Enhancing customer service and combating fraud often involves collecting and verifying various information about the person, including their address. That’s why a proper address verification process is crucial for businesses to prevent the approval of new accounts with false addresses.
One of the primary challenges companies face is the rapid pace at which transactions occur. Not only that but also the use of AI and its scalability for fraud, which leaves e-commerce platforms and other online businesses vulnerable to even more types of malicious acts. So, it’s clear that without robust security measures, such as address verification, companies risk their money and, more importantly, the trust of their users.
In this blog post, we find out how address verification is vital during customer onboarding. How it helps mitigate further complications, such as users with malicious intent registering on the platform only to engage in fraudulent activities, and much more.
The Definition of Address Verification
Address Verification is a security process that helps companies verify the accuracy of users’ address information. For example, e-commerce platforms verify users’ addresses to ensure that their billing address matches the one linked to the cardholder’s account.
There are different methods to verify one’s address. Sometimes, companies build an address verification process that compares a user-submitted address to a standard database that contains geographic and demographic data to verify its authenticity. Furthermore, businesses can use additional identity verification measures to ensure that the individual or business is genuinely located at the provided address.
How Does Address Verification Work?
Companies often choose to implement AI-powered address verification software. So, for example, instead of asking their customers to visit physical branches, banks build a fully customizable and highly automated verification process. Another popular example is e-commerce platforms that can use this streamlined approach to automatically fill in address form fields, facilitating faster checkouts for customers.
Address verification works by customers uploading an image of a document. Then, the document verification step guarantees the authenticity of the document or image, with the verification system extracting the address details through optical character recognition (OCR).
Possible Scenarios if the Address Verification Process Fails
If a partial match or mismatch is detected in the automated address verification process, companies typically decide on the next steps. A mismatch is a discrepancy or inconsistency that can happen when confirming whether a given address is valid. Afterwards, companies decide how they want to proceed with the verification and whether they want to:
- Request a new address document.
- Send the document for manual review.
- Ask the customer to complete additional ID verification steps.
- Rejecting the customer’s application.
For a more accurate address verification process, some companies use additional database checks that can cross-check address information with an authoritative global source. This helps determine within seconds if the address corresponds to an actual physical location without adding unwanted hassle for the end-user.
What Challenges Do Businesses Face Regarding the Address Verification Process?
If implemented correctly, address verification ensures the accuracy of addresses in a company’s database, which is particularly critical for businesses operating globally due to differences in address formats across countries.
However, other factors make the address verification process challenging, such as:
- Data entry errors. Collecting accurate address information is challenging due to the potential for human errors, especially typos. For example, customers can accidentally misspell street names, provide a wrong street number, or an incorrect postal code.
- Incomplete address. Customers can enter wrong addresses or provide incomplete data. In this case, if the address lacks essential details, it may not match the required format, given the existence of at least 100 different address formats worldwide. Inconsistent formatting can lead to mismatches as well.
- Non-existent address. Sometimes, the provided address might not correspond to a valid location. This could be due to fictitious addresses, such as non-existent streets. That’s why customers must provide legitimate documents, such as previous pay stubs, driver’s license addresses, tax, utility bills, etc.
- Outdated data. If the provided address is outdated, it may not match current records. Addresses can change over time due to street renaming, changes in postal codes, or the customer moving and changing their residential address in general.
Companies can address these challenges by using real-time automated tools that update information, including gathering and streamlining customer address details. Companies also use this approach in the Know Your Business (KYB) process for onboarding corporate clients. Automated KYB tools can download registry reports and verify the legitimacy of the provided business address, displaying location photos. If the image doesn’t align with the business, companies can decline the application or request additional proof of address documents.
Address Verification Requirements
When establishing a new account, especially in the financial industry, businesses require customers to submit proof of address (PoA) documentation confirming a person’s current and established residence in a specific location. Collecting an address is a mandatory element of a Customer Identification Program (CIP), alongside obtaining a user’s name, date of birth, and government-issued identification number.
For organizations subject to Know Your Customer (KYC) and anti-money laundering (AML) regulations, like financial institutions, collecting proof of address may be necessary within their risk-based procedures for verifying new customers. Address verification is also used as a way to ensure due diligence procedures for individuals from sanctioned countries.
Proof of Address Documents
Some government-issued identity documents have the person’s address listed. Despite that, the information could be inaccurate. That’s why companies accept other proof of address documents for their address verification process, including:
- Utility bills
- Pay stubs
- Tax bills
- Financial statements
- Tenancy agreements
- House purchase deeds
- Employment letters
Accepted statements can be from credit unions, building societies, and banks. Companies typically require bank statements or utility bills to be within the last 3 months, as this is the standard timeframe for relevance. Certain documents, like a lease agreement, may often have an older timeframe.
Address Verification and Industry Specifics
Address verification is a mandatory requirement for numerous financial services, including crypto, e-money institutions, or fintech firms. So, not only banks but also entities operating in other regulated sectors must comply with Customer Due Diligence (CDD) procedures, necessitating the retention of a verified photo ID and the request for proof of address to comply with the Fifth Anti-Money Laundering Directive (5AMLD).
Certain businesses, including cryptocurrency platforms, can face geographic constraints due to licensing requirements and local laws. For example, some European cryptocurrency exchanges may not onboard customers from the United States to avoid Securities and Exchange Commission (SEC) penalties.
Why is Address Verification Important?
Address verification is crucial because it is a reliable identity verification data point, enhancing security by confirming that the individual receives services at the specified address. Cross-referencing this data through identity proofing with other sources strengthens the case that the person exists and is who they claim to be.
Businesses find value in address verification when customers are required to provide proof of address documents to authenticate their residential address in the following scenarios:
- Transaction thresholds. When customers surpass specified thresholds, as determined by AML obligations, they should provide PoA documents.
- Financial services registration. In the onboarding process for financial services, clients may be requested to furnish additional proof of address documents as part of AML compliance.
- Account opening restrictions. Compliance requirements vary regionally, imposing restrictions on customers in high-risk regional areas and countries. In this sense, address verification ensures compliance and mitigates fraud risks.
Some organizations use address verification tools to identify potentially fraudulent transactions. These solutions verify the existence of an address but do not ask the user to provide actual proof of the address. So, even when not mandatory, verifying customers’ address data is important because it helps detect fraudulent activities, providing companies with robust protection against potential fraud.
Use Case Examples of Address Verification
When bringing in new customers, whether it’s a person or a business, address verification is a key component in KYC and KYB checks. We’ve already established that this process helps verify the legitimacy of the given address and check if the data isn’t going to be used for fraudulent reasons.
That said, there are other use cases for address verification, including:
Shipping and Delivery Address Confirmation
Address verification can confirm the existence of addresses, capture address details during user form submissions, and enhance the quality of address information in databases. For example, the United States Postal Service (USPS) maintains a comprehensive address database. The same principle applies to postal services in other countries and other major shipping companies like FedEx.
Such postal services and shipping companies often maintain databases of customer addresses. They can also rectify misspellings, add relevant address details, and update outdated addresses, such as those affected by street name changes. As a result, standardization not only improves address data accuracy but also helps companies save on shipping costs while reducing the risk of shipment loss during transit.
Reduction of Fraudulent Transactions
In fraud prevention, companies make risk-based decisions, weighing various fraud-related signals to determine whether to approve or deny a customer or their transaction. Companies use an Address Verification System (AVS) as a fraud prevention tool in financial transactions with credit and debit cards. This approach is very common during Card-not-Present (CNP) transactions.
In this scenario, this process checks whether the billing address or zip code provided in the order matches the information stored by the card issuer. Merchants often establish automation rules to decline transactions showing partial or no matches automatically, and they can request additional verification as a precautionary measure. That’s because partial matches or no matches can be a red flag of potential fraud.
Related: The Role of AML Requirements for Payment Processors
Automated vs Manual Address Verification Options
Address verification is crucial to ensure users reside in their intended regions. It’s also a regulatory requirement for some companies. However, companies achieve the best results for an effective fraud prevention program by integrating both automated RegTech solutions and manual address verification checks.
This comprehensive approach ensures complete KYC/AML compliance, for example, incorporating checks on age, identity documents, and an address database to pinpoint the exact location. iDenfy helps companies build a robust address verification process through a combined approach, offering various PoA check flows:
- Upload-extract-compare. iDenfy’s in-house experts manually extract address information from a user’s uploaded document and cross-check its legitimacy by comparing it with the partner’s provided address via API. Optionally, an additional Address Lookup feature can be integrated.
- Connect to the utility bill provider. To prevent misuse of forged proof of address documents, you can enhance the address verification process by prompting users to connect to their utility provider. iDenfy’s in-house team then captures the residential address and verifies the document to ensure its existence.
So, what are you waiting for? Try out our address verification for free.