains that criminals find new ways to impersonate everyone who’s involved in a real estate transaction, including buyers and sellers. To eliminate money laundering, property fraud suspicions, and prevent all sorts of criminal activity, the signing process needs to be secured with identity verification.
In a traditional scenario, notaries compare the photo identification to the name on the document to confirm that the person who’s signing is the same person on the ID document. Despite that, nowadays, many people choose to handle their business transactions online, and that’s why more e-notary institutes choose to implement digital ID verification solutions that use artificial intelligence to scan and verify identities more efficiently and without human error.
Artificial intelligence
Unfortunately, ever since the identity verification system has gone digital, the chances of fraud have increased. That’s another reason why traditional authentication methods no longer stand a chance. Due to the high volume of transactions, artificial intelligence (AI) helps us automate identity verification solutions to create a more reliable, successful, and speedy verification system without the help of humans.
AI-powered solutions also allow performing verifications in real-time, as AI uses 3D biometric facial recognition technology that detects the face and collects data from many different pictures or videos. This is an important achievement because AI also detects if a person performing the identity verification online is wearing a face mask, using a tampered document, or even deepfake technology.
Fake IDs are still a major issue
If you aren’t convinced yet, here’s some more context regarding why digital identity verification is so beneficial. That said, it’s not a secret that fake ID laws cover a wide range of criminal activities. For example, a person can be charged for owning or carrying a fake document even without the intent to use it. Depending on the regulations in different countries, there are serious actions that can result in various crimes. A person can be charged with establishing a false identity for the attempt to use a fake ID or a driver’s license.
It’s important to be aware of the logic behind forging documents. Since the whole document isn’t forged, it’s not easy to determine if it’s fake. Today’s scammers have mastered different ways to fake a document. Usually, all documents start blank before they are personalized, and fraudsters start from scratch in a similar manner by adding false details step by step. View more to learn about the tricks on how to spot fake identity documents easier.
Final thoughts
It might seem a minor detail, but in reality, identity verification is a crucial step when it comes to security and identifying clients. There are many advantages of using digital ID verification, one of them being protection, the ability to save and restore data or eliminate legal trouble. Of course, let’s not forget that proper customer authentication significantly decreases the chances of fraud and fake identities storming into your platform.