With identity verification providers, there is also the advantage of a substantial decrease in customer onboarding costs, a parameter that falls in line with national and international anti-money laundering (AML) requirements.
Banks, financial institutions, sharing economy players, payment gateways, iGaming companies, and cryptocurrency exchange platforms are some of the many industries that choose to implement third-party Know Your Customer (KYC) service providers. Why? They help minimize the workload for internal compliance teams while boosting end-user efficiency. Of course, that’s not all.
Let’s find out more about why your company might need to switch to a fully automated KYC flow with the help of an identity verification provider.
What is an Identity Verification Provider?
An identity verification provider is typically a third-party entity or online platform specifically dedicated to verifying users’ identities for various purposes. ID verification occurs during the customer onboarding stage, but depending on the level of risk, customers can be asked to complete the ID verification check later in their journey.
These providers use AI and other advanced technologies to confirm the accuracy and reliability of personal information provided by users, cross-referencing it against multiple authoritative data sources. For example, the ID verification software can extract the information from a user’s ID document and then compare it with their selfie photo during a liveness check.
Verifying someone’s identity is crucial to establishing the presence of a genuine person in a transaction or process. Fraudulent actors often create counterfeit profiles to exploit your business, whether their intention is to receive a loan through a fake identity, use smurfs to cash out gambling winnings, or manipulate affiliate rewards.
Does My Business Need Identity Verification?
To answer this question, it is also imperative that you ask these questions:
- Does my business require protection from fraud?
- Is it necessary for my business to comply with AML regulations?
- Is my business overspending on user onboarding (e.g., running a branch for user onboarding)?
- Does my business need to verify the legal age of customers through the process of age verification (e.g., 18 years +)?
If your answer to any of these questions is YES – it inevitably means that you need an identity verification provider, and we recommend you to read this article further.
How Do Businesses Verify Identities?
Every business should establish a three-step process to verify their customers’ identities:
- Identification. Collect and log user data consistently.
- Identity verification. Confirm the validity of the data, ensuring it is not stolen or fake.
- Identity authentication. Ensure that the verified data remains consistent each time the user returns to your site.
It’s important to note that identity authentication occurs after verification. While ID validation typically occurs once, customer authentication may be required multiple times, especially when a user logs in from a previously unknown device or location.
In this context, an identity verification provider plays a crucial role in preventing identity theft, fraud, and unauthorized activities. Typically, ID verification solutions are based off a blend of methods, including document verification, biometric verification, and AML checks, to confirm the authenticity of an individual’s identity.
Through the verification of personal details like government-issued IDs, addresses, and biometric data, ID verification providers assist businesses in meeting regulatory requirements, strengthening security measures, and fostering trust with customers.
Which Type of Identity Verification Service Provider Should I Use?
This is the first and the most important question that crops up when trying to select the best identity verification provider. It is not easy to answer this question, as various facets must be considered. The primary issue which you need to ask yourself during this stage is – Why do I need to identify verification?
In case your company must comply with anti-money laundering regulations, you must follow the ID verification guidelines set out by the appropriate government with whom you have registered. If you are trying to secure your company against fraud, or it is imperative for you to check customers’ ages, you have more flexibility in terms of choices.
We have a few country-specific guides in terms of helping you ensure compliance based on specific jurisfictions:
🇪🇺 EU’s Anti-Money Laundering Directives (AMLDs)
What types of Verification Methods are Available?
There are many identity verification methods available in the market, but we’ll review the most popular ones in the market:
1. Automated System
In this method, the identification process is performed by a machine that is equipped with computer vision and machine learning algorithms. Unfortunately, in the current market scenario, machine learning algorithms have not evolved to the optimum level to help catch smart fraudsters.
If your business model is not prone to fraud, you are good to go with the automated identity verification system. It comes with its own set of pros, including fantastic user onboarding speed, excellent user experience, and it is a cost-efficienct measure (find this solution in our Basic Package).
This type of streamlined identity verification process during the login stage not only yields the same benefits but also enhances the likelihood of detecting Account Takeover (ATO) attacks, wherein fraudsters attempt to gain unauthorized access to legitimate users’ accounts.
2. Human-Operated Video Chat
In certain countries (e.g., Germany), AML regulations necessitate that humans conduct the identity verification process via video chat. Such verifications are time-consuming as humans are required to ask the verification questions.
There are other problems associated with this method of identity verification as users are required to sometimes wait in queues, may experience a lag in the video, and it also poses the issue of a language barrier. Though it is a costly method with the abysmal user experience, it provides unparalleled security throughout the process.
3. Automated System with Human Supervision
In this method, the entire verification process is performed by the computerized system barring the essential part – the user identity – which is only confirmed after a human review. This method is secure, fast, and is more cost-efficiency in comparison to “Human-operated video chat.”
Currently, this type of verification is the most popular method in the market. If you are not forced by the regulations to use “Human-operated video chat”, and your business is sensitive to fraud, it is highly recommended to use this type of identity verification.
Verify customers identity within 15 seconds. Schedule a free identity verification demo here.
The Importance of Understanding Your Global Audience
The next important step involves identifying and understanding the demand for operations! For instance, if your entire business is based online, there are high chances that you would need a provider with a global reach.
You must carefully examine if the identity verification provider supports different types of ID documents of the countries in which you are planning to operate in. Every provider should share with you a list of countries and the supporting documents, and if that list is not displayed on their website, contact them, and request them to share the same.
The Importance of Data security
The data collected during identity verification is sensitive information and can be categorized as personal data. Losing this type of data can seriously damage your brand’s name and value. As per GDPR, CCPA, and other data processing regulations requirements, you are a data controller and are hence responsible for ensuring that the data is processed securely by the supplier (identity verification service).
It is complicated to monitor and control the activities of other businesses. Certifications like ISO 27001 are a testament to safe information management. It is important to check if the identity verification provider has an information security management system certification (e.g., ISO 27001:2013). Seek the supply certification number from a provider and verify its validity with the accredited institution.
Do You Need Liveness Detection?
If you require verification instantly (automated identity verification) and your business is sensitive to fraud, liveness detection is an essential part. Unfortunately, liveness detection is a complicated tool for most customers, and its usage also negatively impacts the verification success rate.
If your business is not fraud sensitive and does not require instant verification, liveness detection is not recommended.
Ensure your customers are real. Schedule a free demo here.
Document Recognition And Data Extraction
It is essential to check with the identity verification provider if they only use the ID documents’ machine-readable zone (MRZ) to extract data or if they also utilize the front part of the documents. Many providers extract information from the machine-readable zone only, as it is incredibly cost-efficiency, it is an insecure method.
If the front part of the document is not thoroughly checked, there is a risk of it being interpreted as non-compliance with regulatory requirements. Also, there is a higher risk of overlooking fraudulent verifications.
Pricing Model
Having talked about the operations and processes, let us delve deeper into the more important aspect of pricing. One commonly used pricing model is pay per verification. Regardless of the verification process being successful or not, each verification requires you to pay.
Here in iDenfy, we have come up with a unique pricing model: pay per successful verification. In other words, you will only be charged for each successful onboarding of a customer in your system.
The Next Steps
There are many great identity verification providers in the market. Still, it is not a one-glove-fits-all kind of a scenario, and the solution must be decided on a case-by-case basis. If you are unsure about which verification provider suits your business needs and your local regulator requirements, contact us.
Here in iDenfy, we have explored and examined the identity verification market diligently, and our team consists of people with 10 years + experience in this industry. Our legal, compliance, and technical teams will provide you with accurate advice regarding the anti-money laundering regulations you must comply with and the provider who would meet your needs.
Get started right away, or read our customer success stories to see our KYC/AML solutions in action.
