The customer identity process is an important aspect of onboarding processes, especially for entities that may be dealing with sensitive services, assets, or commodities, like banks. The customer Identity Verification Process in banks ensures that customers being onboarded register with legally recognized identities and that they are liable to be limited should they indulge in illicit activities. The customer identity verification process is also important to mitigate cyber threats such as identity theft, deep fakes, and spoofing.
With the globalization of the internet and global processes, the widespread use of banks and neo-banks, and global expansion, it is important to use safe identity verification processes, even as entities itch to onboard several new customers daily to improve revenue.
What Is Customer Identity Verification Process?
The customer Identity Verification Process involves typical streamlined steps of measures aimed at collecting or collating valid data in order to validate the identity of a customer. It typically involves the verification of different data categories like address (address verification), email (email verification), government-issued ID (ID verification), etc.
Customer identity verification aims to ensure that a customer being onboarded is who they claim to be. Custom identity verification processes can also help financial platforms ascertain politically exposed persons (PEP) so that they can align with FATF guidelines. Customer identity verification is especially useful when opening a new bank account or registering for a new service with a service provider like a telecommunication or insurance company.
Why Is Customer Identity Verification Important?
Customer Identity Verification is important for a number of reasons, especially in the financial sector, where security and trust are regarded highly:
1. Prevention of Fraud and Identity Theft
Customer verification allows for the confirmation of the identity of a potential existing customer. Financial entities need to know that persons opening an account are who they say they are. This will help protect both the institution and the customers from the threat of identity theft or security breaches, which can lead to financial loss.
2. Regulatory Compliance
Banks and financial institutions are mandated to comply with regulations set by governments and oversight bodies, international or domestic. Regulations like Know Your Customer (KYC) and Anti-Money Laundering (AML) laws ensure the verification of customer identities. Compliance helps avoid legal sanctions, and institutions are able to operate within the bounds of the law by complying.
3. It Aids The Mitigation of Cyber Threats
With the prevalence of digital banking, cyber threats like phishing, identity theft, and deep fakes have become more common. Identity verification is an important defense mechanism against these threats, ensuring that only authorized individuals can gain access to sensitive financial information and services that belong to customers.
4. It Helps With Risk Management
Verifying customer identities helps banks assess the risk associated with each customer. This is especially important for identifying Politically Exposed Persons (PEPs) who most likely pose a higher risk due to their high probability of getting involved in corrupt activities. By identifying such individuals, banks can implement enhanced due diligence and monitoring procedures to mitigate associated risks.
5. Customer Trust and Reputation
Trust is a key attribute for every brand to existing and potential customers. The banking industry is not exempt from this. Banks and other financial entities are able to secure the trust of stakeholders, customers, and oversight bodies alike by putting stringent identity verification processes in place.
This is a demonstration of their commitment to safeguarding personal information and assets. Besides, the reputation of a bank can be severely damaged by security breaches. Therefore, customer verification processes in banks can not be ignored or excluded.
Customer Identity Verification Processes In Banks
Verifying customer identity typically involves a combination of digital and manual processes designed to confirm that the individual is who they claim to be. It is an important part of the onboarding process. The identity verification process of entities may differ by steps or peculiarity; however, they are often quite similar.
Entities may issue a customer identification verification form or employ other means like one-on-one onboarding or the use of digital or AI-backed collection and verification tools.
The following steps are commonly used during customer verification processes in banks, neo-banks, and other financial or commercial entities:
How to Verify Customer’s Identity
1. Document Verification
This is the most common method of verifying a customer's identity; entities request for a government-issued identification document (an ID); this includes passports, driver's licenses, or national ID cards. When these IDs are presented, the bank checks the validity and authenticity of the documents. This can be done manually, or specialized software to detect forgeries or any sort of foul play may be used.
2. Biometric Verification
Advanced identity verification processes may make use of biometric verification, including fingerprint scans, facial recognition, or even voice recognition. These methods provide an extra layer of security by confirming that the person presenting the ID is the legitimate owner.
3. Address Verification
Address verification is very important for customer identity verification, even though it has only recently started to gain increased attention. To verify a customer's address, banks may request utility bills, bank statements, or other official documents that list the customer's name and address. Additionally, some banks use automated systems that cross-reference the provided address with public records.
4. Email and Phone Number Verification
Customers may be required to verify their email address and phone number during the onboarding process. This can involve sending a verification link or code to the customer, which they must then confirm to proceed.
5. Liveness Detection
Some identity verification processes include liveness detection to prevent spoofing or the use of deep fakes. This involves the customer performing specific actions, such as blinking or turning their head, while their photo or video is taken. This ensures that the verification is being performed by a live person rather than a static image or video. Other advanced AI tools are being used to detect deep fakes, which may not be static images but extremely familiar videos.
6. Database Checks
Banks may also cross-check customer information against different databases, such as credit bureaus, government watchlists, and PEP lists. This helps identify potential risks and allows compliance with AML and KYC regulations.
7. Ongoing Monitoring
Even after the initial verification, banks often perform continuous monitoring of customer accounts and transactions. This helps identify any unusual activity that may be indicative of fraud or identity theft. This is a proactive approach to preventing cyber crimes, as action can be taken swiftly before the crime is completed.
Best Practices for Customer Identity Verification
The customer verification process in banks and other entities that may need the layer of protection that identity verification may provide often follows a carefully streamlined process that is not only designed to be seamless for the customers but also efficient for entities in terms of identifying and confirming legal identities.
Customer ID verification may typically take manual streamlined confirmation processes even in this present day. However, there are recommended practices on how to verify customer identity during the onboarding process.
Some of them include:
1. Setting Multi-Factor Authentication (MFA)
Multi-factor authentication requires customers to provide two or more verification factors to gain access to their accounts. 2FA, or two-factor authentication, occurs when there are just two factors, typically a password. Other factors may include biometric data, trick questions, passcodes, device verification, liveness detection, ID verification, etc.
MFA will add an extra layer of security, making it difficult for unauthorized persons to gain access to sensitive information or an account, even if one form of verification is compromised.
2. The Use of Transaction Monitoring
Transaction monitoring uses AI and machine learning algorithms to analyze patterns and detect anomalies in customer behavior, which can be indicators of fraudulent activity.
Transaction monitoring technology allows for continuous and real-time monitoring of customer accounts, which aids banks in identifying and responding to potential threats quickly. From the moment a customer is onboarded, transaction monitoring begins to track and register their behavior, creating a baseline that helps in detecting any deviations that may signal identity fraud or other illicit activities.
3. Prioritizing Seamless User Experience
Identity Verification doesn't have to be strenuous or unpleasant to potential customers. It should be seamless, and it should not assume bad intent in any way. Customers should not feel distrusted, disrespected, or even unwelcome. The wrong approach might make customers abandon the onboarding process, especially if it is a virtual one, and take their business elsewhere.
An onboarding process that frustrates or antagonizes users creates unnecessary friction, making it harder for customers to complete the process. This not only reduces conversion rates but also increases customer frustration. An onboarding process should be designed to be welcoming, respectful, and user-friendly. It should build trust by clearly explaining why certain information is needed and how it will be used without making the customer feel accused or judged.
4. Regular Updates to Verification Protocols
Entities should update and consistently improve identity verification measures continuously to stay one step ahead of emerging threats and comply with changing regulations. Regular updates ensure compliance with new regulations and standards.
5. Customer Education and Communication
Customers should be educated about the importance of identity verification and how to protect their identities. Informed customers are more likely to participate in security measures and less likely to fall victim to fraud. Clear communication about why certain information is required can also enhance trust in the institution.
6. Implementing Robust Data Protection Measures
Ensure that all customer data collected during the verification process is securely stored and protected against unauthorized access. Protecting customer data not only complies with privacy regulations but also builds trust. Implementing encryption, secure data storage, and access control measures are critical in preventing data breaches.
7. Comprehensive Risk Assessment
Conduct thorough risk assessments for different customer profiles, especially for high-risk individuals such as Politically Exposed Persons (PEPs). By understanding the risk associated with each customer, banks can apply the appropriate level of scrutiny and take proactive measures to mitigate potential risks.
8. Using Liveness Detection and Anti-Spoofing Measures
Incorporating liveness detection techniques in biometric verification processes ensures that the person being verified is physically present. This prevents the use of photos, videos, or deep fakes in identity verification; this will help reduce the risk of spoofing and other types of identity fraud.
9. Maintaining Transparency and Accountability
Maintaining transparency in the verification process is very important for the customer verification process. Transparency provides customers with clear information about how their data is used and the measures that have been put in place to protect it. Transparency fosters trust and assures customers that their personal information is handled responsibly. Additionally, having accountable processes in place ensures compliance with legal and ethical standards.
10. Ongoing Monitoring and Reverification
Customer activity and data should be continuously monitored and reverified periodically to ensure that the information provided is still valid. Change is constant in every aspect of the world; licenses or government IDs may expire; for example, depending on specific state guidelines, driver's licenses are valid for four to eight years and may need to be renewed after.
Customers may move away from the specific addresses they are registered at and change their phone numbers, occupations, or devices. Ongoing monitoring allows for the early detection of suspicious activities, while periodic re-verification ensures that customer information remains current and accurate.
By following these best practices, banks and other financial entities can establish a robust customer identity verification process that not only protects against cyber threats, fraud, and other vices like money laundering and identity theft but can also create customer trust and satisfaction and a cordial relationship between a brand and customer.
Bottom Line
In summary, the Identity verification process definition presents it as a crucial part of the onboarding process; if implemented well, it is maybe indeed the core onboarding process itself, as customers may find it so seamless that it may just be a rudimentary step to access a service. This includes checking government-issued IDs, verifying addresses and contact information, and employing advanced methods such as biometric verification and liveness detection.
The goal is to confirm that the customer is who they claim to be and to prevent identity fraud and other illicit activities. Implementing the suggested best practices, including multi-factor authentication, transaction monitoring, a seamless user experience, and regular updates to verification protocols, entities can create a robust verification process that enhances security, builds customer trust, and assists compliance with legal and regulatory standards. AI-backed tools are also handy partners in the customer verification process.
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