The reformed form of the financial services industry that we see today took years to become what it is today. If you explore the history, you will find that the birth of finance happened in Babylonia (300 B.C.) It was an ancient city in central-southern Mesopotamia (present-day in Syria and Iraq). At that time, temples and palaces were used to store valuables.
Short History-Related Facts:
- While the concept of finance existed since ancient times, the term financial services became widespread in the late 1990s, after the Gramm-Leach-Bliley Act was passed in 1999. The law allowed different types of firms operating in the United States financial services industry to amalgamate.
- Japan had started modernizing its financial system during the 19th century. For that, the Japanese government established the central bank in 1882 and customized its banking system as per the Japanese conditions. Similarly, in the late ’90s, most European countries had started reforming their financial sectors.
Fast-forward to today’s financial ecosystem, the increasing shift of financial activities to online platforms is the new reality. As a result, verifying the identities of individuals has become crucial. Why is this so important? It’s because trust is fundamental to every transaction and the user onboarding process.
For financial institutions and fintech companies, establishing trust heavily relies on the solid foundation of robust, AI-powered identity verification.
What is AI-Powered Identity Verification?
AI-driven identity verification stands as a vital Know Your Customer (KYC) tool for businesses and financial services, as it has the potential to significantly reduce cybercrime attack vectors and prevent identity theft. In other words, it’s a fusion of technology and processes meticulously designed to validate a person’s authenticity in the digital realm.
Digital identities extend beyond mere usernames and email addresses. Today, they encompass a combination of various factors that collectively paint a comprehensive picture of an individual. These core components of AI-powered ID verification involve checking personal information, such as date of birth, address, or social security number, along with biometrics like facial recognition or fingerprint patterns.
Why is Identity Verification Important for Financial Service Providers?
Financial services and other businesses involved in substantial fund transfers become attractive targets for criminal actors who explore diverse methods to exploit the transaction process, employing identity fraud strategies. When a consumer falls victim to fraud while making a purchase at an online store, the repercussions extend beyond impacting their bank accounts — it also tarnishes the reputation of the company involved.
Interesting Mobile Banking Statistics:
- The digital age has brought about profound changes in our interactions, particularly in the financial sector. Notably, Statista reveals a significant surge in mobile banking adoption in the United States between 2015 and 2022, with millennials leading the way and Gen X closely following.
- In 2022, 62.3 million millennials had embraced mobile banking, a number expected to increase further. However, the most promising trend lies with the upcoming Gen Z. Mobile banking users from this generation are anticipated to soar, reaching 33.7 million in 2023 and projecting to reach 47.8 million by 2026.
That’s why the popularity of e-services, including banking, government services, and healthcare, has made digital identity verification a widely adopted method for accessing these platforms. AI-powered ID verification is important because it leverages digital technology to confirm an individual’s claimed identity in a more secure, simple way.
Problems in the Financial Services Industry
The financial services industry incorporates banks, credit unions, insurance firms, credit-card companies, accounting businesses, and more. Digitalization is helping all these institutions to improve their customer experience, efficiency, and productivity.
Unfortunately, cybercriminals have also started leveraging technology to find loopholes in financial services and commit fraud. Below, we provide some common financial crimes and other issues that force financial services struggle:
Around 62% of breached data comes from financial services only. Hacking and Malware attacks were majorly responsible for data breaches in the industry. Today, the leakage of confidential information and financial loss are the most significant risks for customers using any online financial service platform.
2. Ensuring Regulatory Compliance
Online investment and financial platforms such as crypto exchanges, money services businesses (MSBs), and more have been excessively used for money laundering and tax evasion. Therefore, government authorities have made it compulsory for financial services firms to comply with KYC (Know Your Customers) AML (Anti Money Laundering) directives. Unfortunately, most businesses don’t use the right technology to comply with these directives, increasing online frauds.
For example, not so long ago, in 2019, 12 of the world’s top 50 banks were fined for non-compliance with KYC and AML. The Swiss bank had received a fine of $5.1 billion for AML breaches by the French Criminal Court.
3. Identity Theft
Identity theft is a big concern for businesses in the financial services industry. Online fraudsters use various tricks to access personal information of users and fraudulent financial gain. One widespread example of financial identity fraud is, fraudsters stealing your credit information to buy things without your consent. In some cases, cybercriminals also misuse your personal information to apply for new credit cards and loans.
Identity Verification for the Financial Services Industry
Identity verification plays a significant role in information security. It is quite helpful in preventing identity theft, money laundering, and other cybercrimes. Real-time digital identity verification solutions are capable of verifying any identity document and analyzing users’ previous records from the databases.
The identity verification ensures that a user or customer’s identity matches perfectly the one that is supposed to be. In most countries, identity verification, also known as the KYC process, has become obligatory for businesses associated with the financial services industry. Perhaps, this is the reason why identity verification market value has increased considerably.
The following identity theft stats clearly show how vital identity verification is in the modern scenario:
- According to the Federal Trade Commission (FTC), around 9 million Americans report identity theft every year.
- Credit cards, loan & lease, and phone frauds are the three most common types of identity theft.
- The United Kingdom, Denmark, and Ireland had the highest rate of identity theft in 2018 and 2019.
- As per the report of Finance.se, 56% of Europeans had experienced at least one type of identity fraud in 2018 and 2019.
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How Financial Services Can Benefit From Identity Verification
Comply with KYC and AML
Businesses associated with the financial services industry are required by law to comply with KYC and AML directives, and identity verification is an integral part of the KYC process. Not only identity verification helps businesses prevent hefty fines, but it also improves their market reputation. It’s advisable to have a robust identity verification solution in place to verify customers’ identities.
Protect Business against Criminal Activities
Identity verification helps you ensure that all transactions are legit and your users are not involved in any illegal activity. Moreover, identity verification improves user experience as users feels safer using your platform.
Conduct Age Verification
With identity verification solutions, you can also confirm a customer’s age, which is crucial to the online gambling industry and other businesses where age restrictions are applied.
Minimize Operational Costs
The modern AI-powered identity verification solution helps you automate the entire verification process that saves time and money. Additionally, it reduces the chance of human errors.
No matter what business you’re in, if you’re looking for an advanced AI-enabled ID verification solution, iDenfy can help you out. Our identity verification service combines document verification, face recognition, and liveness detection in one solution.
iDenfy’s fully automated identity verification solution can recognize and verify more than 3000 types of ID documents from more than 200 countries. Powered by machine learning and AI, it can automatically recognize facial biometrics and check that it’s an ID photo.